report
stringlengths 320
1.32M
| summary
stringlengths 127
13.7k
|
|---|---|
Congress has made global health a high priority for several years, with notable appropriations increases for global health during the George W. Bush Administration. During this period, global-health-related appropriations rose from less than $2 billion in FY2001 to almost $8 billion in FY2008 ( Figure 1 ). Much of the funding increases were provided to support programs, such as the President's Emergency Plan for AIDS Relief (PEPFAR) and the President's Malaria Initiative (PMI), which fought HIV/AIDS, tuberculosis, and malaria (HTAM). Executive and legislative priorities in global health mostly aligned under the George W. Bush Administration. They largely remained so under the Obama Administration, though some debates emerged on more finite issues, such as the type of HIV/AIDS interventions to support and the extent to which the United States should support international family planning and reproductive health programs. It remains to be seen whether legislative and executive priorities will align under the Trump Administration. While congressional support for global health remained steadfast throughout the Obama Administration, the great recession that began in 2008 slowed overall federal spending, and appropriations for global health programs became relatively stagnant. On average, Congress appropriated roughly $9 billion annually for global health throughout the Obama Administration. U.S. support for global health has been motivated in large part by concern about emergent and reemerging infectious diseases. Following outbreaks of diseases like severe acute respiratory syndrome (SARS), HIV/AIDS, and pandemic influenza, several Presidents highlighted the threats such diseases pose to economic development, stability, and security and launched a variety of health initiatives to address them. Congress demonstrated support for each initiative by meeting requested levels, and in some instances exceeded budget proposals. In 1996, for example, President Bill Clinton issued a presidential decision directive that called infectious diseases a threat to domestic and international security, called for U.S. global health efforts to be coordinated with those aimed at counterterrorism, and established a health advisor on the National Security Council (NSC) for the first time. President Clinton later requested $100 million for the Leadership and Investment in Fighting an Epidemic (LIFE) Initiative in 1999 to expand U.S. global HIV/AIDS efforts. President George W. Bush recognized the impact of infectious diseases on domestic and global security in his 2002 and 2006 national security strategy papers and created a number of initiatives to address them, including the President's Emergency Plan for AIDS Relief (PEPFAR) in 2003, the President's Malaria Initiative (PMI) in 2005, and the Neglected Tropical Diseases (NTD) Program in 2006. President Barack Obama also recognized the risk of infectious diseases and made several statements about how their spread across developing countries might affect U.S. security. In the 2010 Quadrennial Diplomacy and Development Review (QDDR) and the 2010 National Security Strategy, the Obama Administration advocated for the coordination of global health programs in other areas, such as security, diplomacy, and development. Rather than create an initiative aimed at infectious diseases, President Obama announced the Global Health Initiative (GHI) in 2009 to improve the coordination and impact of U.S. global health efforts. Implementation of the initiative was short-lived, though efforts to deepen integration of global health programs continued throughout the Obama Administration. Prompted in part by the West Africa Ebola epidemic, the 115 th Congress has continued deliberating approaches for strengthening weak health systems while preserving congressional priorities for key global health programs like PEPFAR. The Ebola epidemic not only revealed the threat that weak health systems in developing countries pose to the world, but also exposed gaps in international frameworks for responding to global health crises. Consensus is emerging that health system strengthening is important for protecting advancements in global health and for bolstering international security, though debate abounds regarding the appropriate approach for achieving this goal, as well as identifying the role the United States might play in such efforts, especially in relation to other U.S. global health assistance priorities. While legislative and executive commitment to global health remained strong during the Bush and Obama terms, the 115 th Congress and the Trump Administration appear to have prioritized funding for global health programs differently. In FY2018, for example, the Trump Administration proposed that funding for global health programs that year be cut by roughly $2.3 billion from FY2017 levels. The $6.8 billion FY2018 request included $6.5 billion for related efforts financed through State-Foreign Operations (SFOPS) appropriations and $0.3 billion for global health programs supported through Labor, Health and Human Services, and Education (Labor-HHS) appropriations. In response, Congress funded global health programs in excess of $2.3 billion of the FY2018 budget request in FY2018 and almost $100 million more than FY2017 levels. For FY2019, the Trump Administration again has sought to reduce U.S. global health spending by more than $2 billion from FY2018 levels. The $7.1 billion request includes $6.7 billion through SFOPS and $0.4 billion through Labor-HHS. Language in the congressional budget justifications (CBJ) for the State Department and U.S. Centers for Disease Control and Prevention (CDC) indicated that the Trump Administration "will continue to challenge the global community to devote resources and political commitments to building healthier, stronger, and more self-sufficient nations in the developing world." In 2015, the international community adopted the Sustainable Development Goals (SDGs) to continue progress achieved through the Millennium Development Goals (MDGs). The SDGs include 17 goals, the third of which is health ( Figure 2 ). Each SDG includes a set of targets to measure progress. SDG3 includes 13 targets, such as reducing child and maternal mortality; ending epidemics of key communicable diseases like HIV/AIDS, tuberculosis (TB), and malaria; and strengthening state capacity to manage national and global health risks through the achievement of universal health coverage. Though the international community has made considerable strides in improving global health, challenges persist. The section below summarizes some advances and challenges. Intensified efforts to improve health outcomes during pregnancy and childbirth have led to a 43% reduction in the number of maternal deaths between 1990 and 2015. During this period, the number of maternal deaths fell from roughly 523,000 to an estimated 303,000, about 99% of which occurred in low- and middle-income countries. Sub-Saharan Africa and southern Asia were the most affected regions, accounting for 66% and 21% of all maternal deaths, respectively. Roughly one-third of all maternal deaths occurred in Nigeria and India. Human resource constraints continue to complicate efforts to reduce maternal mortality. In many developing countries, pregnant women deliver their babies without the assistance of trained health practitioners who can help to avert deaths caused by hemorrhage—the leading cause of direct maternal death. The World Health Organization (WHO) estimates that 27% of all maternal deaths are caused by severe bleeding. Preexisting conditions like HIV/AIDS and malaria are also key contributors to maternal mortality, accounting for roughly 28% of maternal deaths combined. From 1990 to 2015, the number of child deaths fell from 12.7 million to 5.9 million. WHO estimates that more than half of the 16,000 child deaths that occurred in each day of 2015 could have been avoided through low-cost interventions, such as medicines to treat pneumonia, diarrhea, and malaria, as well as tools to prevent the transmission of malaria and HIV/AIDS from mother to child. Other factors, like inadequate access to nutritious food, also affect child health. WHO estimates that undernutrition contributes to roughly 45% of all child deaths. The risk of a child dying is at its highest within the first month of life, when 45% of all child deaths occur. Children in sub-Saharan Africa are more than 14 times more likely to die before reaching age five than their counterparts in developed countries. At the end of 2016, almost 37 million people were living with HIV worldwide, nearly 2 million of whom contracted the disease in that year and more than 60% of whom lived in sub-Saharan Africa. In 2016, 1 million people died of AIDS, down from 1.9 million in 2003 (before the start of PEPFAR; see Figure 3 ). Expanded access to antiretroviral treatments (ARTs) has decreased the number of AIDS deaths. Roughly 53% of HIV-positive people worldwide were on ART in 2016, up from 4% in 2003. The United States has contributed substantially to improving global access to ART through PEPFAR and its support for the Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund). An estimated 19.5 million people worldwide were on ART at the end of 2016. The Office of the Global AIDS Coordinator (OGAC) indicated that by 2016 the United States was supporting ART for almost 11.5 million people worldwide through PEPFAR programs and U.S. contributions to the Global Fund. In recent years, a succession of new and reemerging infectious diseases have caused outbreaks and pandemics that have affected thousands of people worldwide: Severe Acute Respiratory Syndrome (SARS, 2003), Avian Influenza H5N1 (2005), Pandemic Influenza H1N1 (2009), Middle East Respiratory Syndrome coronavirus (MERS-CoV, 2013), Ebola in West Africa (2014-2016), the Zika virus (2015-2016), and Yellow Fever in Central Africa (2016) and South America (2016-2017). The United States has played a leading role in launching and implementing the Global Health Security Agenda (GHSA), a multilateral effort to improve the capacity of countries worldwide to detect, prevent, and respond to diseases with pandemic potential. While the world faces threats from new diseases, long-standing diseases like tuberculosis (TB) also pose a threat to global health security. Among infectious diseases, TB is the most common cause of death worldwide. Multi-drug resistant (MDR)-TB is of growing concern, as it is more expensive and difficult to treat. Only half of all MDR-TB patients survive. WHO asserts that global funding for addressing MDR-TB is insufficient and weaknesses in health systems complicate efforts to treat the disease and prevent its further spread. Congress funds most global health assistance through two appropriations bills: State-Foreign Operations and Related Programs (SFOPS) and Labor, Health and Human Services, and Education (Labor-HHS; see Figure 4 ). These bills are used to fund global health efforts implemented by USAID and the U.S. Centers for Defense Control and Prevention (CDC), as well as PEPFAR programs that are coordinated by the Department of State and implemented by several U.S. agencies. Through PEPFAR, the United States contributes to multilateral efforts to combat HIV/AIDS, TB, and malaria (HATM), including the Global Fund and the Joint United Nations Program on HIV/AIDS (UNAIDS). The majority of appropriations for global health programs are provided through the Global Health Programs Account (GHP) in State-Foreign Operations appropriations. More than 80% of the funds are used for fighting HATM through bilateral programs and the Global Fund. Table A-2 outlines global health funding through State-Foreign Operations appropriations. Through Labor-HHS appropriations, Congress funds global health programs implemented by CDC and global HIV/AIDS research conducted by the National Institutes of Health (NIH). Labor-HHS appropriations do not specify an amount for NIH global HIV/AIDS research, though the Administration typically includes these amounts in reports on PEPFAR funding. Table A-3 outlines global health spending through Labor-HHS. This section describes the global health activities implemented or coordinated by each agency that received appropriations, as described above. This discussion is limited to those agencies and departments for which Congress provides funding specifically for global health: USAID, State, and CDC. Agencies may use internal funding to contribute to additional global health efforts. USAID groups its global health activities into three areas: saving mothers and children, creating an AIDS-Free generation, and fighting other infectious diseases. A summary of these efforts is described below. Saving Mothers and Children. USAID seeks to save the lives of women and children by reducing morbidity and mortality from vaccine-preventable deaths, malaria, and undernutrition; supporting vulnerable children and orphans; and increasing access to family planning and reproductive health services. Creating an AIDS-Free Generation. USAID aims to combat HIV/AIDS by supporting voluntary counseling and testing, awareness campaigns, and the supply of antiretroviral medicines, among other activities. Fighting Other Infectious Diseases. USAID works to address a number of infectious diseases and resultant outbreaks. Congress appropriates a specific amount for malaria, TB, NTDs, pandemic influenza, and other emerging threats. Through Labor-HHS appropriations, Congress specifies support for the following CDC global health activities: HIV/AIDS. CDC works with Ministries of Health (MOHs) and global partners to increase access to integrated HIV/AIDS care and treatment services, strengthen and expand high-quality laboratory services, conduct research, and support resource-constrained countries' efforts to develop sustainable public health systems. Parasitic Diseases and Malaria. CDC aims to reduce death and illness associated with parasitic diseases, including malaria, by capacity building and enhancing surveillance, monitoring and evaluation, vector control, case management, and diagnostic testing. CDC also identifies best practices for parasitic disease programs and conducts epidemiological and laboratory research for the development of new tools and strategies. Global Immunization. CDC works to advance several global immunization initiatives aimed at preventable diseases, including polio, measles, rubella, and meningitis; accelerate the introduction of new vaccines; and strengthen immunization systems in priority countries through technical assistance, monitoring and evaluation, social mobilization, and vaccine management. Global Public Health Capacity Development. CDC helps MOHs develop Field Epidemiology Training Programs (FETPs) that strengthen health systems by enhancing laboratory management, applied research, communications, program evaluation, program management, and disease detection and response. Through the Global Disease Detection (GDD) program, CDC builds capacity to monitor, detect, and assess disease threats and responds to requests for support in humanitarian assistance from other U.S. and U.N. agencies, as well as NGOs. Through OGAC, the State Department leads PEPFAR and oversees all U.S. spending on global HIV/AIDS, including those appropriated to other agencies and multilateral groups like the Global Fund and UNAIDS. In July 2012, the Obama Administration announced an expansion of the State Department's engagement in global health with the launch of the Office of Global Health Diplomacy (OGHD). The office seeks to "guide diplomatic efforts to advance the United States' global health mission" and provide "diplomatic support in implementing the Global Health Initiative's principles and goals." The Global AIDS Coordinator also leads OGHD. The key objectives of the OGHD are to provide ambassadors with expertise, support, and tools to help them effectively work with country officials on global health issues; elevate the role of ambassadors in their efforts to pursue diplomatic strategies and partnerships within countries to advance health; support ambassadors to build political will among partner countries to improve health and strengthen health systems; strengthen the sustainability of health programs by helping partner countries meet the health care needs of their own people and achieve country ownership; and foster shared responsibility and coordination among donor nations, multilateral institutions, civil society, the private sector, faith-based organizations, foundations, and community members. The Department of Defense (DOD) carries out a wide range of health activities abroad, including infectious disease research, health assistance following natural disasters and other emergencies, and training of foreign health workers and officials. The DOD HIV/AIDS Prevention Program (DHAPP) is the only global health program for which Congress has appropriated funds to the department for any global health activity. As an implementing agency of PEPFAR, DOD also receives transfers from the Department of State for HIV/AIDS research, care, treatment, and prevention programs. Table A-3 in the Appendix outlines annual funding for DHAAP. Several Presidents have launched health initiatives to advance their priorities, some of which are enduring. The section below describes health initiatives that were launched during the George W. Bush Administration and continue to be implemented. In January 2003, President George W. Bush announced PEPFAR, a government-wide initiative to combat global HIV/AIDS. Later that year, Congress enacted the Leadership Act ( P.L. 108-25 ), which authorized $15 billion to be spent from FY2004 to FY2008 on bilateral and multilateral HIV/AIDS, TB, and malaria programs and authorized the creation of OGAC to oversee all U.S. spending on global HIV/AIDS. OGAC distributes the majority of the funds it receives from Congress for bilateral HIV/AIDS programs and multilateral efforts, like those carried out by the Global Fund. In 2008, Congress enacted the Lantos-Hyde Act ( P.L. 110-293 ), which among other things amended the Leadership Act to authorize the appropriation of $48 billion for global HIV/AIDS, TB, and malaria efforts from FY2009 to FY2013. In November 2013, Congress enacted P.L. 113-56 , the PEPFAR Stewardship and Oversight Act. The act did not authorize a specific amount of funds for the program, though it continues to receive bipartisan support. In June 2005, President George W. Bush announced PMI to expand and coordinate U.S. global malaria efforts. PMI was originally established as a five-year, $1.2 billion effort to halve the number of malaria-related deaths in 15 sub-Saharan African countries through the expansion of four prevention and treatment techniques: indoor residual spraying (IRS), insecticide-treated nets (ITNs), artemisinin-based combination therapies (ACTs), and intermittent preventive treatment for pregnant women (IPTp). The Obama Administration expanded the goals of PMI to halving the burden of malaria among 70% of at-risk populations in Africa by 2014 and added the Democratic Republic of Congo, Guinea, Nigeria, and Zimbabwe as partner countries. The Leadership Act, as amended, authorized the establishment of the U.S. Malaria Coordinator at USAID to oversee implementation of related efforts and is advised by an Interagency Advisory Group that includes representatives from USAID, HHS, State, DOD, the National Security Council (NSC), and the Office of Management and Budget (OMB). The NTD Program started in 2006, following language in FY2006 State-Foreign Operations appropriations that directed USAID to make available at least $15 million for fighting seven NTDs. It is managed by USAID and jointly implemented by USAID and CDC. When the program was launched, the George W. Bush Administration sought to support the provision of 160 million NTD treatments for 40 million people in 15 countries. In 2008, President Bush reaffirmed his commitment to tackling NTDs and proposed spending $350 million from FY2008 through FY2013 on expanding the program to 30 countries. In 2009, the Obama Administration amended the targets of the NTD program and called for the United States to support halving the prevalence of NTDs among 70% of the affected population in target countries. Funding for global health assistance has grown over the past decade ( Figure 5 ). During economic recession periods in Europe and the United States, rates of growth for global health aid slowed, but health aid remained mostly level. Global funding to curb the 2014 West Africa Ebola outbreak contributed to a spike in global health aid in 2015. The United States provides more official development assistance (ODA) for health than any other country in the Development Assistance Committee (DAC). In 2016, U.S. spending on global health accounted for more than 60% of all health aid provided by DAC members ( Figure 5 ). The United States also apportions more of its foreign aid to improving global health than most other DAC countries ( Figure 6 ). The United States apportioned 30.5% of its foreign aid to health assistance in 2016. Among top health aid donors, the Netherlands allotted the second-largest share (16.4%) of its ODA to health assistance in 2016, followed by the United Kingdom (13.3%), Japan (3.4%), and Germany (2.6%). Congressional support for global health assistance focuses primarily on specific health conditions, especially HIV/AIDS, TB, and malaria. Almost 75% of FY2018 global health appropriations, for example, were aimed at controlling HIV/AIDS (61%), TB (3%), and malaria (10%). The emergence of Ebola in West Africa, yellow fever outbreaks in densely populated cities in Angola and Brazil, as well as the spread of tropical diseases like Zika and dengue fever to Western nations has heightened concerns about the ability of low- and middle-income countries to prevent and respond to an infectious disease outbreak with pandemic potential, as well as the vulnerability of the United States and other Western states to the importation of such diseases. Whereas the United States demonstrated strong support for the Global Health Security Agenda under the Obama Administration, it is unclear whether the Trump Administration will maintain such support. Each of the global health budget requests from the Trump Administration included an almost $2 billion reduction in U.S. global health spending. In contrast, Congress mostly maintained global health funding levels in FY2018 and is considering the FY2019 budget request. Congress is also debating responses to efforts by the Trump Administration to reinstate and expand the Mexico City Policy and whether to authorize the extension of PEPFAR. The section below discusses these issues. The global spread of recent disease outbreaks, including Ebola and Zika, has intensified debates about the advantages and disadvantages of disease-specific funding. The international community has vacillated between systems- and disease-focused support for global health. In the 1970s and 1980s, for example, the international community sought to ensure "an acceptable level of health for all the people of the world by the year 2000" through bolstering primary health systems. While advances were made, some global health experts asserted that weak health systems impeded efforts to improve health outcomes and began to advocate for targeting heath assistance through nongovernmental organizations (NGOs) rather than host governments. Supporters of targeted health assistance asserted that vertical programs facilitate monitoring and evaluation of impact and directly funding NGOs lessens the likelihood that health assistance will be wasted or diverted. Opponents argued that disease-specific programs exacerbate human resource shortages in the public sector and further weaken health systems when parallel bureaucracies are established and government authorities are circumvented. The international community agreed in 2000 to a targeted approach and galvanized around the Millennium Development Goals. While progress was made on achieving the MDGs, the health-related goals were not completely met. Many donors and partner countries have come to agree that progress made by disease-specific programs is being undermined by weak health systems that are ill-equipped to address growing global health challenges like noncommunicable diseases and infectious diseases with pandemic potential. Much of U.S. and international mechanisms for improving global health remain focused on particular diseases, though world leaders are deliberating how to attain the Sustainable Development Goal calling for "good health and well-being" by 2030, which includes achieving "universal health coverage" among the related targets. Congressional interest in bolstering weak health systems was particularly strong during the Ebola outbreak. Committees held several hearings on related topics and Members deliberated legislative drafts aimed at strengthening health systems worldwide. Congressional discussions about health system strengthening have been waning though some interest remains. In the 115 th Congress, for example, H.R. 244 , Consolidated Appropriations Act, 2017 , included language urging continued support for the Fogarty International Center and its efforts to strengthen health systems worldwide. Other legislative actions to signal support for health system strengthening include introduction of H.Res. 342 , Recognizing the Essential Contributions of Frontline Health Workers to Strengthening the United States National Security and Economic Prosperity, Sustaining and Expanding Progress on Global Health, and Saving the Lives of Millions of Women, Men, and Children Around the World . Since 1980, infectious diseases have caused outbreaks that have been occurring with greater frequency and have been causing higher numbers of human infections. Outbreaks are caused by diseases that were once concentrated in tropical regions, including Ebola and Zika, are spreading through international travel. At the same time, long-standing diseases like tuberculosis and malaria are becoming increasingly resistant to available drugs and also threaten global health. The United States has been a key supporter in global efforts to bolster pandemic preparedness in low- and middle- income countries. In February 2014, the United States and WHO jointly announced the Global Health Security Agenda. Former President Barack Obama committed in July 2015 that the United States would spend more than $1 billion in support of GHSA in 31 countries and the Caribbean Community. USAID reports that it has used $343 million of emergency Ebola funds to advance GHSA, and CDC has obligated nearly all of the $597 million that Congress provided through emergency appropriations in support of GHSA. The extent to which the Trump Administration will support GHSA remains to be seen. On the one hand, former Secretary of State Rex Tillerson asserted that "the United States advocates extending the Global Health Security Agenda until the year 2024." On the other hand, FY2018 and FY2019 global health budget requests from the Trump Administration proposed eliminating regular appropriations for global health security and only using funds from the FY2015 Ebola emergency appropriations for related efforts. The emergency appropriations that CDC and USAID have been using to expand support for the GHSA will expire at the end of FY2019. A consortium of health groups wrote to the Secretary of the Department of Health and Human Services expressing concerns about press reports indicating that CDC would dramatically scale back GHSA-related activities at the end of FY2019 if additional funds were not provided. Recent efforts to rescind $252 million in unobligated Ebola emergency funds may further constrain available resources for pandemic preparedness. It is unclear whether the 115 th Congress will provide supplemental funds to maintain ongoing global health security efforts. In its report on H.R. 5515 , National Defense Authorization Act for Fiscal Year 2019 , the House Committee on Armed Services indicated that the "2014 Ebola outbreak demonstrated the need for a prompt and efficient response to a highly infectious disease outbreak" and directed the Secretary of Defense, in coordination with the Assistant Secretary for Preparedness and Response at the Department of Health and Human Services, to brief the committee no later than June 1, 2019, on the development of an action plan focused on efforts to counter emerging infectious disease threats. The plan should "identify capability gaps; actions taken to improve point-of-care diagnostics linked to disease surveillance and information-sharing networks; examine infectious disease emergency response teams; capabilities for medical evacuation of patients with high consequence infections; gaps in infection prevention and control standards; and research efforts focused on medical countermeasures." Congressional appropriations for global health programs mostly exceeded budget requests throughout the Bush and Obama Administrations. The FY2018 and FY2019 budget requests from the Trump Administration raised considerable debate, however, because each of them sought to reduce global health funding by roughly $2 billion, a significantly deeper cut than has been requested by the previous two administrations ( Table A-5 ). Congress declined to adopt the FY2018 budget request and mostly maintained funding for global health programs ( Table 1 ). The 115 th Congress is considering the FY2019 budget request, which includes over $7 billion for global health assistance, roughly 24% less than FY2018 enacted levels. The Trump Administration proposes reducing the USAID global health budget by nearly 40% through the elimination of funding for global health security, vulnerable children, and HIV/AIDS programs and reductions to other health programs. The Trump Administration also recommended cuts for PEPFAR programs managed by the State Department (-11%), the Global Fund (-31%), and CDC global health programs (-16%). For detailed information on the FY2019 budget request and prior funding levels, see the Appendix . In 1984, former President Ronald Reagan issued what has become known as the "Mexico City policy," which required foreign nongovernmental organizations receiving USAID family planning assistance to certify that they would not perform or actively promote abortion as a method of family planning, even if such activities were conducted with non-U.S. funds. The policy has been rescinded and reinstituted across Administrations. Under the Trump Administration, the policy was reinstated, renamed to Protecting Life in Global Health Assistance (PLGHA), and expanded to apply to all global health programs. Global health experts are working to measure the impact of the PLGHA policy. Opponents maintain that the policy imperils all global health programs because some health providers may not be able to disentangle FP/RH, HIV/AIDS, and maternal and child health services from one another, particularly in areas with limited access to health workers and facilities. This integration of services was accelerated during the Obama Administration when NGOs were encouraged to colocate services in one facility, including contraceptive care, HIV/AIDS services, prenatal checkups, immunizations, and information or referrals on safe abortion. A number of global health experts wrote a letter to former Secretary of State Tillerson warning that the PLGHA policy could reduce access to reproductive health commodities and services that are unrelated to abortions. Some Members of Congress have agreed with those arguing that implementing PLGHA would reduce efficiencies, depress access to some health services, and worsen health outcomes in participating countries. Supporters of the policy maintain that although existing laws ban U.S. funds from being used to perform or promote abortions abroad, money is fungible and the PLGHA policy closes loopholes. The Trump Administration contends that "the impact on those service providers is going to be minimal," and has committed to routinely "capture, monitor, and use age- and sex- disaggregated data, by partner and by site, to track precisely whether and to what extent the policy has affected life-saving activities related to HIV/AIDS." On February 6, 2018, the Department of State released a report entitled, Protecting Life in Global Health Assistance Six-Month Review . The report indicated that as of September 30, 2017, "three centrally funded prime partners and 12 sub-awardee implementing partners" working with USAID declined funding due to the terms of the PLGHA policy. One implementing partner with the Department of Defense and no partners with the Department of Health and Human Services declined U.S. assistance. The Administration has agreed with observations that it is too early to determine any effects the policy will have on programming, and has committed to conduct another assessment in December 2018. Since the Mexico City Policy was first established, Members on both sides of the issue have introduced legislation to permanently enact or repeal the policy. In the 115 th Congress, H.R. 671 and S. 210 , Global Health, Empowerment, and Rights Act , would prohibit the application of the PLGHA to foreign NGOs. Legislation that authorizes appropriations for PEPFAR and describes congressional priorities for the initiative expires September 30, 2018. PEPFAR continues to receive bipartisan support and is being maintained by the Trump Administration, though at lower levels than previous administrations. The first budget request from the Trump Administration, issued in early 2017, sought roughly $5 billion for global HIV/AIDS programs in FY2018 (about $1 billion less than FY2017 enacted levels), including $1.1 billion for a U.S. contribution to the Global Fund. The House and Senate Appropriations Committees disagreed with the budget proposal and recommended that HIV/AIDS funding levels in FY2018 remain mostly at FY2017 levels. Following the release of the FY2018 budget and Strategy, some HIV/AIDS advocates and Members of Congress questioned the Administration's commitment to controlling the global AIDS epidemic and expressed concern about whether people on ART would lose coverage due to spending cuts. The Administration maintained that requested levels would enable PEPFAR to "accelerate efforts toward achieving epidemic control in 13 high impact epidemic control countries." Outside of these countries, the Administration asserted that "PEPFAR will maintain its current level of antiretroviral treatment through direct service delivery and expand both HIV prevention and treatment services, where possible, through increased performance and efficiency gains." The Trump Administration proposal to maintain treatment levels is a departure from the Bush and Obama Administrations, under which executive and legislative priorities for PEPFAR included steadily increasing the number of people receiving ART through PEPFAR programs. Some Members of Congress have challenged the Trump Administration's approach to PEPFAR, raising questions about whether executive and legislative consensus around broadening the reach of PEPFAR and advancing the global goal of achieving an AIDS-free generation is fraying. The Oversight Act, the current iteration of PEPFAR authorizing legislation, neither includes performance targets nor specifies countries in which PEPFAR should operate, as previous authorizing legislation had. The lack of such details in the legislation may have suggested broad consensus at the time on PEPFAR priorities. Concerns expressed by some Members of Congress about Trump Administration priorities for PEPFAR may prompt new discussions about whether such details should be included in future authorization legislation. Key discussions about extending PEPFAR have centered around three key policy issues: performance targets, focus countries, and the Mexico City Policy. Performance Targets. The Lantos-Hyde Act mandated that PEPFAR programs support ART for at least 4 million people by the end of FY2013. In 2011, President Obama announced that PEPFAR would help the world achieve the global target of an AIDS-free generation by helping 6 million people get on ART by the end of 2013—2 million more than originally planned. Congress did not include treatment targets in the Oversight Act, though President Obama steadily increased treatment goals throughout his tenure. Members concerned about plans announced by the Trump Administration to increase treatment levels in the 13 priority countries while maintaining treatment levels elsewhere might consider including treatment targets in authorizing legislation. Others may seek to maintain executive branch flexibility over determining treatment targets and program goals more broadly. Focus Countries. The Leadership Act named 14 priority countries in which the bulk of PEPFAR resources were to be invested. The Lantos-Hyde Act later named Vietnam as the 15 th focus country. By the end of FY2013 (when authorization for funding PEPFAR was set to expire), roughly 86% of all bilateral PEPFAR resources were spent in these 15 countries. The Oversight Act did not identify countries where PEPFAR should concentrate its investments, though it defined a partner country as any country receiving at least $5 million from the U.S. government for HIV/AIDS assistance. The Trump Administration has proposed concentrating efforts in 13 countries (bolded countries are also among the 15 original focus countries): Botswana , Cote d'Ivoire , Haiti , Kenya , Lesotho, Malawi, Namibia , Rwanda , Swaziland, Tanzania , Uganda , Zambia , and Zimbabwe. In these countries, the Administration commits that PEPFAR will work with other partners to ensure that 95% of HIV-positive people know their status, 95% of those who know their status are on ART, and that 95% of those on treatment maintain suppressed viral loads for at least three years. These efforts, the Administration maintains, will lead to AIDS epidemic control. Some observers criticized the strategy, asserting that it could lead to a resurgence of the epidemic, while others applauded the move and described the strategy as "reassuring." Congress could consider evaluating where PEPFAR funding is concentrated and mandating which countries should be deemed priorities, as it had in the Leadership and Lantos-Hyde Acts. It might also consider identifying criteria for establishing a priority country. Protecting Life in Global Health Assistance . It remains to be seen what impact, if any, the PLGHA policy may have on global HIV/AIDS programs. Debates about the possible effects of the PLGHA policy on PEPFAR programs mirror broader debates, as discussed above. In 2003, the Bush Administration exempted PEPFAR programs from the Mexico City Policy. Uncertainty about the impact of PLGHA on PEPFAR programs might prompt Congress to consider including language requiring regular monitoring, assessment, and reporting on the impact of the PLGHA policy in any PEPFAR reauthorizing legislation. Congress might also consider including exemption language in appropriations legislation or PEPFAR reauthorization legislation as well as developing standalone legislation that exempts PEPFAR or certain elements of PEPFAR from the policy. Despite ongoing debates about the utility or appropriate levels of foreign assistance, global health programs have, in general, continued to receive bipartisan support, possibly indicating that global health remains a congressional priority. While the international community has achieved significant gains in curbing preventable deaths, some experts are concerned about looming health challenges. In a growing number of countries, deaths and illness from noncommunicable diseases (like diabetes, cancer, and heart disease) are outnumbering fatalities and ailments from communicable diseases (like malaria and HIV/AIDS). Many middle-income countries like South Africa face dual epidemics of diseases associated with growing prosperity (diabetes) and persistent poverty (vaccine-preventable child deaths). In the absence of higher spending levels, bolstering health systems will likely gain greater importance in U.S. global health programs.
|
Congressional interest in and support for global health programs has remained strong for several years. In FY2018, Congress provided $8.7 billion for global health programs through State, Foreign Operations appropriations and $488.6 million through Labor, Health and Human Services, and Education (Labor-HHS) appropriations. These funds are managed by several U.S. agencies and the Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund)—a multilateral organization aimed at combating the three diseases worldwide. Concern about infectious diseases, especially HIV/AIDS, tuberculosis, and malaria (HTAM), continues to drive budget growth. In FY2001, roughly 47% of the U.S. global health budget was aimed at these three diseases. By FY2018, almost 75% of U.S. global health funding was provided for fighting HTAM. The Appendix outlines U.S. funding for global health by agency and program. The 115th Congress may debate several pressing global health issues, including the following: Strengthening Health Systems. The global spread of recent disease outbreaks, including Ebola and Zika, has intensified debates about the advantages and disadvantages of disease-specific funding. Congressional interest in bolstering weak health systems was particularly strong during the Ebola outbreak. Congressional discussions about health system strengthening have been waning, though some interest remains, including in proposed legislation (see for example H.Res. 342, 115th Congress). Bolstering Pandemic Preparedness. Since 1980, infectious diseases have caused outbreaks that have been occurring with greater frequency and have been leading to higher numbers of human infections. Outbreaks caused by diseases that were once concentrated in tropical regions, including Ebola and Zika, are spreading through international travel. At the same time, long-standing diseases like tuberculosis and malaria are becoming increasingly resistant to available drugs and also threaten global health. The United States has been a key supporter in global efforts to bolster pandemic preparedness in low- and middle- income countries. It is unclear whether the 115th Congress will sustain high levels of supports, including through funding, for global health security efforts. In its report on H.R. 5515, National Defense Authorization Act for Fiscal Year 2019, the House Committee on Armed Services directed the Secretary of Defense, in coordination with the Assistant Secretary for Preparedness and Response at the Department of Health and Human Services, to develop an action plan to counter emerging infectious disease threats. Considering the FY2019 Budget Request. The 115th Congress is considering the FY2019 budget request, which includes over $7 billion for global health assistance, roughly 24% less than FY2018 enacted levels. The Trump Administration proposes reducing the USAID global health budget by nearly 40% through the elimination of funding for global health security, vulnerable children, and HIV/AIDS programs and reductions to other health programs. The Trump Administration also recommended cuts for PEPFAR programs managed by the State Department (-11%), the Global Fund (-31%), and CDC global health programs (-16%). Protecting Life in Global Health Assistance. In 1984, former President Ronald Reagan issued what has become known as the "Mexico City policy," which required foreign nongovernmental organizations receiving USAID family planning assistance to certify that they would not perform or actively promote abortion as a method of family planning, even if such activities were conducted with non-U.S. funds. The policy has been rescinded and reinstituted across Administrations. Under the Trump Administration, the policy was reinstated, renamed to Protecting Life in Global Health Assistance (PLGHA), and expanded to apply to all global health programs. Global health experts are working to measure the impact of the PLGHA policy. Opponents maintain that the policy imperils all global health programs because some health providers may not be able to disentangle FP/RH, HIV/AIDS, and maternal and child health services from one another, particularly in areas with limited access to health workers and facilities. Supporters maintain that although existing laws ban U.S. funds from being used to perform or promote abortions abroad, money is fungible and the PLGHA policy closes loopholes. Since the Mexico City Policy was first established, Members on both sides of the issue have introduced legislation to permanently enact or repeal the policy (for example, see H.R. 671 and S. 210, Global Health, Empowerment, and Rights Act, 115th Congress). Authorizing the extension of PEPFAR. Legislation that authorizes appropriations for PEPFAR and describes congressional priorities for the initiative expires September 30, 2018. PEPFAR continues to receive bipartisan support and is being maintained by the Trump Administration, though at lower levels than previous administrations. Following the release of the FY2018 budget and Strategy, some HIV/AIDS advocates and Members of Congress questioned the Administration's commitment to controlling the global AIDS epidemic and expressed concern about whether people on ART would lose coverage due to spending cuts. The Administration has pledged to maintain the current level of antiretroviral treatment provided through PEPFAR Plans to maintain treatment levels are a departure from the Bush and Obama Administrations, under which executive and legislative priorities for PEPFAR included steadily increasing the number of people receiving ART through PEPFAR programs. Some Members of Congress have challenged the Trump Administration's approach to PEPFAR, raising questions about whether executive and legislative consensus around broadening the reach of PEPFAR and advancing the global goal of achieving an AIDS-free generation is fraying.
|
On June 23, 2014, the Supreme Court decided a much-anticipated case in the area of federal securities law. The case, Halliburton Co. v. Erica P. John Fund, Inc. , presented to the Court the following two questions, both dealing with the certification of a class of securities fraud plaintiffs: 1. Whether the Court should overrule or substantially modify the holding of Basic, Inc. v. Levinson, 485 U.S. 224 (1988), to the extent that it recognized a presumption of class-wide reliance derived from the fraud-on-the-market theory. 2. Whether, in a case where the plaintiff invoked the presumption of reliance to seek class certification, the defendant might rebut the presumption and prevent class certification by introducing evidence that the alleged misrepresentations did not distort the market price of its stock. Class certification is important in the securities area, and lawsuits are often brought to challenge the class of plaintiffs attempting to be certified. Class certification is necessary before the case can go forward to be decided on the merits. In addition, the amount of money involved in a class action securities lawsuit may be significant. Individuals with small claims may not be willing to pursue individual lawsuits, but individuals who create a class of plaintiffs may result in a formidable plaintiff. A securities class action lawsuit often presents a stronger case and a case better able than small, individual cases to obtain major attorney representation. Proponents and opponents of securities class actions have actively argued their points. Proponents believe that certification requirements must be kept to a minimum because investors should be able easily to pursue companies that have committed fraud. They argue that investor protection benefits both individual investors and the securities markets in general by maintaining the integrity of the marketplace. Opponents of minimum certification requirements argue that too often investors bring lawsuits that are frivolous, such as when the share price drops for reasons unrelated to fraud, and that companies may feel pressured to pay out large settlements rather than risk even higher litigation costs. They also argue that the only people who benefit from securities class actions are the attorneys who receive large legal fees. The Halliburton cases illustrate the importance of class certification. The history of the cases leading to the second Supreme Court Halliburton decision is lengthy, spanning more than a decade. Thus far, the courts have dealt only with the issue of class certification; they have not yet had the opportunity to address the merits of the plaintiffs' arguments. There have been three rounds of decisions in the Federal District Court for the Northern District of Texas and two rounds in the U.S. Court of Appeals for the Fifth Circuit and the U.S. Supreme Court. After its second decision, the Supreme Court remanded the case for further proceedings consistent with its opinion. The Federal District Court for the Northern District of Texas has issued a third decision on class certification after the Supreme Court's remand. This report will first discuss requirements for securities fraud class action certification and then go through the rounds of the Halliburton federal decisions, ending with the third federal district court decision. Two major federal securities laws, which form the basis for the regulation of securities in the United States, were enacted in the wake of the stock market crash of 1929. These laws are the Securities Act of 1933, which makes it illegal to offer or sell securities to the public unless they have been registered with the Securities and Exchange Commission (SEC), and the Securities Exchange Act of 1934, which requires ongoing company disclosures to the investing public through annual, quarterly, and other filings with the SEC. Section 10(b) of the 1934 act is the general anti-fraud provision and the provision most frequently used by plaintiffs to allege securities fraud. Rule 10b-5, issued to carry out and give effect to Sction 10(b), makes it illegal "for any person ... [t]o make any untrue statement of a material fact or to omit to state a material fact." Neither Section 10(b) nor Rule 10b-5 provides for a private cause of action for plaintiffs to sue. Over the years, courts have established that private plaintiffs, not just the SEC or the Department of Justice (DOJ), have the right to bring a cause of action for violation of Section 10(b) and Rule 10b-5. Kardon v. National Gypsum Company, a 1947 case from the Federal District Court for the Eastern District of Pennsylvania, may be the earliest case to find a private cause of action for plaintiffs to sue for fraud under section 10(b). In the 1971 case, Superintendent of Insurance of the State of New York v. Bankers Life and Casualty Company, the Supreme Court confirmed the private right of action and since then has reaffirmed the right. To establish securities fraud under Section 10(b), a plaintiff must typically "prove (1) a material misrepresentation or omission by the defendant; (2) scienter [knowledge]; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation." Although an individual may bring a private right of action under Section 10(b), a class action, made up in a sense of many individuals combining their private rights of action into a class of plaintiffs, may be a stronger suit than several individual suits. In order for a securities fraud class action suit to go forward to consideration of the merits, the class of plaintiffs must be certified. There is no presumption of class certification. In order to achieve class certification in the securities area, indeed in any area of law, certain requirements must be met. Rule 23 of the Federal Rules of Civil Procedure (FRCP) sets out requirements that class actions must meet. One of the most important requirements for securities fraud class action certification, as it is for class certification in any area of law, is the predominance requirement of Rule 23(b)(3). For the predominance requirement to be met, questions of law or fact which are common to class members [must] predominate over any questions which affect only individual members. General Telephone Company of the Southwest v. Falcon, although not dealing with securities fraud, is perhaps the case best known for setting out the predominance requirement. The Supreme Court in General Telephone did not allow the certification of a class action brought by persons claiming discrimination in promotion based on national origin and persons claiming discrimination in hiring based on national origin. In its decision, the Court emphasized that, to be successful in achieving class certification, the class must satisfy Rule 23(b)'s requirement that "questions of law or fact common to class members [must] predominate over any questions affecting only individual members." Wal-Mart Stores, Inc. v. Dukes , also not a securities fraud class certification case but decided thirty years after General Telephone , used much the same rationale that was used in General Telephone for denying class certification. The Court stated, Rule 23 does not set forth a mere pleading standard. A party seeking class certification must affirmatively demonstrate his compliance with the Rule—that is, he must be prepared to prove that there are in fact sufficiently numerous parties, questions of law or fact, etc. In the area of securities fraud class action certification, Basic v. Levinson discussed the predominance requirement. The Supreme Court stated: The District Court adopted a presumption of reliance by members of the plaintiff class upon petitioners' public statements that enabled the court to conclude that common questions of law or fact predominated over particular questions pertaining to individual plaintiffs. What is especially important about Basic is that the Court stated that the requirement of reliance may be met in some circumstances by allowing a presumption of reliance on material misstatements, instead of requiring each plaintiff to prove direct reliance. "Misleading statements will therefore defraud purchasers even if the purchasers do not directly rely on the misstatements." Basic introduced the fraud-on-the-market theory as the rationale behind the presumption of reliance in certain circumstances. The fraud-on-the-market theory is based on the belief that, in an efficient, well-developed securities market, all material information about a company is available to the public and this information is reflected in the stock price. Courts will allow plaintiffs under the fraud-on-the-market theory to show a rebuttable presumption of reliance on material misstatements, instead of requiring all plaintiffs in all cases to prove direct reliance which would, according to the Supreme Court in Basic , pose an undue burden on plaintiffs. Cases, notably the Halliburton cases, have set out additional parameters for securities fraud class certification. Discussed later in this report, they include proof of loss causation and proof of materiality only at the merits stage, not at the class certification stage, and the right of a defendant to rebut the Basic presumption of reliance at the class certification stage. It should be noted that, in response to the belief that too many frivolous class action securities cases were being brought, particularly in the 1980s, Congress in the 1990s enacted two statutes. The stated reasons for bringing all of these lawsuits were varied—fraud, mismanagement, nondisclosure of material information—but practically all of the lawsuits involved the loss of money by shareholders of the corporation. Some of the lawsuits no doubt had merit, but others were deemed frivolous and were brought as a matter of course when, for example, the share value of the stock of a corporation went down for reasons having nothing to do with the culpability of corporate managers. In 1995, Congress enacted the Private Securities Litigation Reform Act (PSLRA). The PSLRA limits shareholder lawsuits in federal courts by such actions as the following: (1) having the court appoint a lead plaintiff determined to be the most capable of adequately representing the interests of class members; (2) prohibiting a person from being a lead plaintiff in any more than five class actions in a three-year period; (3) guaranteeing that plaintiffs receive full disclosure of settlement terms; (4) eliminating coverage of securities fraud by the Racketeer Influenced and Corrupt Organizations Act; (5) providing a safe harbor for forward-looking statements; (6) providing for proportionate liability; and (7) providing for auditor disclosure of corporate fraud. The Securities Litigation Uniform Standards Act of 1998 (SLUSA) was enacted in response to the perceived failure of the PSLRA to curb alleged abuses of securities fraud class action litigation. PSLRA had set out a framework for bringing securities fraud class action cases in federal courts. However, in many instances, plaintiffs circumvented PSLRA by bringing cases in state courts on the basis of common law fraud or other non-federal claims. SLUSA attempted to make certain that plaintiffs not be able to avoid the PSLRA requirements by requiring a securities fraud case to be brought only in a federal court and only under a uniform standard if certain criteria are satisfied, among them the following: (1) The lawsuit is a covered class action; (2) The claim concerns a covered security; (3) The plaintiff alleges a misrepresentation or omission of a material fact; and (4) The misrepresentation or omission is made in connection with the purchase or sale of a covered security. There has been considerable controversy concerning securities fraud class action certification. Passions run high among both supporters and opponents of class action certification over what standards should be met. Some believe that many securities fraud class actions are frivolous and that the only winners are the attorneys who bring the suits and who reap large legal fees. These opponents of class actions argue that the lawsuits are often brought to pressure companies into large settlements because companies are afraid of the expenses associated with defending class action suits. People who support easing requirements for securities fraud class action suits believe that the suits are necessary to hold companies accountable and that, otherwise, companies will be more likely to engage in fraudulent behavior with the belief that plaintiffs will be reluctant to risk the costs associated with certification and suing on the merits. Lawsuits have been brought, settlements have been reached, and federal statutes have been enacted, but the issue of securities fraud class action certification is far from being settled. The Halliburton cases will likely make this clear. The Erica P. John Fund (Fund), which exists to support the Archdiocese of Milwaukee, originally brought suit against Halliburton in 2002, with accusations that Halliburton had committed securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission (SEC) Rule 10b-5 by understating its asbestos liabilities, overstating its revenues by including billings whose collections were unlikely, and exaggerating cost savings and efficiencies derived from a 1998 merger. Plaintiffs alleged that the misrepresentations inflated the price of Halliburton stock and that, when the truth was later revealed, the stock price dropped and they lost money. In September 2007, the Fund moved to certify a class of persons who owned Halliburton stock during the appropriate time period. In an unpublished opinion, the Federal District Court for the Northern District of Texas declined to certify the class to bring the lawsuit on the basis that the plaintiffs had not proved reliance (one of the necessary elements for proving a Section 10(b) claim, as mentioned above) on material misstatements made by Halliburton. The U.S. Court of Appeals for the Fifth Circuit (Fifth Circuit) affirmed. In its decision, the Fifth Circuit began its analysis by stating that the case involved a private fraud-on-the-market allegation. The fraud-on-the-market theory, as discussed earlier, was set out in the Supreme Court case Basic, Inc. v. Levinson. It is based on the assumption that, in an efficient, well-developed securities market, all material information about a company is available to the public and that this information is reflected in the stock price. In order to use the fraud-on-the-market presumption of reliance, according to the Fifth Circuit, a plaintiff must show that an alleged misstatement "actually moved the market." The court stated that it was necessary for the plaintiff to show loss causation and to show it "at the class certification stage by a preponderance of all admissible evidence." In addition, the court required that the plaintiff show that the decline in the stock's price actually resulted from the disclosure of the truth concerning the earlier misstatements rather than from the release of unrelated negative information. In response to the plaintiff's claim that it had identified specific misrepresentations by Halliburton and that it had linked those misrepresentations, at least partially, to corrective disclosures, the Fifth Circuit stated that it was unconvinced. After going through the plaintiff's claims of Halliburton's misrepresentations and finding fault with all of the plaintiff's arguments about their impact on the decline of the stock price once Halliburton had issued corrective statements, the court concluded that the plaintiff had failed to meet the Fifth Circuit's requirements for proving loss causation at the class certification stage. The Supreme Court in 2011 reversed the Fifth Circuit's decision. In Erica P. John Fund, Inc. v. Halliburton Co. , the Court began its opinion by stating what is required to prevail on the merits in a private securities fraud action: To prevail on the merits in a private securities fraud action, investors must demonstrate that the defendant's deceptive conduct caused their claimed economic loss. This requirement is commonly referred to as "loss causation." In contrast, the question presented to the Court in this case and in the lower court cases was whether securities fraud plaintiffs had to prove loss causation for class certification . The merits of the plaintiffs' case were not at issue. What was at sole issue, according to the Court, was whether the plaintiffs satisfied the class action certification predominance requirement of FRCP 23(b)(3). In determining whether the FRCP 23(b)(3) requirement of common questions of law or fact has been met, the element of reliance by a plaintiff must often be examined. The Court discussed how, in Basic v. Levinson , it had recognized that requiring a plaintiff to demonstrate that he was actually aware of a company's statement and engaged in purchasing stock based upon that statement would be too limiting and "would place an unnecessarily unrealistic evidentiary burden on the Rule 10b-5 plaintiff who has traded on an impersonal market." Thus, in Basic , as discussed earlier, the Court allowed the plaintiffs to invoke a rebuttable presumption of reliance based on the fraud-on-the-market theory. The Supreme Court concluded by stating that the Court of Appeals erred when it required the Erica P. John Fund to prove loss causation at the certification stage. The Court refused to address any other questions which Halliburton might have, such as the presumption of reliance under the fraud-on-the-market theory or how and when the presumption might be rebutted. The Supreme Court vacated the judgment of the Fifth Circuit and remanded it for further proceedings consistent with the opinion. On remand, Halliburton argued that the class should still not be certified because it had discovered evidence that the alleged fraud did not affect the market price of the stock. Halliburton contended that, by demonstrating the absence of any "price impact," it had complied with the guidance set out in Basic that a defendant must have the opportunity to rebut the presumption of reliance allowed by the fraud-on-the-market theory. Without the benefit of the Basic presumption, according to Halliburton, investors would have to prove reliance on an individual basis; thus, individual issues would predominate over common ones, precluding class certification. According to statements in the decision later issued by the Fifth Circuit, the district court on remand declined to consider the evidence which Halliburton claimed to have discovered. The district court found that the price impact evidence did not have a bearing on the important issue of whether common issues predominated so as to satisfy FRCP 23(b)(3). Instead, believing that common issues predominated and that the other requirements of Rule 23 were met, the district court certified the class. Halliburton appealed to the Fifth Circuit, and in April 2013 the Fifth Circuit in Erica P. John Fund, Inc. v. Halliburton Co. affirmed the district court's decision to certify the class. Only two months before the Fifth Circuit's decision, the Supreme Court decided another case, Amgen, Inc. v. Connecticut Retirement Plans (Amgen), which the Fifth Circuit referenced in the Halliburton decision. In Amgen , the Supreme Court held that a plaintiff in a securities fraud Section 10(b) case is not required to prove prior to certification of a class action that a defendant made a material misstatement. The case resolved a significant split among the federal circuit courts on the issue of whether proof of materiality (reliance upon a material misstatement or omission) is required for class certification. After discussing the Amgen case, the Fifth Circuit examined Halliburton's claim that the question before the court was whether price impact was an issue which a defendant might use at class certification in order to rebut the fraud-on-the-market presumption that the stock price was affected by a misstatement that was later corrected. Halliburton argued that, in spite of the proof provided to support invoking the fraud-on-the-market presumption of reliance, its own evidence showed that the misrepresentation did not actually have an impact on the price which the purchaser paid for the stock. The Fifth Circuit agreed with Halliburton that, if there was no price impact, then that evidence could be used at the trial on the merits to refute the fraud-on-the-market reliance of presumption. Although the Fifth Circuit believed that the Supreme Court in Amgen did not discuss whether this evidence could be considered at class certification , the Fifth Circuit stated that the Supreme Court did provide a framework for resolving the question. That framework, according to the Fifth Circuit, was based simply on whether resolution of the matter was necessary for determining whether questions of law or fact common to the class would predominate over questions affecting only individual members. The Fifth Circuit then examined whether price impact evidence was common to the class and whether there was any risk that a later failure to prove the common question of price impact would result in the predominance of individual questions. The Fifth Circuit disagreed with Halliburton's argument that in this particular case the plaintiff class could not show price impact and should lose the class-wide presumption of reliance, leaving individuals, according to Halliburton, with possibly still viable fraud claims which they could pursue on an individual basis. According to the Fifth Circuit, if Halliburton could successfully rebut the fraud-on-the-market presumption by showing no price impact, not only could there be no class certification but the individual plaintiffs would also have no claims because they could not establish loss causation, an essential element of a Section 10(b) fraud action. Thus, the Fifth Circuit affirmed the district court decision, concluding that price impact fraud-on-the-market rebuttal evidence could not be addressed at class certification. The Court stated, Proof of price impact is based upon common evidence, and later proof of no price impact will not result in the possibility of individual claims continuing. Accordingly, Halliburton's price impact evidence does not bear on the question of common question predominance, and is thus appropriately considered only on the merits after the class has been certified. Halliburton filed a writ of certiorari with the Supreme Court. The Court granted the petition, and on June 23, 2014, the Court issued its decision, Halliburton Co. v. Erica P. John Fund, Inc. The Court in its decision could have invalidated the fraud-on-the-market theory and overruled Basic , or it could have prevented the defendants from being allowed to rebut evidence at the class certification stage. It did neither; instead, it chose a middle ground, giving, in a sense, something to everyone but everything to no one. The Court decided, with respect to the first question stated at the beginning of this report, not to overrule the presumption of reliance provided by the fraud-on-the-market theory but that, with respect to the second question, defendants in a class action may attempt to rebut the presumption of reliance at the class certification stage by introducing evidence that the alleged misrepresentations did not distort the market price of its stock. Chief Justice Roberts wrote the opinion and was joined by Justices Kennedy, Ginsburg, Breyer, Sotomayor, and Kagan. The Court first examined Halliburton's argument to overrule the presumption of reliance in Basic , thereby requiring every securities fraud plaintiff to prove actual reliance on the defendant's misrepresentation when deciding whether to buy or sell a company's stock. The Court stated that before overturning a long-settled precedent, it must, according to Dickerson v. United States , find "special justification," not simply an argument that the precedent was "wrongly decided." The Court then recapped its rationale and holding in Basic v. Levinson . According to the fraud-on-the-market theory developed in Basic , when an investor buys or sells stock at the market price, his reliance on any public material misrepresentations may be presumed for a securities fraud action. Based on this theory, the Halliburton Court emphasized, a securities fraud plaintiff must show: 1. that the alleged misrepresentations were publicly known; 2. that they were material; 3. that the stock traded in an efficient market; and 4. that the plaintiff traded the stock between the time that the misrepresentations were made and when the truth was disclosed. Basic also made clear that the presumption of reliance was rebuttable and not conclusive. Any showing that severs the link between the alleged misrepresentation and either the price received (or paid) by the plaintiff, or his decision to trade at a fair market price, will be sufficient to rebut the presumption of reliance. Halliburton argued before the Supreme Court that securities fraud plaintiffs should always be required to prove direct reliance and that the Supreme Court in Basic mistakenly allowed plaintiffs to invoke a presumption of reliance. Halliburton claimed that the Basic presumption is opposed to Congress's intent in the Securities Exchange Act and that subsequent developments in economic theory have undermined the Basic presumption. The Court concluded that neither of these arguments constituted "special justification" for overruling Basic . With respect to the argument that the Basic presumption contravened congressional intent in the Securities Exchange Act, Halliburton stated that the private right of action under Section 10(b) is a judicial construct that Congress did not enact and that the Court must identify some provision from the Securities Exchange Act which does provide for a private right of action and interpret any private right of action allowed under Section 10(b) in an analogous way. The provision which Halliburton identified as most similar was Section 18(a), which creates a private right of action for investors to allow recovery of damages based on misrepresentations in regulatory filings. That provision requires an investor to prove that he bought or sold stock by relying upon a defendant's misrepresentation. The defendant disputed Halliburton by arguing that Congress has actually affirmed Basic 's construction of Section 10(b) and that, further, Section 9 of the Securities Exchange Act, which does not require actual reliance, is the closest analogue to Section 10(b). The Supreme Court stated that Halliburton's argument had been made in Basic and that it was unconvincing then and unconvincing now. Halliburton then argued that the economic premises upon which Basic rested—the "robust view of market efficiency" and investor reliance upon the integrity of the marketplace—are no longer tenable. The Court refuted these arguments by stating that the Basic decision did not rest upon a binary view of market efficiency but, rather, that it recognized that market efficiency is a matter of degree. Further, Basic did not state that all investors rely upon the integrity of the marketplace but that, instead, it is reasonable to presume that most investors rely upon the security's price as an assessment of its value in light of all publicly available information. The Court next discussed that the principle of stare decisis (the doctrine of precedent) has "special force" in the interpretation of statutes because of the fact that at any time Congress may undo a court decision by enacting legislation. The Court mentioned other decisions, such as Central Bank of Denver, N.A. v. First Interstate Bank of Denver and Stoneridge Investment Partners, LLC v. Scientific Atlanta, Inc. , which have dealt with the Section 10(b) cause of action, and found no inconsistency between them and the presumption of reliance allowed in Basic . The Court also discussed recent decisions such as Wal-Mart Stores, Inc. v. Dukes , which have governed class action certification and the requirement that plaintiffs prove that their class satisfies FRCP 23. It found that the Basic presumption of reliance did not relieve plaintiffs from meeting the class certification requirements and that Halliburton's claims that the Basic presumption leads to unnecessary lawsuits should be addressed by Congress. In fact, according to the Court, Congress did address some of the securities class action frivolous lawsuit concerns in the Private Securities Litigation Reform Act and the Securities Litigation Uniform Standards Act, discussed earlier in the report. Halliburton proposed two alternatives to overruling Basic . The first alternative would require that a plaintiff actually prove that a defendant's misrepresentation affected the stock price ("price impact") before invoking the Basic presumption of reliance. The Court found this alternative unacceptable for the same reasons that it refused in general to overrule Basic 's presumption of reliance. As stated before, according to Basic , if a plaintiff can show that the defendant's misrepresentation was publicly known and material, that the stock traded in an efficient market, and that the plaintiff traded the stock between the time when the misrepresentations were made and the truth was revealed, he is allowed to invoke the Basic presumption of reliance. If a plaintiff were required to prove, as Halliburton urged, price impact directly, he would be foreclosed from showing that the stock was trading in an efficient market, thus overruling an important element set out by Basic in its presumption of reliance doctrine. Halliburton's second proposed alternative would allow a defendant to rebut the Basic presumption of reliance by showing a lack of price impact and to show the lack of price impact not only at the merits stage but, more importantly according to Halliburton, before the class is certified. If a defendant were able to show a lack of price impact at the time that the class is arguing for certification, Halliburton claimed, it could prevent the class from being certified. The Supreme Court was receptive to Halliburton's second proposed alternative to overruling Basic . According to the Court, it makes no sense to forbid defendants from using the same evidence about price impact before class certification that they would be able to use at the merits stage to rebut the presumption of reliance. The Court stated that this prohibition would actually be inconsistent with its decision in Basic . The Court disagreed with the Fifth Circuit's interpretation of Amgen as not allowing the consideration of price impact fraud-on-the-market rebuttal evidence at class certification. Amgen , according to the Supreme Court in Halliburton II , held that, although materiality is required for invoking the Basic presumption of reliance, the question of whether material misrepresentation actually occurred should be left to the merits stage of the case. However, the Amgen decision did not forbid, for purposes of class certification, the presenting of evidence that an alleged misrepresentation did not affect the price of the stock. In fact, according to the Court in Halliburton II , in order to maintain the consistency of the presumption of reliance as set out in Basic with the class certification requirements of FRCP 23, defendants must have the opportunity before the class is certified to provide evidence that an alleged misrepresentation did not affect the price of the stock. The Court vacated the Fifth Circuit's judgment and remanded the case for further proceedings consistent with the opinion. Justice Ginsburg, joined by Justices Breyer and Sotomayor, wrote a brief concurring opinion, stating that "it is incumbent upon the defendant to show the absence of price impact," thereby imposing "no heavy toll on securities fraud plaintiffs with tenable claims." Justice Thomas, joined by Justices Scalia and Alito, filed an opinion concurring in the judgment but calling for overruling Basic . On remand, the U.S. District Court for the Northern District of Texas fleshed out the Supreme Court's ruling that the defendant Halliburton must have an opportunity before class certification to show that an alleged misrepresentation did not affect the price of its stock. In this case, the Erica P. John Fund once again moved for class certification, this time basing its argument on numerous alleged corrective disclosures in which Halliburton misstatements caused a drop in its share price. On July 25, 2015, the district court denied the plaintiffs' request for certification on all except one of the alleged corrective disclosures. The district court first examined whether plaintiffs or defendants had to carry the burden of persuasion to show whether the alleged misstatements had an impact on the company's stock share price. The district court found nothing explicit in the Supreme Court's Halliburton II decision to answer the question. However, based on its analysis of the Supreme Court's Halliburton II decision, which, according to the district court, clarified that securities fraud defendants may rebut the Basic presumption at the class certification stage, the district court found that the burdens of production and persuasion to show lack of price impact were on Halliburton, the defendants. The district court next determined that so-called event studies submitted by both parties were acceptable in judging whether alleged misrepresentations could have had an impact on share price. After reducing numerous alleged corrective disclosures made by the EPJ Fund to six relevant events, the district court in a lengthy and technical manner seemed to determine that, in all but one of the six alleged corrective disclosures, Halliburton's share price decline could be attributed to factors other than alleged misstatements or that the event causing the decline was already public information. The one event for which the district court granted plaintiffs' request for certification occurred on December 7, 2001, when Halliburton announced that a Baltimore jury had found one of its subsidiaries liable for $30 million in an asbestos lawsuit. This announcement caused Halliburton's shares to drop by 40%. The district court found that this price impact "likely reflected the market's view of Halliburton's prior representations regarding its asbestos liability and increased uncertainty in the asbestos environment," arguably casting doubt on some of Halliburton's earlier representations about its asbestos liability. The district court, therefore, granted plaintiffs' motion for class certification only with respect to the alleged corrective disclosure on December 7, 2001, and denied the class certification for the other five corrective disclosures on which the plaintiffs relied. On November 5, 2015, the Fifth Circuit granted Halliburton's appeal of the district court's decision granting class certification concerning the alleged corrective disclosure. It appears that over the past thirty years the Supreme Court has struck something of a middle ground in setting out the parameters for securities fraud class action certification, finding for neither plaintiffs nor defendants in all challenges. The Court has held that there must be predominance of common issues of fact or law ( General Telephone Company of the Southwest v. Falcon, as affirmed by Basic v. Levinson ), a burden which plaintiffs must meet. Presuming reliance on material misstatements is allowed under certain circumstances ( Basic v. Levinson ), a development opposed by defendants, who have argued for direct reliance. Limiting or eliminating proof of materiality at the class certification stage ( Amgen, Inc. v. Connecticut Retirement Plans) is another development which defendants opposed. Not having to prove loss causation at the class certification stage (Supreme Court's first Halliburton decision) was another favorable decision for class action plaintiffs. Requiring proof of market efficiency ( Basic v. Levinson ) is a burden which the plaintiffs may find difficult at times to meet. Allowing defendants at the class certification stage to rebut the presumption of reliance ( Basic v. Levinson) is a decision which plaintiffs may oppose. In the same way, the Supreme Court struck a kind of middle ground in its decision of Halliburton II . The Court did not overrule Basic v. Levinson and its fraud-on-the-market theory which allows a presumption of reliance, rather than required direct reliance, under certain circumstances, but the Court did allow defendants to rebut this presumption of reliance at the class certification stage by introducing evidence that the alleged misrepresentations did not distort the stock's market price. Basic had stated that the defendants could rebut the presumption of reliance, and in Halliburton II the Court recognized that one way to rebut the presumption of reliance is to show an absence of price impact caused by defendant's alleged misstatements. Despite the Court's not jettisoning the fraud-on-the-market reliance presumption of reliance set out in Basic , some commenters believe that defendants achieved a significant victory in Halliburton II . An attorney who represented Halliburton stated that "[T]he defense has argued for the ability to rebut the presumption with price impact evidence since the case went up to the court the first time in 2010." When she stated that the defendant has the burden of showing the absence of price impact, Justice Ginsburg in her brief concurring opinion may have anticipated that many will believe that the Halliburton II decision will make class action certification more difficult. The Halliburton II decision has already begun to have an impact on class certification. In a case decided not long after Halliburton II , the U.S. Court of Appeals for the Eleventh Circuit on August 6 vacated the certification of a plaintiff class in a lawsuit brought against Regions Financial Corporation so that the lower court could consider Regions' evidence of lack of price impact caused by allegedly fraudulent statements about real estate investments. Halliburton II was clearly not the end of the Erica P. John Fund v. Halliburton saga. The federal district court decision has fleshed out some of the particulars of the Supreme Court's Halliburton II decision. It approved the use of event studies by both parties to attempt to determine whether alleged misstatements cause a drop in share price. However, this case is not the end of the class certif. tion challenges, as the fifth Circuit has granted Halliburton leave to appeal. If the class is finally certified, the courts may then face the merits of the case.
|
On June 23, 2014, the U.S. Supreme Court decided a much-anticipated case in the area of federal securities law: Halliburton Co. v. Erica P. John Fund, Inc. The history of the case spans more than a decade, through three rounds in federal district court and two rounds in the court of appeals and the Supreme Court. All of the cases so far have dealt with the issue of class certification for securities fraud plaintiffs. The merits of the case have not yet been considered. Class certification is important in the area of securities law because the merits of the case cannot be considered until after the class of plaintiffs has been certified. A class of many plaintiffs suing a company for fraud that has allegedly resulted in investment losses may be a formidable plaintiff, and a significant amount of money may be involved. So much money may be involved in these lawsuits that proponents and opponents have been very vocal. Proponents of such suits believe that certification requirements should be kept to a minimum to protect investors and the marketplace. Opponents of minimum certification requirements have argued that class action suits are often frivolous and are brought to pressure companies to settle rather than incur large litigation costs. They also argue that plaintiffs' attorneys, who may receive large legal fees, are the only ones who benefit from class actions. The Halliburton cases illustrate the importance of class certification. There have been two rounds of decisions in the Federal District Court for the Northern District of Texas, the U.S. Court of Appeals for the Fifth Circuit, and the U.S. Supreme Court. The Erica P. John Fund accused Halliburton of violating federal securities fraud statutes by making material misstatements with respect to its liabilities, revenues, and cost savings. In the first round of cases, the Federal District Court for the Northern District of Texas declined to certify the class on the basis that the plaintiffs had not proved reliance on material misstatements made by Halliburton. The U.S. Court of Appeals for the Fifth Circuit refused to certify the class on the basis that the class had not shown loss causation at the class certification stage. The Supreme Court reversed, holding that the proving of loss causation at the class certification stage is not required. The Court refused to address any other questions which Halliburton might have, such as the presumption of reliance under the "fraud-on-the-market theory" (a theory recognized in the Supreme Court case Basic v. Levinson—that, in an efficient, well-developed securities market, all material information is available to the public and this information is reflected in the stock price, resulting in presumptive reliance by plaintiffs on the material misstatements). In the second round, the district court certified the class, believing that the class certification requirements of Rule 23 of the Federal Rules of Civil Procedure had been met. The Fifth Circuit affirmed certification and concluded that Halliburton could not introduce evidence that its alleged misrepresentations had no impact on the stock price. The Supreme Court held that price impact evidence could be introduced at the class certification stage to rebut the presumption that the shareholders had relied on the alleged misstatements. However, the Court refused to overrule Basic v. Levinson's presumption of reliance provided by the fraud-on-the-market theory. Halliburton II was clearly not the end of the Erica P. John Fund v. Halliburton saga. A third round in federal district court fleshed out some of the particulars of the Supreme Court's Halliburton II decision. It approved the use of event studies by both parties to attempt to determine whether alleged misstatements caused a drop in share price. However, even this case is not the end of the class certification challenges because the Fifth Circuit has granted Halliburton leave to appeal. If the class is finally certified, the courts may then face the merits of the case.
|
In the past several years, increasing public and congressional attention has been focused on the unauthorized alien (illegal alien) population in the United States, which, according to the Pew Hispanic Center, totaled an estimated 11.8 million in March 2008. It is widely accepted that most unauthorized aliens enter and remain in the United States in order to work. Thus, addressing unauthorized employment and eliminating job opportunities for unauthorized immigrants has been seen as key to curtailing illegal immigration. Unauthorized employment , as used in this report, refers to the employment of aliens who lack authorization to be employed in the United States. The term includes both those who are in the country in violation of the law, as well as those in the country legally who nevertheless are not authorized to work. Legislation on unauthorized employment, specifically related to the E-Verify electronic employment eligibility verification program, is under consideration by the 111 th Congress. Based on data from the Current Population Survey (CPS) and other sources, the Pew Hispanic Center has estimated that the unauthorized resident population in the United States totaled 12.4 million in March 2007 and 11.9 million in March 2008. Estimates by the Department of Homeland Security (DHS) of the unauthorized alien population are somewhat lower. Based on data from the American Community Survey and other sources, DHS has estimated that there were 11.8 million unauthorized aliens living in the country in January 2007. Unauthorized workers are a subpopulation of the total unauthorized alien population. According to the Pew Hispanic Center, there were an estimated 7.2 million unauthorized workers in the U.S. civilian labor force in March 2005. These workers represented about 65% of the total unauthorized population and about 5% of the labor force at the time. In some occupations and industries, however, their share of the labor force was considerably higher. Table 1 presents data from the Pew Hispanic Center on industries with high concentrations of unauthorized workers. Unauthorized aliens accounted for about one in five workers in private households and between 10% and 15% in the other industries shown. Prior to 1986, it was not against the law for an employer to employ an individual who was not authorized to work. This changed with the enactment of the Immigration Reform and Control Act of 1986 (IRCA), which amended the Immigration and Nationality Act to add a new §274A. The §274A provisions are sometimes referred to collectively as employer sanctions . Under INA §274A, it is unlawful for an employer to knowingly hire, recruit or refer for a fee, or continue to employ an alien who is not authorized to be so employed. Employers are required to participate in a paper-based employment eligibility verification system, commonly known as the I-9 system, in which they examine documents presented by new hires to verify identity and work eligibility, and complete and retain I-9 verification forms. With respect to the document examination requirement, INA §274A states that an employer is in compliance "if the document reasonably appears on its face to be genuine." There is general agreement that the I-9 process has been undermined by fraud—both document fraud , in which employees present counterfeit or invalid documents, and identity fraud , in which employees present valid documents issued to other individuals. Employers violating INA prohibitions on unauthorized employment may be subject to civil and/or criminal penalties. INA §274A establishes separate and escalating ranges of penalties for the following: failure to comply with the I-9 requirements; violations of prohibitions on knowingly hiring, recruiting, referring, or continuing to employ unauthorized aliens and a pattern or practice of violations of knowingly hiring, recruiting, referring, or continuing to employ unauthorized aliens. As discussed below, DHS's Immigration and Customs Enforcement (ICE) is responsible for enforcing the INA prohibitions on unauthorized employment. During the congressional debates on IRCA, major concerns were expressed that the verification and penalty provisions would result in employment discrimination based on national origin as employers opted not to hire eligible workers who looked or sounded "foreign," out of fear that they lacked work authorization. To directly address these concerns, IRCA added a new §274B to the INA, which makes it an unfair immigration-related employment practice for employers with four or more employees to discriminate against U.S. citizens or work-authorized aliens in hiring, recruiting or referring for a fee, or firing based on national origin or on citizenship or lawful immigration status. INA §274B also provided for the establishment of the Office of Special Counsel for Immigration-Related Unfair Employment Practices (OSC) in the U.S. Department of Justice to enforce these provisions. Under INA §274B, employers found to have engaged in an unfair immigration-related employment practice shall be required to cease and desist from such practice and may be subject to other requirements, including civil penalties. IRCA also required the then-General Accounting Office (GAO) (now the Government Accountability Office) to issue three annual reports on the implementation and enforcement of the INA §274A provisions. In each of the reports, GAO was directed to make a determination as to whether the implementation of INA §274A "has resulted in a pattern of discrimination in employment (against other than unauthorized aliens) on the basis of national origin." GAO's third report included the following summary of its findings: GAO found that the law has apparently reduced illegal immigration and is not an unnecessary burden on employers, has generally been carried out satisfactorily by INS [the former Immigration and Naturalization Service] and Labor, and has not been used as a vehicle to launch frivolous complaints against employers. GAO also found that there was widespread discrimination. But was there discrimination as a result of IRCA? That is the key question Congress directed GAO to answer. GAO'S answer is yes. Congress, however, did not take action on these findings. Building on the employment verification system established by IRCA, the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA) directed the Attorney General to conduct three pilot programs for employment eligibility confirmation that were to be largely voluntary—the Basic Pilot program, the Machine-Readable Document Pilot program, and the Citizen Attestation Pilot. Under the Basic Pilot program (renamed E-Verify by the Bush Administration), the only one of the three pilots still in operation, participating employers verify new hires' employment eligibility by accessing Social Security Administration (SSA) and, if applicable, DHS databases. E-Verify is administered by DHS's U.S. Citizenship and Immigration Services (USCIS). It began in 1997 in the five states with the largest unauthorized alien populations, and was subsequently expanded to all 50 states in accordance with P.L. 108-156 . Initially scheduled to terminate in 2001, the program has been extended three times, most recently by P.L. 110-329 . The Continuing Appropriations Resolution, 2009 (Division A of P.L. 110-329 ) directed that the pilot program termination date section of IIRIRA be applied by substituting "March 6, 2009" for the prior language, which had effectively set a November 2008 termination date. At the same time, Division D of P.L. 110-329 , which contained DHS appropriations for FY2009, appropriated $100 million for E-Verify. E-Verify has been growing in recent years. In January 2006, there were about 5,300 employers registered for the program, representing about 23,000 hiring sites. In January 2009, there were about 103,000 employers were registered, representing about 414,000 hiring sites. As mentioned above, E-Verify is a primarily voluntary program. Under IIRIRA §402(e), however, violators of INA §274A prohibitions on unlawful employment or those who engage in unfair immigration-related employment practices, as defined in INA §274B, may be required to participate in a pilot program. IIRIRA §402(e) also states that each department of the federal government and each Member of Congress, each officer of Congress, and the head of each legislative branch agency "shall elect to participate in a pilot program." In its final years, the Bush Administration took steps to mandate the participation of certain groups of employers in E-Verify. In August 2007, the Office of Management and Budget (OMB) issued a memorandum requiring all federal departments and agencies to verify their new hires through E-Verify as of October 1, 2007. In addition, in June 2008, President Bush issued an executive order to require federal contractors to conduct electronic employment eligibility verification. The order read, in part: Executive departments and agencies that enter into contracts shall require, as a condition of each contract, that the contractor agree to use an electronic employment eligibility verification system designated by the Secretary of Homeland Security to verify the employment eligibility of: (i) all persons hired during the contract term by the contractor to perform employment duties within the United States; and (ii) all persons assigned by the contractor to perform work within the United States on the Federal contract. The Secretary of Homeland Security subsequently designated E-Verify as the required employment eligibility verification system for contractors. A final rule to implement the executive order was published in November 2008. Under the rule, covered federal contracts are to contain a new clause requiring contractors to use E-Verify "to verify that all of the contractors' new hires, and all employees (existing and new) directly performing work under Federal contracts, are authorized to work in the United States." Although the rule originally had an effective date of January 15, 2009, both the effective date of the rule and the applicability date of the rule, on or after which contracting officers would include the new E-Verify clause in relevant contracts, were subsequently changed. Amendments to the final rule extended the effective date to January 19, 2009, and the applicability date to May 21, 2009. According to the supplementary information accompanying the later amendment, the applicability date was being extended to May 21, 2009, "in order to permit the new Administration an adequate opportunity to review the rule." Under the rule, as amended, contracting officers are not to include the E-Verify clause in any solicitation or contract before May 21, 2009. Since March 2003, ICE has had responsibility for enforcing the INA prohibitions against unauthorized employment (known as worksite enforcement ) as part of its larger responsibility to enforce federal immigration laws within the United States. The ICE worksite enforcement strategy gives top priority to investigations at worksites related to critical infrastructure and national security, such as nuclear power plants, defense facilities, and airports. According to ICE, "worksite enforcement investigations often involve egregious violations of criminal statutes by employers and widespread abuses." These cases "often involve additional violations such as alien smuggling, alien harboring, document fraud, money laundering, fraud or worker exploitation." Another part of ICE's worksite enforcement strategy is the ICE Mutual Agreement between Government and Employers (IMAGE) program. Initiated in 2007, IMAGE is a voluntary program, which aims to "assist employers in targeted sectors to develop a more secure and stable workforce and to enhance fraudulent document awareness through education and training." To enroll in IMAGE, an employer must agree to submit to an I-9 audit by ICE and to verify the Social Security numbers of its current employees through an SSA database. IMAGE participants also are required to adhere to a set of "best hiring practices," which include participating in E-Verify, arranging for annual I-9 audits, and establishing a process for reporting any violations to ICE. A variety of options has been put forth to curtail unauthorized employment and related practices, a selection of which is discussed below. Some of these options would build on the current employment eligibility verification system, while others represent new approaches to address unauthorized employment. The options presented here are not necessarily mutually exclusive, and some could be pursued in concert. One set of options would make E-Verify or a similar electronic employment eligibility verification system mandatory for all employers in the United States. Under this general approach, all employers would be required to query the system to verify the identity and employment eligibility of all new hires . Related questions concern what other, if any, required uses of the system there would be. For example, one key question would likely be whether employers would be required to verify the identity and employment eligibility of previously hired workers in addition to new hires. The Bush Administration endorsed making E-Verify mandatory for all employers, and as discussed above, took steps to require Federal agencies and Federal contractors to use the system. While there is considerable support for making electronic employment eligibility verification mandatory, concerns have been expressed about discrimination, employer noncompliance, and privacy. The inability of E-Verify to detect identity fraud has also been raised. Another set of options would increase existing monetary or other penalties under the INA for prohibited behavior or establish new penalties. Although there seems to be broad support for enhancing penalties, proposals differ with regard to which penalties to increase or establish and by how much. One option would be to increase some or all existing penalties on employers who violate INA §274A prohibitions on unauthorized employment, as discussed above. Along these lines, former DHS Secretary Chertoff, in February 2007 testimony before the Senate Judiciary Committee, urged Congress: to increase penalties for repeat offenders and establish substantial criminal penalties and injunction procedures that punish employers who engage in a pattern of knowing violations of the laws and effectively prohibit the employment of unauthorized aliens. Another option would be to increase fines under INA §274B for engaging in unfair immigration-related employment practices, as discussed above. Current penalties for unauthorized employment, as discussed above, apply to employers that hire, recruit or refer for a fee, or employ individuals. Another penalty-related option would be to establish a new penalty on unauthorized employees. For example, one proposal of this type would make an individual who falsely represents on the I-9 or comparable verification form that he or she is authorized to work in the United States, subject to a fine and/or imprisonment. Another set of options would make additional resources available to ICE for worksite enforcement. These resources could be in the form of additional personnel to work on worksite enforcement cases or additional funding. Historically, interior enforcement resources devoted to worksite enforcement have been limited. Related questions concern how any additional worksite enforcement resources would best be used. For example, should ICE's current strategy of focusing primarily on criminal employer cases continue, or should any changes be made to that strategy? A related resource option would make additional resources available to ICE to investigate cases of document and identity fraud. Data sharing among SSA, DHS, and employers represents another possible approach to reduce unauthorized employment and related identity fraud. There have been various proposals to increase the sharing of information for these purposes. Among these are proposals to require SSA to inform DHS of cases in which a single social security number is used with multiple names. Former DHS Secretary Chertoff expressed his support for this type of data sharing at the February 2007 Senate Judiciary Committee hearing: [W]e need legal authority to assure that the Social Security Administration can share with us and with employers data concerning stolen identities being misused to obtain work illegally. Such data sharing would likely raise privacy concerns and would require SSA to assume an additional role. Another set of possible options to address unauthorized employment and related identity fraud revolves around the issuance and acceptance of documents establishing identity and employment eligibility. INA §274A establishes categories of acceptable documents for I-9 purposes. Implementing regulations list more than 20 documents that employees can present to establish their identity and/or employment eligibility. Reducing the number of acceptable documents has long been under discussion as an option for making the I-9 verification process more secure and less confusing for employers. Under the Bush Administration, DHS sought to make changes to the types of documents that employees could present for I-9 purposes, through an interim final rule published in the Federal Register in December 2008. Among the changes in the rule, employers would no longer be able to accept expired documents to verify employment eligibility. The rule was initially to be effective on February 2, 2009. On January 30, 2009, however, USCIS announced that implementation was being delayed until April 3, 2009. According to an agency press release, "the delay will provide DHS with an opportunity for further consideration of the rule and also allows the public additional time to submit comments." Other options in this category would combine a reduction in the number of acceptable documents with requirements to improve the security of documents, particularly the widely counterfeited Social Security card. For example, there have been proposals to require Social Security cards to include an encrypted machine-readable electronic identification strip unique to the bearer and a digitized photograph. Under some such proposals, new hires would be required to show a card of this type to the employer, who would then use it to verify the worker's identity and work authorization. Biometrics could also be incorporated into new Social Security cards or other documents. As discussed in the next section, a verification system based on more secure documents could replace the existing requirement under the I-9 process that employers examine employee-provided documents. Reducing the number of documents for evidencing identity and employment eligibility could raise concerns that some work-authorized individuals might not be able to meet the requirements easily. Proposals to require all new hires to show one particular document containing various pieces of information about the bearer have been further criticized by some as undermining privacy, facilitating identity theft, and creating a de facto national identification card. The costs of issuing more secure Social Security cards or other documents would likely be another issue. In addition, SSA has long cautioned that the Social Security card is not a personal identification document, maintaining that its primary purpose is to provide a record of the number that has been assigned to an individual so the individual's employer can properly report earnings in covered jobs. All of the options discussed, thus far, would build on the existing employer-based employment eligibility verification system. An alternative system could make the government responsible for verifying employment eligibility. In a November 2005 paper, [author name scrubbed] offered one such alternative, which he termed a centralized screening system. He described the centralized screening system, as follows: Under a centralized system, the responsibility for verifying work eligibility would rest with professional screeners at the point of document issuance, and proof of eligibility would be embodied in a worker's identity card itself. Employers could thus assume cardholders are work-authorized, and employer responsibility would be reduced to keeping a record of new hires. As outlined by Rosenblum, employers would be responsible for registering new hires in a new job holder database; he envisions that eventually this would be done by swiping a machine-readable card. Under such a system, employers would only be subject to penalties for failing to fulfill the registration requirements. The effectiveness of such a system at preventing unauthorized employment would rely largely on the security of the underlying documents. According to Rosenblum: Enforcement agents would be responsible for insuring the integrity of work authorization documents, and for analyzing employer records to search for evidence that employees are using borrowed or stolen documents. If such a system were to receive serious consideration, there would likely be questions about whether enforcement agents could perform these functions. In addition, to the extent that it relied on one or a small number of verification documents, such a system would likely raise concerns about privacy, identity theft, and the establishment of a national identification card, as discussed in the prior section. Another option would be to shift the focus of enforcement from ICE worksite enforcement to enforcement of minimum wage and health and safety laws by the Department of Labor (DOL). This option is premised on an assumption that increased DOL enforcement would be more effective than ICE enforcement at protecting the jobs, wages, and working conditions of U.S. workers, and that employers who employ unauthorized aliens are likely the same employers who violate wage, hour, and safety laws. Another version of this option, which represents a complete departure from the current employment eligibility verification system, would couple increased DOL enforcement with the repeal of the current INA prohibitions on unauthorized employment. Jennifer Gordon, a law professor, advocated a version of this option at a hearing of the House Judiciary Committee's Immigration subcommittee in June 2005. In her testimony, Gordon contended that the current system had "contributed significantly to undermining [the working conditions of U.S. citizens and legal immigrants] and that "effective enforcement of basic workplace rights for all employees is the lynchpin in any strategy to protect the wages and working conditions of U.S. workers." She recommended replacing the current system with a two-pronged approach. The first prong would be a statement from Congress that workplace protections apply equally to all workers regardless of their immigration status. The second part, as she characterized it, would be "a new commitment to intensive and strategically targeted government enforcement of minimum wage and health and safety laws in industries and geographic areas with high concentrations of undocumented workers." This option is highly controversial. While Gordon argued at the hearing that it held greater promise for protecting workers than the current system, others soundly reject the idea of repealing employer sanctions. Among the opponents is Carl W. Hampe, a partner in a law firm and a former Justice Department official and congressional staffer, who also testified at the June 2005 House hearing. According to Hampe's testimony: I believe [repealing employer sanctions] would be very unwise, as it would send a message to the world's potential unauthorized immigrants that the United States no longer will discourage illegal immigration... However large the unauthorized immigration problem is now, repeal of employer sanctions at this point would certainly make the problem far worse. Multiple bills related to unauthorized employment have been introduced in the 111 th Congress. Among them, the Omnibus Appropriations Act, 2009 ( H.R. 1105 ), as passed by the House on February 25, 2009, includes a provision in Division J to extend E-Verify, which is set to terminate on March 6, 2009, through September 30, 2009. The House earlier approved E-Verify provisions as part of the American Recovery and Reinvestment Act of 2009 ( H.R. 1 ). Among the E-Verify provisions included in the House-passed version of H.R. 1 were provisons to extend the program until November 2013 and to require that none of the funds made available under the act be used to enter into a contract with an entity that does not participate in E-Verify. These House-passed provisions, however, were not included in the Senate-passed version of H.R. 1 or in the final enacted version of the bill. Employers participating in E-Verify submit information about their new hires (name, date of birth, Social Security number, immigration/citizenship status, and alien number, if applicable) from the employment eligibility verification (I-9) form that all employers and new hires are required to complete. This information is automatically compared with information in SSA's primary database, the Numerical Identification File (NUMIDENT), which contains records on individuals issued Social Security numbers. For those employees identifying themselves as citizens, if the information submitted by the employer matches the information in NUMIDENT and SSA records confirm citizenship, the employer is notified that the employee's work authorization is verified. If the employer-submitted information about a new hire does not match information in NUMIDENT, the employer is notified that the employee has received an SSA tentative nonconfirmation finding. In cases in which the employer-submitted information matches SSA records but the individual self-identifies as a noncitizen, the information is sent electronically to USCIS to verify work authorization. If the USCIS electronic check confirms work authorization, the employer is so notified. If the USCIS check does not confirm work authorization, an Immigration Status Verifier (ISV) at USCIS checks additional databases. If the ISV is unable to confirm work authorization, the employer is notified that the employee has received a USCIS tentative nonconfirmation finding. Employers are required to notify their employees about SSA and USCIS tentative nonconfirmation findings. An employee can contest a tentative nonconfirmation by contacting SSA or USCIS, as appropriate. If an employee does not contest the finding or the contest is unsuccessful, the system issues a final nonconfirmation.
|
As immigration reform and the illegal alien population have gained congressional and public attention in the past several years, the issue of unauthorized employment has come to the fore. It is widely accepted that most unauthorized aliens enter and remain in the United States in order to work. Thus, eliminating employment opportunities for these aliens has been seen as key to curtailing unauthorized immigration. The Immigration Reform and Control Act (IRCA) of 1986 amended the Immigration and Nationality Act (INA) to add provisions, sometimes referred to as employer sanctions, that made it unlawful for an employer to knowingly hire, recruit or refer for a fee, or continue to employ an alien who is not authorized to work. These provisions also established a paper-based employment eligibility verification system, known as the I-9 system, which requires that employers examine documents presented by new hires to verify identity and work eligibility, and complete and retain I-9 verification forms. There is general agreement that the I-9 process has been undermined by fraud. Employers violating INA prohibitions on unauthorized employment may be subject to civil or criminal penalties. The Department of Homeland Security's Immigration and Customs Enforcement (DHS/ICE) is responsible for enforcing the INA prohibitions on unauthorized employment. Building on the employment verification system established by IRCA, the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA) directed the Attorney General to conduct three pilot programs for employment eligibility confirmation. Under the Basic Pilot program (known now as E-Verify), the only one of the three pilots still in operation, participating employers verify new hires' employment eligibility by submitting information about these workers that is checked against Social Security Administration (SSA) and, if applicable, DHS databases. E-Verify is scheduled to terminate on March 6, 2009, in accordance with Division A of the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009. A variety of options has been put forth to curtail unauthorized employment and related practices, a selection of which is discussed in this report. Some of these options would build on the current employment eligibility verification system; these include making electronic verification mandatory, increasing existing penalties, or increasing resources for worksite enforcement. Others represent new approaches to address unauthorized employment, such as shifting responsibility for employment eligibility verification from employers to the federal government. Multiple bills related to unauthorized employment have been introduced in the 111th Congress. Among them, the Omnibus Appropriations Act, 2009 (H.R. 1105), as introduced and as passed by the House, includes a provision to extend E-Verify through September 30, 2009. Several other provisions on the E-Verify program, including provisions to extend the program until November 2013 and to require that none of the funds made available under the act be used to enter into a contract with an entity that does not participate in E-Verify, were included in the House-passed version of the American Recovery and Reinvestment Act of 2009 (H.R. 1). These provisions, however, were not included in the Senate-passed version of H.R. 1 or in the final enacted version of the bill. This report will be updated as developments warrant.
|
The United States consumes about 186 billion gallons of light-duty road motor transportation fuel annually, most in the form of petroleum-based fuel (i.e., gasoline and diesel). However, biofuels are a small, yet growing, component of U.S. fuel consumption, accounting for an estimated 10 billion gallons in 2008, or 5% of total light-duty road motor transportation use by volume. Ethanol and biodiesel are the most common agriculture-based biofuels. Ethanol accounted for about 92% of agriculture-based biofuels consumption in 2008, and biodiesel for 8%, on an energy-equivalent basis. Together with imports, U.S. ethanol consumption was 6.7 billion gallons in 2007 and 8.9 billion gallons in 2008. Although a small volume compared with total liquid fuel consumption, it nevertheless displaced roughly 88 million barrels of oil in 2007 and 125 million barrels in 2008, compared with oil imports of about 3.7 billion barrels. This report focuses on "first generation" biofuels—that is, those currently in commercial production (corn-starch ethanol and foreign-produced sugar cane ethanol). "Second generation" biofuels, primarily cellulosic biofuels, are not yet produced on a commercial scale in the United States. Historically, fossil-fuel-based energy has generally been less expensive to produce and use than energy from renewable sources. However, since the late 1970s, U.S. policymakers at both the federal and state levels have enacted a variety of incentives, regulations, and programs to encourage the production and use of agriculture-based energy. These programs have proven critical to the economic success of rural renewable energy production. The benefits to rural economies and to the environment are not always clear and come with costs, leading to a lively debate between proponents and critics of government subsidies that underwrite agriculture-based renewable energy production. Proponents of government support for agriculture-based biofuels have cited national energy security, environmental benefits (such as reductions in greenhouse gas (GHG) emissions to moderate climate change rates), and higher domestic demand for U.S.-produced farm products as viable justifications. In addition, proponents argue that rural, agriculture-based energy production can enhance rural incomes and employment opportunities, while expanding the value added to U.S. agricultural commodities. In contrast, petroleum industry critics of biofuels subsidies argue that technological advances in seismography, drilling, and extraction continue to expand the fossil-fuel resource base, which has traditionally been cheaper and more accessible than biofuels supplies. Other critics argue that current biofuels production strategies can only be economically competitive with existing fossil fuels in the absence of subsidies if significant improvements in existing technologies are made or new technologies are developed. Until such technological breakthroughs are achieved, critics contend that the subsidies distort energy market incentives and divert research funds from the development of other potential renewable energy sources, such as wind, solar, or geothermal, that offer potentially cleaner, more bountiful alternatives. Still others question the rationale behind policies that promote biofuels for energy security. These critics question whether the United States could ever produce sufficient feedstock of either starches, sugars, or vegetable oils to permit biofuels production to meaningfully offset petroleum imports. Finally, there are those who argue that the focus on development of alternative energy sources undermines efforts to conserve and reduce the nations energy dependence. The Renewable Fuel Standard (RFS) is the most significant government intervention in the ethanol industry. The RFS mandates that increasing volumes of renewable fuels be blended with conventional fuels through 2022. In 2009, 11.1 billion gallons of biofuels must be used, of which 10.5 billion gallons may be corn ethanol. The RFS is discussed in detail below. This report examines the role of government intervention and economic, trade, and environmental issues related to ethanol that are likely to be discussed in the 111 th Congress. Ethanol will likely be central to discussions of renewable fuel issues during the 111 th Congress. This report's discussion of ethanol presupposes the continued dominance of the internal combustion engine and the current infrastructure for petroleum fuel extraction and refining and biofuels feedstock production and refining—as opposed to the major near-term market penetration of alternatives such as plug-in-electric automobiles. The following highlights major topics of potential legislative interest that are discussed in this report. In April 2008, Texas Governor Rick Perry applied to the U.S. Environmental Protection Agency (EPA) for a waiver of the renewable fuel standard, citing economic damage to the livestock and poultry industries in his state. EPA denied the request in August 2008 after determining that implementation of the RFS mandate during the time period at issue would not severely harm the economy of a state, region, or the United States. Around the same time, legislation ( S. 3031 ) was introduced to limit the RFS to 9 billion gallons annually, compared with 15 billion under the current law. Proponents cited the RFS and corn ethanol production as contributing to rising food prices and high input costs for livestock and poultry producers. Opponents of the reduction claimed it would set back efforts to increase national energy security and achieve environmental goals. They also argued that high fuel costs played a much larger role in food price increases than the higher price of corn attributable to the mandate. The bill was referred to the Committee on Environment and Public Works, but no action was taken. Statutory changes to the RFS might be considered in the 111 th Congress. Most ethanol imported into the United States is subject to a tariff of $0.54 per gallon. During the 110 th Congress, legislation was introduced to eliminate the import tariff on ethanol ( H.R. 6137 ), to reduce the tariff to parity with the blender's tax credit ( H.R. 6324 ), and to extend the tariff ( S. 1106 , H.R. 2419 ). The tariff was extended through 2010 in the 2008 farm bill ( P.L. 110-246 ). Several factors may generate debate on the tariff during the 111 th Congress: (1) beginning in 2009, the tariff is $0.09 per gallon higher than the blender's tax credit it was intended to offset, (2) as the RFS increases and becomes more difficult to fulfill, imports may play a greater role in reaching mandated volumes, and (3) if the price of imported ethanol was lower (without the tariff), blenders would be likely to blend more ethanol into gasoline, achieving one of the benefits of ethanol—reduced emissions. The tariff is discussed in more detail later in this report. The use of food crops to produce energy has altered the dynamics of agricultural markets. The U.S. Department of Agriculture (USDA) projects that nearly a third of the 2008/2009 corn crop will be refined into ethanol. Corn production has increased in recent years to accommodate higher demand, resulting in higher prices and shifts in acreage to corn from soybeans and other crops. High corn prices have boosted costs for the livestock industry. Congress may continue its debate and oversight in this area, possibly focusing on two areas: first, the role of speculation in increasing the magnitude and volatility of agricultural and food prices, and second, the response to higher food prices by domestic and international providers of food aid. Both are likely to be examined during the 111 th Congress as they were during the 110 th . For more information on the food versus fuel debate, see CRS Report R40155, Selected Issues Related to an Expansion of the Renewable Fuel Standard (RFS) , by [author name scrubbed] and Tom Capehart. The Energy Independence and Security Act of 2007 (EISA, P.L. 110-140 ) requires that biofuels eligible under the RFS reduce greenhouse gas (GHG) emissions by certain levels compared with fossil fuels. EPA is charged with formulating rules for calculating GHG emissions using lifecycle analysis that includes both direct and significant indirect effects (see section below on GHG emissions for more detail). The methodology selected by EPA could potentially eliminate certain biofuels from the RFS—with major economic implications for segments of the renewable fuels industry. If EPA rules on GHG emissions are perceived as overly restrictive, some in Congress could introduce legislation to relax the rules. Ethanol industry proponents are concerned that, even as production of corn ethanol increases, limitations in distribution infrastructure and vehicle absorption capacity will create a bottleneck, known as the "blend wall," holding down potential consumption. The blend wall occurs when the maximum allowable percentage of ethanol in conventional gasoline (e.g., gasoline meant for all vehicles) does not absorb the volume of ethanol mandated by the RFS. For instance, current annual gasoline consumption of 140 billion gallons allows for theoretical ethanol consumption of 14 billion gallons at the current maximum blend of 10% (E10). Thus 14 billion gallons is the blend wall. However, it is not practical to blend every gallon of fuel consumed in the United States at the 10% level, so the actual amount of ethanol consumed is slightly less—closer to 12.5 billion gallons. The blend wall is reached when the volume of ethanol mandated under the RFS is greater than the volume which can be consumed as E10 plus the very small amount consumed as E85. Currently, the ability to consume E85 is very limited due to the lack of infrastructure and the small number of flexible fuel vehicles (FFVs)—annual E85 consumption is about 10 million gallons per year, accounting for less than 1% of total ethanol consumption. One solution to the blend wall is to increase the proportion of ethanol in gasoline consumed by conventional vehicles. Increasing the allowable blend to E12 could raise potential consumption to 17 billion gallons without any additional investment in infrastructure or vehicle modifications. This solution is very popular with corn and ethanol producers, who claim an increase in green jobs, benefits to rural economies, and the displacement of foreign-produced petroleum. U.S. Secretary of Agriculture Tom Vilsack has supported a shift to E15. Those against increasing the blend rate, such as livestock producers and retail food interests, claim that higher food and feed prices will result from higher corn demand. EPA has been assessing the feasibility of increasing the ethanol blend rate. In addition to market impacts, concerns include the effects of higher blends on motorcycles, small engines, and emission control and fuel systems, especially in older vehicles. The ethanol industry has received substantial support from the federal government. However, some ethanol industry supporters argue that the current economic environment justifies additional government support. Recent industry proposals include guaranteed operating loans targeted to ethanol refiners and tax credits for "green" job creation or preservation. The blender's tax credit (or volumetric ethanol excise tax credit) is an income tax credit of $0.45 per gallon on each gallon of ethanol blended into gasoline for sale or consumption. It is scheduled to expire during the 111 th Congress—at the end of 2010—and ethanol proponents are expected to argue for its extension. While the cellulosic biofuels production tax credit and the small producer's tax credit do not expire during the 111 th Congress, either could be modified as the debate progresses. Proponents of other types of renewable energy contend that available resources could be better used supporting wind, solar, or other types of renewable energy and they will likely argue for a shift of government support away from ethanol. Some critics of the ethanol industry maintain that government expenditures in the form of tax credits and other subsidies for the ethanol industry are excessive. They question whether the industry will ever be viable without government assistance. Others question the balance between support for biofuels and other forms of renewable energy. A recent Environmental Working Group report based on U.S. Department of Energy (DOE) analysis shows that biofuels accounted for three-quarters of the tax benefits and two-thirds of all federal subsidies allotted for renewable energy in 2007. According to data compiled by DOE's Energy Information Agency, the corn-based ethanol industry received $3 billion in tax credits in 2007, more than four times the $690 million in credits to other forms of renewable energy, including solar, wind, and geothermal power. Proponents of the ethanol industry urged policymakers to direct economic stimulus package resources authorized by the 111 th Congress toward the ethanol industry. Among the support requested was a $1 billion short-term credit facility to finance current operations, additional loan guarantees for new production capacity and infrastructure, job creation tax credits for new jobs created by production operations, and expanded federal support for research and development. However, the final stimulus plan (the American Recovery and Reinvestment Act of 2009, P.L. 111-5 ) does not contain specific additional support for ethanol, although it expands the tax credit for E85 fuel pumps and storage facilities. U.S. ethanol production in 2008 exceeded 9.2 billion gallons per year (bgpy), 42% above 2007, following rapid increases during the past decade. Production in 2007 reached 6.5 bgpy, a 33% advance from 2006 (see Figure 1 ). Production in 1998 was only 1.4 bgpy. The United States also imports ethanol, increasing the supply by about 400 to 700 million gallons per year (mgpy). Total supply in 2007 was 6.9 bgpy and 9.8 bgpy in 2008. Since 2005, the United States has surpassed Brazil as the worlds leading producer of ethanol. Several events contributed to the historical growth of U.S. ethanol production: the energy crises of the early and late 1970s; a partial exemption from the motor fuels excise tax (legislated as part of the Energy Tax Act of 1978); ethanols emergence as a gasoline oxygenate; and provisions of the Clean Air Act Amendments of 1990 that favored oxygenate blending with gasoline. Ethanol production is projected to continue growing rapidly through at least 2015 on the strength of both the extension of existing government incentives and the possible addition of new ones. These include the per-gallon blender's tax credit of $0.45, the conventional biofuels RFS of 10.5 bgpy rising to 15 bgpy by 2015, and a $0.54 per gallon tariff on most imported ethanol. As of November 2008, ethanol was produced in 27 states by 172 refineries with 10.3 billion gallons per year capacity (see Table 1 ). Most refineries are in the Corn Belt, but some are located on the West Coast and in the Southeast. Ethanol is generally produced in rural areas where corn is grown, to limit transportation costs for feedstocks. Ethanol plants range in size from 20 mgpy to over 100 mgpy. Corn is the principal feedstock for ethanol produced in the United States, accounting for about 97% of total output. Sorghum and a very small quantity of wheat are also used. These feedstocks, along with sugar, produce what are known as "first generation" biofuels. Biofuels produced from cellulosic feedstocks such as corn stover, prairie grasses, or woody biomass are known as "second generation" biofuels. In early 2009, not all ethanol plants were producing at full capacity. Some plants owned by financially troubled companies have closed and others are on standby or operating at reduced levels until more profitable circumstances exist. In 2008 an additional 23 refineries, accounting for 3.3 bgpy capacity, were under construction, although many of these projects are now on standby or have been cancelled. The expanded renewable fuel standard (RFS) in the Energy Independence and Security Act of 2007 (EISA, P.L. 110-140 ) mandates renewable fuels blending requirements for fuel suppliers. It expands the earlier renewable fuel standard in the Energy Policy Act of 2005 (EPAct 2005, P.L. 109-58 ) by increasing mandated volumes and creating carve-outs for different types of biofuels. The expanded RFS consists of two main categories. The first is an unspecified category that may be filled with any type of biofuel, including corn ethanol, which predominates. The second category is "advanced biofuels," and can be fulfilled with biofuels other than corn ethanol. Within the advanced biofuels category are carve-outs for cellulosic, biodiesel, and other advanced biofuels. The RFS requires that 11.1 billion gallons of renewable fuels be blended into gasoline in 2009. The total blending requirement grows annually to 36 billion gallons in 2022 (see Figure 2 ) . The unspecified portion of the RFS is capped at 10.5 billion gallons in 2009 and increases annually until it is capped at 15 billion gallons from 2015 through 2022. This component of the mandate is likely to be filled by corn-starch ethanol, although any renewable biofuel may be used as long as it meets the lifecycle greenhouse gas emissions requirement. Although advanced biofuels may be used to fulfill the non-advanced renewable fuels portion of the mandate, corn ethanol cannot be used to meet the advanced biofuels mandate. As previously discussed, eligibility under the RFS also requires that biofuels achieve GHG emissions reductions. For corn ethanol from new refineries, a reduction of 20% compared with gasoline's emissions is required. Advanced biofuels have a more stringent GHG reduction requirement of 50% compared with gasoline, and eligible cellulosic biofuels must have a 60% reduction. The rules for calculating lifecycle greenhouse gas emissions are currently being formulated by EPA and are due to be announced in 2009. These regulations will determine which fuels are eligible for the RFS and will therefore have a significant impact on the future of the biofuels industry. EISA requires consideration of both direct and indirect lifecycle emissions. Indirect GHG emissions caused by land use changes are particularly difficult to calculate (see section on GHG emissions below). Ethanol, or ethyl alcohol, is an alcohol made by fermenting and distilling simple sugars. It can be produced from any biological feedstock that contains appreciable amounts of sugar or materials that can be converted into sugar such as starch or cellulose. Sugar beets and sugar cane are examples of feedstocks that contain sugar. Corn and sorghum contain starch that can relatively easily be converted into sugar. In the United States, corn is the principal ingredient used in the production of ethanol; in Brazil, sugar cane is the primary feedstock. Corn-starch ethanol can be produced using either of two processes: wet milling or dry milling. These processes differ in the initial processing of the corn prior to fermentation. During the early stages of the ethanol industry, the wet milling process was predominant. Most new plants have used the dry mill process. The shift over time from the wet mill process to the dry mill process has resulted in improved efficiencies. The cost of inputs, especially energy, per gallon of ethanol produced has been reduced. Feedstocks, water, energy, labor, and capital are the major inputs for ethanol production. Ethanol yields in 2008 ranged from 2.5 to 2.9 gallons per bushel of corn, with a weighted average of 2.75 gallons per bushel. Most ethanol plants operate using natural gas or coal, although some plants use biomass or manure. Electrical energy is used to operate plant machinery, and steam or hot air are used in liquefaction, fermentation, distillations, and drying by-products. Distillers grains for livestock feed are an important byproduct of ethanol production but must be dried before shipping long distances to reduce weight. Since drying distillers grains is a major use of energy for ethanol producers, refineries often locate near users of animal feed, such as large cattle operations, and ship distillers grains wet to cut processing costs. Water is a major input into the distillation process and an important environmental consideration. Improved recycling processes have reduced water use in newer ethanol plants. In addition to domestic production, the U.S. ethanol supply includes imports of sugar-cane ethanol from Brazil and the Caribbean Basin Initiative (CBI) nations of El Salvador, Costa Rica, Jamaica, and Trinidad and Tobago. Ethanol imports reached 557 million gallons in 2008, or 6% of U.S. supply. Brazil, which ranks second behind the United States in ethanol production, traditionally accounts for about half of U.S. ethanol imports, with the remainder shipped from CBI countries. (Much of this is originally produced in Brazil and transshipped to CBI countries, where it is dehydrated to qualify for tariff-free status when shipped to the United States.) Under the CBI, an unlimited amount of ethanol may be shipped to the United States duty-free if indigenous feedstocks are used in its production. Ethanol refined in CBI countries from foreign feedstocks or foreign ethanol that is substantially altered prior to shipment can be shipped duty-free up to a volume no greater than 7% of U.S. use. This rule has encouraged countries, for instance Jamaica, to import hydrous ethanol from Brazil, dehydrate it to remove moisture, and ship the anhydrous ethanol to the United States duty-free. U.S. imports of ethanol are subject to a $0.54 per gallon duty. Originally, the duty was intended to deny the benefit of tax credits available to ethanol blended in the United States to imported ethanol. These credits are $0.45 per gallon beginning in 2009, $0.09 per gallon less than the tariff, increasing its discriminatory impact. In addition, a much smaller ad valorem tariff of 2.5% is levied on imported ethanol. Many argue that a tariff on ethanol increases costs to consumers. Ethanol imports benefitted from a duty drawback provision through September 2008. Imported ethanol received a duty drawback if a "like commodity" to ethanol, or its final product, a gasoline-ethanol mixture, was exported. Jet fuel was considered a like commodity to the gasoline-ethanol mixture and was frequently exported to trigger the duty drawback. However, a provision in the Food, Conservation, and Energy Act of 2008 (the 2008 farm bill, P.L. 110-246 ) eliminated the duty drawback for fuels that do not contain ethanol (such as jet fuel). The ethanol tariff will likely be of interest for the 111 th Congress. During the 110 th Congress, several bills were introduced to eliminate, reduce, or extend the tariff on ethanol. Proponents of the tariff cite the need to support the ethanol industry against lower-priced imports until it reaches maturity. They contend that it prevents imported ethanol from benefitting from the blender's tax credit, which is intended, among other things, to promote U.S. energy independence. Opponents of the tariff claim that the industry is generally profitable and has matured to the point where such incentives are unnecessary. Opponents also point out that imports of Brazilian ethanol may be essential to fulfill the RFS mandate in coming years and should therefore be encouraged. Legislation ( S. 622 ) has been introduced in the 111 th Congress to address the lack of parity between the blender's tax credit and the tariff on ethanol. The bill would periodically reduce the tariff on ethanol by the same amount as any reduction in income or excise tax credit applicable to ethanol so that the tariff is equal to, or less than, the applicable income or excise tax credit. The economics underlying ethanol production include decisions concerning capital investment, plant location (relative to feedstock supplies, population centers, and by-product markets), production technology, and product marketing and distribution, as well as federal and state production incentives and usage mandates. Demand for ethanol is dependent on regulatory mandates, its price relative to gasoline, and, until 2006, its use as an oxygenate. Profitability for an ethanol refiner depends primarily on the cost of the main input, corn, relative to the value of ethanol (adjusted for any applicable tax credits), and the value of co-products produced. Co-products are an important economic consideration for ethanol producers. For each gallon of ethanol produced using the dry mill process, an average of 6.7 pounds of dried distillers grains (DDG) (at 10% moisture) is produced. For every gallon of ethanol produced in a dry mill plant, about $0.25 of distillers dried grains and $0.006 of CO 2 can be sold. During 2005 and much of 2006, the ethanol industry enjoyed a period of significant profitability. However, the fundamentals for ethanol production began to shift in 2008. In late 2008, ethanol prices exceeded gasoline prices and remained higher through early 2009. Discretionary blending above the RFS mandate stopped and demand for ethanol slipped. Simultaneously, the overall economic climate worsened—demand for fuel declined, further reducing demand, and credit tightened. Ethanol refineries cut back production, and many with heavy debt loads were forced into bankruptcy. At the same time, corn prices reached record levels before falling in early 2009. At that time, ethanol prices of $1.66 per gallon combined with corn prices of $4.10 per bushel (nearby month on the futures market) and gasoline prices around $1.68 per gallon resulted in reduced ethanol demand and losses by refiners. When ethanol is priced below gasoline (on an energy-equivalent basis), as it was during the 2006-2008 period, ethanol reduces the price consumers pay at the pump. However, beginning in the last half of 2008 and early 2009, ethanol prices were higher than gasoline, and blending actually increased the pump price. A radically different picture emerged in mid- to late 2008 as the economy began to slow and credit markets tightened. The recession has provided numerous challenges for the ethanol industry. Volatility in the corn and petroleum markets have made it difficult to maintain profitability. Tightening credit markets stopped most plant construction. Ethanol production was reduced to 80% to 90% of capacity as crush margins tightened, low-priced gasoline was more competitive, and overall demand for transportation fuel fell. Illustrative of the industry's recent problems, VeraSun, a major ethanol producer, filed for bankruptcy on October 31, 2008, and is selling its refineries. Other plants have suspended operations or are operating at reduced capacity. At the end of 2008, some estimates placed the total industry output at 84% of its potential. Some analysts have predicted substantial consolidation as the next step for the maturing ethanol industry. However, consolidation lately has been slowed by tight credit markets. Nevertheless, some of the larger ethanol producers, including Poet and Archer Daniels Midland (ADM) have expressed interest in buying up smaller, struggling plants. Many of these smaller, cooperative-owned, older plants buy local corn and have a local market for ethanol. They have more favorable balance sheets than recently constructed 100 mgpy plants with heavy debt loads and are under little pressure to sell. The sale at auction of VeraSun's 16 refineries may contribute to further consolidation. Despite the difficult economic times, five ethanol plants, with a total production capacity of 485 mgpy, came online during October and November 2008. USDA estimates that 3.7 billion bushels of corn (about one-third of total U.S. corn production) from the 2008 corn crop will be used to produce ethanol during the 2008/2009 (September-August) corn marketing year. Ethanol's share of corn production was 20% (2.119 billion bushels) in 2006/2007 and expanded to 23% (3.026 billion bushels) in 2007/2008. In its annual baseline projections (February 2009), USDA projects that U.S. ethanol production will use 35% (5.1 billion bushels) of the corn crop by 2018. In March 2009, the Food and Agricultural Policy Research Institute (FAPRI) projected that 2018 U.S. ethanol production will reach 17.7 billion gallons and use 44% (5.4 billion bushels) of the U.S. corn crop. As corn prices rise, so too does the incentive to expand corn production either by planting on more marginal land or by altering the traditional corn-soybean rotation that dominates Corn Belt agriculture. This shift could displace other field crops, primarily soybeans, and other agricultural activities. Further, corn production is among the most energy-intensive of the major field crops. An expansion of corn area could have important and unwanted environmental consequences due to the increases in fertilizer and chemical use and soil erosion. The National Corn Growers Association claims "there is still room to significantly grow the ethanol market without limiting the availability of corn." However, other evidence suggests that effects are already being felt from the current expansion in corn production. The increasing share of the U.S. corn crop utilized by ethanol blenders, and other market conditions, has resulted in declining U.S. exports. Tight global corn supplies contributed to high commodity prices, impacting consumers, especially in low-income countries where grains form a large share of diets and food is a major expenditure. Supporters of corn ethanol claim that biofuels production and use will have enormous agricultural and rural economic benefits by increasing farm and rural incomes and generating substantial rural employment opportunities. Opponents maintain that continued expansion of corn-based ethanol production could have significant negative consequences for traditional U.S. agricultural crop production and rural economies. Large-scale shifts in agricultural production activities could likely also have important regional economic consequences that have yet to be fully explored or understood. For more information on the impact of ethanol on food and feed prices, see CRS Report RL34265, Selected Issues Related to an Expansion of the Renewable Fuel Standard (RFS) , by [author name scrubbed] and Tom Capehart. For more information on commodity price impacts, see CRS Report RL34474, High Agricultural Commodity Prices: What Are the Issues? , by [author name scrubbed]. Critics of first generation ethanol claim it was responsible for a large proportion of recent food price increases that occurred in early 2008. As evidence they cite USDAs estimate that the U.S. Consumer Price Index (CPI) for all food increased 5.5% in 2008, and 4.0% in 2007, compared with an average rate of increase of 2.5% for 1997 to 2006. In analyzing this criticism, however, it is important to distinguish between prices of farm-level commodities and retail-level food products, because most consumer food prices are largely determined by marketing costs that occur after the commodities leave the farm. The price of a particular retail food item varies with a change in the price of an underlying input in direct relation to the relative importance (in value terms) of that input. For example, if the value of wheat in a $1.00 loaf of bread is about 10, then a 20% rise in the price of wheat translates into a 2 rise in a loaf of bread. Considering corns relatively small value-share in most retail food product prices, some contend that it is unlikely that the ethanol-driven corn price surge is a major factor in current food price inflation estimates. Furthermore, many economists agree that the majority of retail food price increases were not mainly ethanol-driven, but rather were the result of various other factors, including a sharp increase in energy prices that rippled through all phases of marketing and processing channels, and the strong increase in demand for agricultural products in the international marketplace from China and India (a product of their large populations and rapid economic growth). An examination of energy efficiency can help determine whether ethanol provides an improvement over gasoline or other fuels. Does it take more fossil fuel to produce a gallon of ethanol than the energy available when that gallon of ethanol is consumed? The net energy balance (NEB) of a fuel is a useful means of comparing different fuels for public policy purposes. The NEB is expressed as a ratio of the energy produced from a production process relative to the energy used in that production process. An output/input ratio of 1.0 implies that energy output equals energy input. The critical factors underlying ethanol's energy efficiency include (1) corn yields per acre (higher yields for a given level of inputs improves ethanol's energy efficiency); (2) the energy efficiency of corn production, including the energy embodied in inputs such as fuels, fertilizers, pesticides, seed corn, and cultivation practices; (3) the energy efficiency of the corn-to-ethanol production process: clean burning natural gas is the primary processing fuel for most ethanol plants, but several plants (including an increasing number of new plants) use coal; and (4) the energy value of corn by-products, which act as an offset by substituting for the energy needed to produce market counterparts. Over the past decade, technical improvements in the production of agricultural inputs (particularly nitrogen fertilizer) and ethanol, coupled with higher corn yields per acre and stable or lower input needs, appear to have raised ethanol's NEB. About 82% of the corn used for ethanol is processed by more efficient dry milling (a grinding process) and about 18% is processed by wet milling plants. All new plants under construction or coming online are expected to dry mill corn into ethanol: thus the dry milling share will continue to rise for the foreseeable future. A 2007 report by the National Renewable Energy Laboratory (NREL) summarized recent reports on the NEB for corn ethanol. Results varied widely, but most reports using similar assumptions found the NEB for corn ethanol to be positive. In 2004, USDA reported that, assuming best production practices and state of the art processing technology, the NEB for corn ethanol (based on 2001 data) was a positive 1.67—that is, 67% more energy was returned from a gallon of ethanol than was used in its production. Other researchers have found much lower NEB values under less optimistic assumptions, leading to some dispute over corn-to-ethanol's representative NEB. A 2006 review of several major corn-to-ethanol NEB analyses found that, when co-products are properly accounted for, the corn-to-ethanol process has a positive NEB that is improving with changing technology. This result was confirmed by another comprehensive study that found an NEB of 1.25 for corn ethanol. However, these studies clearly imply that inefficient processes for producing corn (e.g., excessive reliance on chemicals and fertilizer or bad tillage practices) or for processing ethanol (e.g., coal-based processing), or extensive trucking of either the feedstock or the finished ethanol long distances to plant or consumer, can result in an NEB significantly less than 1.0. In other words, not all ethanol production processes have a positive energy balance. A few studies have concluded that corn ethanol does not have a positive NEB (that is, that it takes more fossil energy to produce a gallon of ethanol than it contains). However, these studies were distinguished by much higher energy inputs in the agriculture, transport, refining, and distribution components of the ethanol manufacturing process than other studies. Lifecycle greenhouse gas (GHG) emissions are the aggregate quantity of GHG emissions (including direct emissions and significant indirect emissions such as emissions from land use changes) accounting for all stages of fuel and feedstock production and distribution, from feedstock generation or extraction through the distribution, delivery, and use of the finished fuel to the ultimate consumer. Many link GHG emissions to global climate change, so the relative emissions from different types of fuels are of great interest. Although the use of ethanol has been touted by proponents as reducing GHG emissions compared with conventional fuels, some contend that the benefits are nonexistent or minimal. Under the Energy Independence and Security Act of 2007 (EISA P.L. 110-140 , Section 202), GHG emissions reductions must be calculated by the U.S. Environmental Protection Agency (EPA) using a methodology yet to be determined. Estimates for GHG reductions from ethanol vary widely depending on the methodology used. As noted above, provisions in the EISA require the reduction of lifecycle emissions including "direct emissions and significant indirect emissions such as those from land use changes." For example, some studies have concluded that, if ethanol production displaces another crop that is then grown on newly cleared forest land (such as a rainforest in Brazil), the resulting GHG emissions could be substantial, and if high enough, could render the fuel ineligible under the RFS. Different methodologies will allot varying weights to these impacts and hence benefit different stakeholders. EPA is required to establish rules defining the methodology for measuring lifecycle GHG emissions under the RFS. Section 202 of EISA required EPA to develop revised RFS regulations no later than one year after enactment (December 19, 2008). This deadline has passed, and a proposed rule is expected to be issued soon, followed by a comment period. These rules will likely be the subject of intense debate because they will determine whether a fuel is eligible for the RFS. Congress granted wide latitude to EPA in drafting the rules for calculating lifecycle GHG emissions. Depending on the outcome of EPA's rulemaking, Congress might revisit this issue. Most studies show a 10% to 20% reduction in GHG emissions for corn ethanol compared with gasoline. Estimates vary based on the system boundaries used, cultivation practices (e.g. minimum as opposed to normal tillage) used to grow the corn, and the fuel used to process the corn into ethanol (e.g., natural gas versus coal). These studies do not take into account indirect GHG emissions due to land use changes. One controversial study (based on direct and indirect lifecycle GHG emissions) comparing vehicles powered by various sources claimed more health and environmental harm from E85 ethanol-powered vehicles than from battery-electric-powered vehicles (from all alternative sources of electricity generation including coal with carbon sequestration). EISA requires that corn ethanol produced in facilities that commence construction after enactment (December 2007) must achieve at least a 20% reduction in lifecycle GHG emissions compared with gasoline. This provision applies to roughly 4 billion gallons of capacity out of 13.7 billion gallons of current and under-construction plants. Enough grandfathered capacity currently exists to nearly fulfill the 15 billion gallon maximum ethanol mandate that becomes effective in 2015 under the RFS. EISA also enables EPA to reduce the GHG reduction requirements if it is determined that "generally such reduction is not commercially feasible for fuels made using a variety of feedstocks, technologies, and processes to meet the applicable reduction." Ethanol industry proponents are calling for GHG emissions to be calculated using only significant indirect factors and to exclude international land-use effects until EPA develops "objective and peer reviewed methodology" for their calculation. Distribution and absorption constraints may hinder the utilization of ethanol. As the RFS progresses, greater volumes of advanced biofuels (i.e., cellulosic or non-corn-starch ethanol, biodiesel, or imported sugar ethanol) would need to be used to fulfill the rising advanced biofuels mandate. Currently the infrastructure required to ship this volume of ethanol and the vehicles to consume it do not exist. Distribution issues may hinder the efficient delivery of ethanol to retail outlets. Ethanol, mostly produced in the Midwest, must be transported to more populated areas for sale. The current ethanol distribution system is dependent on rail cars, tanker trucks, and barges. Ethanol cannot be shipped in pipelines designed for gasoline because ethanol tends to separate and attract water in gasoline pipelines, causing corrosion. As a result, ethanol would need its own dedicated pipeline. This would be enormously expensive; however, some Members of Congress have introduced legislation calling for such a pipeline. Preliminary assessments of a 1,700 mile ethanol pipeline from Minnesota to New York are being conducted by a major ethanol producer and petroleum pipeline operator. Because of competition, options (especially for rail cars) are often limited. As non-corn biofuels play a larger role, some infrastructure concerns may be alleviated as production is more widely dispersed across the nation. Also, if biomass-based diesel substitutes are produced in much larger quantities, some of these infrastructure issues may be mitigated. However, ethanol would still need to be stored in unique storage tanks and blended immediately before pumping, requiring further infrastructure investments. See CRS Report R40155, Selected Issues Related to an Expansion of the Renewable Fuel Standard (RFS) , by [author name scrubbed] and Tom Capehart. The "blend wall" is the maximum possible volume of ethanol that can be blended into conventional U.S. motor gasoline at a given blend level. At a 10% ethanol blend (E10) this is roughly 14 billion gallons of ethanol. This limit becomes problematic as the volume under the RFS exceeds this level—which is expected to occur in 2012 when the RFS reaches 15 bgpy. Once the potential volume utilized by conventional vehicles has been reached, additional increases in volume will have no market except for the very limited number of flex fuel vehicles (FFVs) that can use higher blends. Although greater use of E85 could absorb additional volume, it is limited by the lack of E85 infrastructure (limited by the considerable expense of installing or upgrading tanks and pumps) and the size of the FFV fleet. Proposed legislation in the 111 th Congress, the E-85 Investment Act of 2009 ( H.R. 1112 ), would increase the credit against income tax for E85 refueling property (filling station pumps, tanks, and other related equipment) to 75% from 30% for property placed in service prior to 2012. The credit maximum is $30,000 for depreciated property and $1,000 for other property. The credit maximum is gradually reduced for property placed in service after December 2012 through 2016. An increase in the tax credit for E85 infrastructure was included in the enacted 2009 economic stimulus package (The American Recovery and Reinvestment Act of 2009, P.L. 111-5 ) and is available for the cost of installing alternative fueling equipment. P.L. 111-5 provides a temporary increase in the credit to 50% of the cost for equipment placed into service on or after December 31, 2008, and before January 1, 2011, not to exceed $50,000. The credit is also increased for residential fueling equipment. To increase potential ethanol use without the infrastructure and vehicle changes required for E85, some have proposed raising the ethanol blend level for conventional vehicles from E10 to E15 or E20. For such an increase to take place, EPA must issue a waiver under Section 211(f) of the Clean Air Act, thereby allowing a higher ethanol blend. In addition, automobile and motor equipment manufacturers would have to extend warranties to include higher blends, and infrastructure such as pumps and storage tanks would have to be certified for the higher level. Most automotive manufacturer warranties are currently valid for E10 only. Recently, Underwriter's Laboratories (UL) certified gasoline dispensing equipment for blends up to 15% ethanol. However, given that the actual ethanol content of E10 ranges from 7% to 13% , it is likely E15 blends will contain up to 18% percent ethanol, and would not be covered in the UL certification. On March 6, 2009, Growth Energy, a major organization promoting ethanol, applied to EPA (on behalf of 52 ethanol producers) for a waiver of Section 211(f)(4) of the Clean Air Act to allow an immediate increase in the maximum ethanol blend level from E10 to E12 or E13, and later allowing blends up to E15 to be used by conventional vehicles. EPA must grant or deny the waiver request within 270 days of receipt (December 1, 2009). This is significant because, even without any increase in the consumption of E85, raising the blend rate for conventional vehicles would enable an additional 7-8 billion gallons of ethanol in gasoline. This would raise the "blend wall" to roughly 22 billion gallons. The waiver request is supported by corn and ethanol interests and opposed by livestock and environmental groups. Legislation addressing supply and distribution issues has been introduced in the 111 th Congress. The Open Fuel Standard Act of 2009 ( H.R. 1476 ), would require 50% of the automobiles powered by internal combustion engines that are manufactured in the United States to be capable of operating on either 85% ethanol, 85% methanol, or biodiesel beginning in 2012, and 80% to be capable of operating on either 85% ethanol, 85% methanol, or biodiesel beginning in 2015. The federal government provides incentives and support for the ethanol industry though tax credits, research and development, grants and loan guarantees for plant construction, import tariffs, and perhaps most important, the RFS usage mandate, which was discussed above. Historically, federal subsidies have played an important role in encouraging investment in the U.S. ethanol industry. The Energy Tax Act of 1978 first established a partial exemption for ethanol fuel from federal fuel excise taxes. The Highway Trust Fund, funded by gasoline excise tax receipts, was reduced by the amount of the exemption so that increased ethanol use resulted in reduced funding for state transportation programs and highway projects. In addition, dealers sometimes purchased exempted gasoline and then failed to blend it with ethanol, even though they paid the reduced excise tax. In 2005, a volumetric ethanol excise tax credit, paid out of the general fund, replaced the partial tax exemption and eliminated these problems. The credit has no impact on the Highway Trust Fund and is based on the volume of ethanol in the blended fuel, reducing the opportunities for fraud. A discussion of this credit and other subsidies follows. For more information on biofuels incentives, see CRS Report RL33572, Biofuels Incentives: A Summary of Federal Programs , by [author name scrubbed]. The blender's tax credit, or volumetric ethanol excise tax credit, is an income tax credit based on the volume of ethanol blended with gasoline for sale or use. For each gallon of ethanol blended, an income tax credit of $0.45 per gallon is available. The credit was established by Section 301 of the American Jobs Creation Act of 2004 ( P.L. 108-357 ). The 2008 farm bill ( P.L. 110-246 ) extended the credit through 2010 and reduced it from $0.51 per gallon to $0.45 per gallon beginning the first calendar year following calendar-year production exceeding 7.5 billion gallons. Since 2008 production exceeded this threshold, the tax credit reduction became effective in January 2009. Credits under this program are estimated at $5 billion in 2008. The Energy Improvement and Extension Act of 2008 ( P.L. 110-343 , Division B, Section 203) limits the blender's credit to fuels that are to be consumed in the United States. The credit is administered by the Internal Revenue Service. A small producer income tax credit (26 U.S.C. 40) of $0.10 per gallon for the first 15 million gallons of production is available to ethanol producers whose total output does not exceed 60 million gallons of ethanol per year. The credit applies to the first 15 million gallons of a refiner's output. Based on the number of refiners with less than 60 million gallons output in 2008, credits under this program applied to approximately 1.6 billion gallons in 2008. The small producers credit terminates on December 31, 2010. This credit was established by the Omnibus Budget Reconciliation Act of 1990 ( P.L. 101-508 ) and is administered by the Internal Revenue Service. The alternative fuel infrastructure tax credit is available for the cost of installing alternative fueling equipment placed into service after December 31, 2005. Although not a credit for biofuels per se, it applies to retail pumps and other equipment used for E85 ethanol. A maximum credit of 30% of the cost, not to exceed $30,000, is available for equipment placed into service before January 1, 2009. The economic stimulus package (the American Recovery and Reinvestment Act of 2009, P.L. 111-5 ) provides a temporary increase in the credit to 50% of the cost for equipment placed into service on or after December 31, 2008, and before January 1, 2011, not to exceed $50,000. Fueling station owners who install qualified equipment at multiple sites are allowed to use the credit toward each location. Consumers who purchase residential fueling equipment may receive a tax credit of up to $1,000, which increases to $2,000 for equipment placed into service after January 1, 2009, and before January 1, 2011. The alternative fuel infrastructure tax credit is administered by the Internal Revenue Service. A $0.54 per gallon most-favored-nation tariff on most imported ethanol was extended through December 31, 2010, by a provision in the 2008 farm bill. Caribbean Basin Initiative countries are exempt from the ethanol duty up to a volume equal to 7% of total U.S. consumption. Imports of ethanol during recent years have been approximately 500 million gallons. The tariff is administered by U.S. Customs and Border Protection. The Business and Industry (B&I) Guaranteed Loan Program is a long-standing program authorized by Section 310B of the Consolidated Farm and Rural Development Act of 1972 (P.L. 92-385) and administered by USDA Rural Development. The program is intended to improve, develop, or finance business, industry, and employment in rural areas. Biofuel projects, such as ethanol refineries, have frequently utilized the B&I Program. The percentage of guarantee, up to the maximum allowed, is to be negotiated between the lender and USDA. The guaranteed principal is limited to 80% for loans of $5 million or less, 70% for loans between $5 and $10 million, and 60% for loans exceeding $10 million. A loan is limited to a maximum guarantee of $10 million. An exception to this limit may be granted for loans of up to $25 million under certain circumstances. FY2009 appropriations for the Business and Industry Guaranteed Loan Program are $43 million, to support $993.0 million in loan authorizations—unchanged from FY2008. The Repowering Assistance Program provides grants to biorefineries that use or convert to renewable biomass to reduce or eliminate fossil fuel use. The program is authorized by the 2008 farm bill ( P.L. 110-246 ) and is available to all refineries in existence at the date of enactment. The program provides mandatory funding of $35 million for FY2009 that will remain available until the funds are exhausted. The farm bill also authorizes additional funding of $15 million per year, from FY2009 through FY2012, subject to appropriations. No appropriations were authorized for FY2009. Rules for implementation of the Repowering Assistance Program are currently being developed by USDA.
|
Biofuels are a major source of renewable energy in the United States. Ethanol produced from corn starch accounts for 90% of the biofuels consumed, but only 5% of all light-duty motor transportation fuel consumption. Ethanol is blended with gasoline to increase octane and reduce emissions, and used as a substitute for gasoline to reduce consumption of petroleum-based fuels. Ethanol has the potential to provide many benefits. As an alternative to gasoline refined from imported oil, its use can improve U.S. national energy security, albeit marginally. Although the exact magnitude is subject to debate, ethanol is thought by many to produce lower greenhouse gas (GHG) emissions compared with gasoline. For this reason, its increased use is seen by many as playing a potential key role in reducing the contribution of the transportation sector to global climate change. U.S.-produced ethanol can also boost demand for U.S.-produced farm products, stimulate rural economies, and provide "green" jobs in rural areas. An ethanol-centric policy does have its critics. For example, ethanol has been implicated as a factor in rising commodity and food prices. As ethanol production increases, corn is diverted from feed and export markets and acreage is diverted from other crops, such as soybeans. The extent to which ethanol is responsible for these impacts has been the subject of debate and wide-ranging estimates. Also, the potential to displace gasoline and increase national energy security is limited by the land available to grow corn. Since the 1970s, ethanol has received support from the U.S. government. Presently, federal support is provided in the form of mandated levels of consumption, financial incentives such as grants and loan guarantees, tax credits, tariffs on ethanol imports, and federally funded research and development efforts. Tax credits made available to blenders of ethanol are expected to total nearly $6 billion in 2009. Incentives were initially provided to get the ethanol industry off the ground—many now argue that the ethanol industry has matured and these resources should be used elsewhere. Federal support for biofuels and ethanol in particular is likely to be an issue facing the 111th Congress. Ethanol has received more federal support than other types of renewable energy. Some argue that the market, rather than the government, should direct investment, whether it be for ethanol, wind, solar, geothermal, or other alternatives. In addition, ethanol is used in internal-combustion engines that mostly use fossil fuels, unlike alternatives such as battery or plug-in-electric vehicles, which do not consume fossil fuels directly. Other issues of congressional interest may include financial support for ethanol during the recession and the extension of the blender's tax credit and the import tariff, both of which expire after 2010. The renewable fuel standard (RFS), which mandates increasing volumes of renewable fuel use through 2022, may become an issue if biofuels production shortfalls occur and the mandate cannot be met. The U.S. Environmental Protection Agency (EPA) is drafting rules on the calculation of lifecycle greenhouse gas emissions that will determine which fuels qualify for the RFS. These rules will likely attract congressional scrutiny if they exclude major stakeholders in the ethanol industry. In addition, continuation of the RFS itself may be the subject of debate.
|
At the Munich Security Conference on February 7, 2009, Vice President Joe Biden stated that "the United States will not recognize Abkhazia and South Ossetia as independent states. We will not recognize a sphere of influence. It will remain our view that sovereign states have the right to make their own decisions and choose their own alliances." The Vice President met with Georgian President Mikheil Saakashvili, who later stated that the "main message" he received in Munich was that "it has been confirmed that we have very serious, unequivocal, detailed support from the new U.S. Administration." Czech Foreign Minister Karel Schwarzenberg, representing the European Union (EU), warned Belarus on February 23, 2009, that recognition of the independence of South Ossetia and Abkhazia would remove Belarus from the "European consensus" not to extend diplomatic recognition to the regions, and might make it less eligible to participate in a prospective EU Eastern Partnership Program of expanded economic cooperation. Russian military analyst Pavel Felgenhauer has warned that Western moves to improve relations with Russia—which were strained after the August 2008 conflict—risk emboldening Russia to try again to gain suzereignty over Georgia. He argues that Russia's repeated claims that Georgia is massing troops and equipment near South Ossetia (claims that monitors from the European Union find groundless) may be cover for a new Russian attack. The Parliamentary Assembly of the Council of Europe (PACE) approved a resolution on January 28, 2009, criticizing Russia for failing to abide by the ceasefire agreements. PACE reaffirmed its commitment to the territorial integrity and sovereignty of Georgia and again called on Russia to withdraw its recognition of the independence of South Ossetia and Abkhazia. It called for full access by international monitors and humanitarian aid workers to South Ossetia and Abkhazia, as well as the establishment of international peacekeeping forces in the regions. It condemned Russia for building military bases in the regions, and censured Russia and the de facto authorities of South Ossetia for failing to halt ethnic cleansing. It condemned cross-border shootings and other violence emanating from the regions. PACE demanded immediate Council of Europe access to the regions in order to protect human rights. It requested that Russian troops withdraw from areas of Georgia that were controlled by Georgia before the August 2008 conflict, such as the Kodori Gorge in Abkhazia, the Georgian enclave around Tskhinvali and the Perevi village, and the Akhalgori district in South Ossetia. Reportedly, the vast majority of Akhalgori's 7,700 mostly ethnic Georgian residents had fled. The Assembly called for both Russia and Georgia to sign the U.N. Convention banning Cluster Munitions. Although gas shipments through a pipeline from Russia to South Ossetia were renewed in January 2009, the region remains cut off from Russia due to winter weather and faces an economic and humanitarian crisis, according to some observers. Tensions in Georgia date back at least to the 1920s, when South Ossetia made abortive attempts to declare its independence but ended up as an autonomous region within Soviet Georgia after the Red Army conquered Georgia. In 1989, South Ossetia lobbied for joining its territory with North Ossetia in Russia or for independence. Georgia's own declaration of independence from the former Soviet Union and subsequent repressive efforts by former Georgian President Gamsakhurdia triggered conflict in 1990. In January 1991, hostilities broke out between Georgia and South Ossetia, reportedly contributing to an estimated 2,000-4,000 deaths and the displacement of tens of thousands of people. In June 1992, Russia brokered a cease-fire, and Russian, Georgian, and Ossetian "peacekeeping" units set up base camps in a security zone around Tskhinvali, the capital of South Ossetia. The units usually totalled around 1,100 troops, including about 530 Russians, a 300-member North Ossetian brigade (which was actually composed of South Ossetians and headed by a North Ossetian), and about 300 Georgians. Monitors from the Organization for Security and Cooperation in Europe (OSCE) did most of the patrolling. A Joint Control Commission (JCC) composed of Russian, Georgian, and North and South Ossetian emissaries ostensibly promoted a settlement of the conflict, with the OSCE as facilitator. According to some estimates, some 20,000 ethnic Georgians resided in one-third to one-half of the region and 25,000 ethnic Ossetians in the other portion. Many fled during the fighting in the early 1990s or migrated. Some observers warned that Russia's increasing influence in South Ossetia and Abkhazia over the years transformed the separatist conflicts into essentially Russia-Georgia disputes. Most residents of Abkhazia and South Ossetia reportedly were granted Russian citizenship and passports and most appeared to want their regions to be part of Russia. In late 2003, Mikheil Saakashvili came to power during the so-called "rose revolution" (he was elected president in January 2004). He pledged to institute democratic and economic reforms, and to re-gain central government authority over the separatist regions. In 2004, he began to increase pressure on South Ossetia by tightening border controls and breaking up a large-scale smuggling operation in the region that allegedly involved Russian organized crime and corrupt Georgian officials. He also reportedly sent several hundred police, military, and intelligence personnel into South Ossetia. Georgia maintained that it was only bolstering its peacekeeping contingent up to the limit of 500 troops, as permitted by the cease-fire agreement. Georgian guerrilla forces also reportedly entered the region. Allegedly, Russian officials likewise assisted several hundred paramilitary elements from Abkhazia, Transnistria, and Russia to enter. Following inconclusive clashes, both sides by late 2004 ostensibly had pulled back most of the guerrillas and paramilitary forces. In July 2005, President Saakashvili announced a new peace plan for South Ossetia that offered substantial autonomy and a three-stage settlement, consisting of demilitarization, economic rehabilitation, and a political settlement. South Ossetian "president" Eduard Kokoiti rejected the plan, asserting in October 2005 that "we [South Ossetians] are citizens of Russia." The Georgian peace plan received backing by the OSCE Ministerial Council in early December 2005. Perhaps faced with this international support, in mid-December 2005, Kokoiti proffered a South Ossetian peace proposal that also envisaged benchmarks, but presumed that South Ossetia would be independent. In November 2006, a popular referendum was held in South Ossetia to reaffirm its "independence" from Georgia. The separatists reported that 95% of 55,000 registered voters turned out and that 99% approved the referendum. In a separate vote, 96% reelected Kokoiti. The OSCE and U.S. State Department declined to recognize these votes. In "alternative" voting among ethnic Georgians in South Ossetia (and those displaced from South Ossetia) and other South Ossetians, the pro-Georgian Dmitriy Sanakoyev was elected governor of South Ossetia, and a referendum was approved supporting Georgia's territorial integrity. In March 2007, President Saakashvili proposed another peace plan for South Ossetia that involved creating "transitional" administrative districts throughout the region—ostensibly under Sanakoyev's authority—which would be represented by an emissary at JCC or alternative peace talks. In July 2007, President Saakashvili decreed the establishment of a commission to work out South Ossetia's "status" as a part of Georgia. The JCC finally held a meeting (with Georgia's emissaries in attendance) in Tbilisi, Georgia, in October 2007, but the Russian Foreign Ministry claimed that the Georgian emissaries made unacceptable demands in order to deliberately sabotage the results of the meeting. No further meetings were held. During the latter half of July 2008, Russia conducted a military exercise that proved to be a rehearsal for Russian actions in Georgia a few weeks later. Code-named Caucasus 2008, the exercise involved more than 8,000 troops and was conducted near Russia's border with Georgia. One scenario was a hypothetical attack by unnamed (but undoubtedly Georgian) forces on Georgia's breakaway regions of Abkhazia and South Ossetia. Russian forces practiced a counterattack by land, sea, and air to buttress Russia's "peacekeepers" stationed in the regions, protect "Russian citizens," and offer humanitarian aid. The Georgian Foreign Ministry protested that the scenario constituted a threat of invasion. Simultaneously with the Russian military exercise, about 1,000 U.S. troops, 600 Georgian troops, and token forces from Armenia, Azerbaijan, and Ukraine conducted an exercise in Georgia, code-named Immediate Response 2008, aimed at increasing troop interoperability for NATO operations and coalition actions in Iraq. Most of these troops had left Georgia by the time of the outbreak of conflict. Tensions escalated in South Ossetia on July 3, 2008, when an Ossetian village police chief was killed by a bomb and the head of the pro-Georgian "government" in South Ossetia, Dmitriy Sanakoyev, escaped injury by a roadside mine. That night, both the Georgians and South Ossetians launched artillery attacks on each other's villages and checkpoints, reportedly resulting in about a dozen killed or wounded. The European Union (EU), the OSCE, and the Council of Europe (COE) issued urgent calls for both sides to show restraint and to resume peace talks. On July 8, 2008, four Russian military planes flew over South Ossetian airspace. The Russian Foreign Ministry claimed that the incursion had helped discourage Georgia from launching an imminent attack on South Ossetia. The Georgian government denounced the incursion as violating its territorial integrity, and on July 11 recalled its ambassador to Russia for "consultations." The U.N. Security Council discussed the overflights at a closed meeting on July 21, 2008. Although no decision was reached, Georgian diplomats reportedly stated that the session was successful, while Russian envoy Vitaliy Churkin denounced the "pro-Georgian bias" of some Security Council members. The day after the Russian aerial incursion, then-Secretary of State Condoleezza Rice arrived in Georgia for two days of discussions on ways to defuse the rising tensions between Georgia and Russia. She stated that "some of the things the Russians did over the last couple of months added to tension in the region," called for Russia to respect Georgia's independence, and stressed the "strong commitment" of the United States to Georgia's territorial integrity. On July 25, 2008, a bomb blast in Tskhinvali, South Ossetia, killed one person. On July 30, both sides again exchanged artillery fire, with the South Ossetians allegedly shelling a Georgian-built road on a hill outside Tskhinvali, and the Georgians allegedly shelling two Ossetian villages. Two days later, five Georgian police were injured on this road by a bomb blast. This incident appeared to trigger serious fighting on August 2-4, which resulted in over two dozen killed and wounded. Kokoity threatened to attack Georgian cities and to call for paramilitary volunteers from the North Caucasus, and announced that women and children would be evacuated to North Ossetia. Georgia claimed that these paramilitary volunteers were already arriving in South Ossetia. On the evening of August 7, 2008, South Ossetia accused Georgia of launching a "massive" artillery barrage against Tskhinvali, while Georgia reported intense bombing of some Georgian villages in the conflict zone. Saakashvili that evening announced a unilateral ceasefire and called for South Ossetia to follow suit. He also called for reopening peace talks and reiterated that Georgia would provide the region with maximum autonomy within Georgia as part of a peace settlement. Georgia claims that South Ossetian forces did not end their shelling of Georgian villages but intensified their actions, "forcing" Georgia to declare an end to its ceasefire and begin sending ground forces into South Ossetia (for more on this view of events, see below, " International Response "). Georgian troops reportedly soon controlled much of South Ossetia, including Tskhinvali. Russian President Medvedev addressed an emergency session of the Russian Security Council on August 8. He denounced Georgia's incursion into South Ossetia, asserting that "women, children and the elderly are now dying in South Ossetia, and most of them are citizens of the Russian Federation." He stated that "we shall not allow our compatriots to be killed with impunity. Those who are responsible for that will be duly punished." He appeared to assert perpetual Russian control in stating that "historically Russia has been, and will continue to be, a guarantor of security for peoples of the Caucasus." On August 11, he reiterated this principle that Russia is the permanent guarantor of Caucasian security and that "we have never been just passive observers in this region and never will be." In response to the Georgian incursion into South Ossetia, Russia launched large-scale air attacks in the region and elsewhere in Georgia. Russia quickly dispatched seasoned professional (serving under contract) troops to South Ossetia that engaged Georgian forces in Tskhinvali on August 8. That same day, Russian warplanes destroyed Georgian airfields, including the Vaziana and Marneuli airbases near the Georgian capital Tbilisi. Saakashvili responded by ordering that reservists be mobilized and declaring a 15-day "state of war." Reportedly, thousands of Russian troops had retaken Tskhinvali, occupied the bulk of South Ossetia, reached its border with the rest of Georgia, and were shelling areas across the border by early in the morning on August 10 (Sunday). These troops were allegedly augmented by thousands of volunteer militiamen from the North Caucasus. On August 10, Georgian National Security Council Secretary Alexander Lomaia reported that Georgia had requested that then-Secretary Rice act as a mediator with Russia in the crisis over the breakaway region of South Ossetia, including by transmitting a diplomatic note that Georgia's armed forces had ceased fire and had withdrawn from nearly all of South Ossetia. Georgian Foreign Minister Eka Tkeshelashvili also phoned Russian Foreign Minister Sergei Lavrov to report that all Georgian forces had been withdrawn from South Ossetia and to request a ceasefire, but Lavrov countered that Georgian forces remained in Tskhinvali. On August 11, Russia bombed apartment buildings in the city of Gori—within undisputed Georgian territory—and occupied the city. On August 10, the U.N. Assistant Secretary-General for Peacekeeping, Edmond Mulet, reported to the U.N. Security Council that the U.N. Observer Mission in Georgia (UNOMIG; about 100 observers in all) had witnessed "ongoing aerial bombardments of Georgian villages in the Upper Kodori Valley" the previous day. They also had observed "the movement by the Abkhaz side of substantial numbers of heavy weapons and military personnel towards the Kodori Valley." Mulet also warned that Abkhaz separatist leader Sergey Bagapsh had threatened to push the Georgian armed forces out of the Upper Kodori Valley. In violation of their mandate, the Russian "peacekeepers" "did not attempt to stop such deployments" of Abkhaz rebel weaponry, Mulet reported. Fifteen UNOMIG observers were withdrawn from the Kodori Valley because the Abkhaz rebels announced that their safety could not be guaranteed, Mulet stated. Russian peacekeepers also permitted Abkhaz forces to deploy in the Gali region and along the Inguri River near the border of Abkhazia and the rest of Georgia. Russian military and Abkhaz militia forces then moved across the river into the Zugdidi district, southwest of Abkhazia and undisputedly in Georgian territory (although some part is within the peacekeeping zone). Bombs fell on the town of Zugdidi on August 10. As the local population fled, Russian troops reportedly occupied the town and its police stations on August 11. Reportedly, the Russian military stated that it would not permit the Abkhaz forces to occupy the town of Zugdidi. The next day, the Russian military reported that it had disarmed Georgian police forces in the Kodori Valley and the Georgian police had pulled out. On August 10, Russia sent ships from the Black Sea Fleet to deliver troops to Abkhazia and take up positions along Georgia's coastline. Russian military officials reported that up to 6,000 troops had been deployed by sea or air. Russian television reported that Igor Dygalo, Russian naval spokesman and aide to the Russian navy commander-in-chief, claimed that Russian ships had sunk a Georgian vessel in a short battle off the coast of Georgia. Georgian officials reported that the Russian ships were preventing ships from entering or leaving the port at Poti. The Russians reportedly also sank Georgia's coast guard vessels at Poti. Russian troops occupied a Georgian military base in the town of Senaki, near Poti, on August 11. On August 12, the Russian government announced at mid-day that Medvedev had called Javier Solana, the European Union's High Representative for Common Foreign and Security Policy to report that "the aim of Russia's operation for coercing the Georgian side to peace had been achieved and it had been decided to conclude the operation." In a subsequent meeting with Defence Minister Anatoly Serdyukov and chief of Armed Forces General Staff Nikolai Makarov, Medvedev stated that "based on your report I have ordered an end to the operations to oblige Georgia to restore peace.... The security of our peacekeeping brigade and civilian population has been restored. The aggressor has been punished and suffered very heavy losses." Seemingly in contradiction to his order for a halt in operations, he also ordered his generals to continue "mopping up" actions, which included ongoing bombing by warplanes throughout Georgia, the occupation of villages, and destruction of military bases, bridges, industries, houses, and other economic or strategic assets. Later on August 12, Medvedev met with visiting French President Sarkozy, who presented a ceasefire plan on behalf of the EU. President Medvedev reportedly backed some elements of the plan. French Foreign Minister Koucher then flew to Tbilisi to present the proposals to the Georgian government. Medvedev and Saakashvili consulted by phone the night of August 12-13 and they reportedly agreed in principle to a six-point peace plan, according to a press conference by Sarkozy. The peace plan calls for all parties to the conflict to cease hostilities and pull troops back to positions they had occupied before the conflict began. Other elements of the peace plan include allowing humanitarian aid into the conflict zone and facilitating the return of displaced persons. It excludes mention of Georgia's territorial integrity. The plan calls for the withdrawal of Russian combat troops from Georgia, but allows Russian "peacekeepers" to remain and to patrol in a larger security zone outside South Ossetia that will include a swath of Georgian territory along South Ossetia's border. The plan also calls for "the opening of international discussions on the modalities of security and stability of South Ossetia and Abkhazia." This seems to provide for possibly greater international roles in peace talks and peacekeeping, both of seminal Georgian interest. However, it does not specifically state that international peacekeepers will be deployed within South Ossetia. Supposedly, the Russian "peacekeepers" will cease patrolling the area outside South Ossetia after the modalities of international peacekeeping are worked out and monitors are deployed within this area, a process that could take some time. An emergency meeting of EU foreign ministers on August 13 endorsed the peace plan and the possible participation of EU monitors. Medvedev hosted the de facto presidents of South Ossetia and Abkhazia in Moscow on August 14, where they signed the peace agreement. On August 15, then-Secretary Rice traveled to Tbilisi and Saakashvili signed the agreement. France submitted a draft resolution based on the plan at a meeting of the U.N. Security Council (UNSC) on August 19, but Russia blocked it, reportedly stating that only the verbatim elements of the vaguely-written plan should be included in the resolution (see also below for UNSC action). The Russian military was widely reported to be carrying out extensive "mopping up" operations throughout Georgia, except for the capital, Tbilisi. These appeared to involve degrading Georgia's remaining military assets and occupying extensive "buffer zones" of Georgian territory near the borders of Abkhazia and South Ossetia. On August 20, Russia's General Staff deputy head Nogovitsyn claimed that the 6-point peace plan permitted the establishment of "buffer zones" and no-fly zones near Georgia's borders with Abkhazia and South Ossetia. He specified that the zone around Abkhazia would include Georgia's Senaki military base, precluding Georgia's use of the base. These zones appear somewhat like those established by Armenia during the early 1990s conflict over Azerbaijan's breakaway Nagorno Karabakh region. International media reported that Russian troops and paramilitary forces were widely looting, destroying infrastructure, detaining Georgians, and placing mines throughout the country, similar to what often took place during Russia's operations in its breakaway Chechnya region early in the decade. On August 18, Russian forces burned the Ganmukhuri youth patriotic camp near Zugdidi, which Russia had claimed was a Georgian military base. From the occupied base at Senaki, Russian troops made repeated forays into the countryside. Russian forces occupying Poti reportedly prevented most trade in and out of the port and widely pillaged. They detained 20 Georgian troops and police guarding the port on August 19. They also allegedly destroyed a Georgian missile boat and seized U.S. HUMVEEs being shipped out of the port. France reportedly raised concerns that a mountain warfare training base it had helped Georgia set up in Sachkere in Western Georgia for NATO interoperability training was being threatened with destruction by Russian military forces. On August 21, the deputy chief of the Russian General Staff, Anatoliy Nogovitsyn, stated that "by the end of August 22 all forces of the Russian Federation [now in Georgia] will be within the area of responsibility of the Russian peacekeepers." Western media on August 22 reported sizeable but not complete Russian military withdrawals. On August 22, Russian forces reportedly left the village of Igoeti, 17 miles from Tbilisi, but an Ossetian militia occupied the village of Akhalgori, 25 miles north-west of Tbilisi. Russian forces reportedly were leaving Gori on August 22. Until then, access to the city had been partially restricted. In the northwest, Russian troops reportedly left the Senaki military base. Nogovitsyn and other Russian officials seemingly had argued that Georgia's actions had negated past ceasefire regimes in Abkhazia and South Ossetia. Nonetheless, Nogovitsyn asserted on August 28 that the 1992 ceasefire accords for South Ossetia permitted Russia to deploy "peacekeeping" troops in Poti, more than one hundred miles from South Ossetia, or in other areas "adjacent" to the region. On August 25, Russia's Federation Council (upper legislative chamber) and the Duma (lower chamber) met and recommended that the president recognize the independence of Abkhazia and South Ossetia. In an announcement on August 26, Medvedev claimed that "humanitarianism" dictated that Russia recognize the independence of the regions, and he called on other countries to also extend diplomatic recognition. Russia began searching for premises for embassies and considering ambassadorial candidates. On September 5, Nicaragua extended diplomatic recognition to Abkhazia and South Ossetia, the only sovereign nation besides Russia to do so. At a late August 2008 summit of the Shanghai Cooperation Organization (a trade and security organization consisting of China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan), the communique appeared to reflect China's disapproval of recognizing breakaway regions. Similarly, a meeting of the Russia-led Collective Security Treaty Organization in early September (other members include Armenia, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan) did not result in any members extending diplomatic recognition to Abkhazia and South Ossetia. On September 8, 2008, visiting French President Nicolas Sarkozy and Russian President Dmitriy Medvedev signed a follow-on ceasefire accord that fleshed out the provisions of the 6-point peace plan. It stipulated that Russian forces would withdraw from areas adjacent to the borders of Abkhazia and South Ossetia by midnight on October 10; that Georgian forces would return to their barracks by October 1; that international observers already in place from the U.N. and OSCE would remain; and that the number of international observers would be increased by October 1, to include at least 200 EU observers. An international conference on ensuring security and stability in the region, resettling refugees and displaced persons, and a peace settlement would be convened in Geneva in mid-October. In a press conference after signing the accord, President Medvedev asserted that Russia's recognition was "irrevocable," and that Russian "peacekeepers" would remain deployed in Abkhazia and South Ossetia. Although Sarkozy strongly implied that the international conference would examine the legal status of Georgia's breakaway Abkhazia and South Ossetia, Medvedev pointed out that the regions had been recognized as independent by Russia on August 26, 2008, and stated that disputing this recognition was a "fantasy." Sarkozy hailed the accord as possibly clearing the way for the EU to soon re-open partnership talks with Moscow. On September 9, the Russian defense minister asserted that several thousand Russian troops would remain in Abkhazia and the same number in South Ossetia. This assertion triggered criticism by the United States, Georgia, and others that the ceasefire accords called for the numbers of Russian "peacekeepers" to revert to pre-conflict levels, which before the build-up in Abkhazia were about 2,000 troops and in South Ossetia were 1,000 troops (500 Russian troops and 500 North Ossetian troops, whom were in actuality mostly South Ossetian). On September 14, NATO Secretary General de Hoop Scheffer reportedly criticized the EU for not insisting that Russia reduce its "peacekeepers" to pre-conflict levels. Russia troops withdrew from Poti and Senaki on September 13 in accordance with the follow-on accord. The European Union (EU) deployed 225 unarmed monitors to Georgia by October 1, 2008, to patrol areas along Georgia's borders with its breakaway regions of South Ossetia and Abkhazia, in accordance with ceasefire accords. Russian troops pulled back by October 9 from so-called "buffer zones" they occupied outside of the borders of the regions. Troubling aspects included Russia's apparent backing to efforts by Abkhazia and South Ossetia to increase the size of their territories at Georgia's expense. In Abkhazia, Russian troops remained in the Kodori Gorge area and appeared to support Abkhaz efforts to move the border to the Inguri River. In South Ossetia, Russian checkpoints remained in Akhalgori district, which was within the region's Soviet-era borders but had been administered by Georgia since the South Ossetian conflict of the early 1990s. The United States continues to argue that the 6-point ceasefire plan calls for Russian troops in excess of pre-conflict numbers to withdraw from South Ossetia and Abkhazia. As provided for under the ceasefire accords, a conference to consider the future of South Ossetia and of Abkhazia was opened on October 15 in Geneva. Co-chairs include the Special Representative of the U.N. Secretary General and representatives of the EU and OSCE. Delegations from Georgia, Russia, and the United States, as well as emissaries from the de facto and Georgia-recognized Abkhaz and South Ossetian leaderships participate in discussions. Reportedly, progress in planning this conference was complicated by Russia's insistence that Abkhazia and South Ossetia participate as independent states. EU, UN, and OSCE mediators and emissaries from three countries, Georgia, Russia, and the United States, were to sit down in what is termed 3+3 talks. They convened in a formal session in the morning and an informal session in the afternoon, where the separatist emissaries could attend. Reportedly, the Russian delegation was absent during most if not all the morning session. The Georgians and the emissaries from Abkhazia and South Ossetia allegedly clashed at the afternoon session, with the latter demanding that they be treated as representatives of sovereign countries and walking out. Assistant Secretary Fried, the U.S. participant, stated that the United States was amenable to working with Russia on non-use of force pledges (beyond those that are associated with the ceasefire accords). He stated that another Russian demand—for a ban on offensive arms transfers to Georgia—seemed questionable given Russia's buildup of arms in the region. Sessions in Geneva in November and December 2008 were more successful in involving the emissaries in discussions, but little progress was reported on the main issues. At the February 17-18, 2009, session, however, the sides agreed in principle to set up an "incident prevention and response mechanism" which will aim to defuse tensions before they escalate. Emissaries from the EU, OSCE, and U.N. will hold weekly meetings, investigate violent incidents along the conflict borders, and ensure the delivery of humanitarian assistance. Assistant Secretary Fried hailed the agreement as "a significant step forward. It's positive, it's practical," although he cautioned that implementation will "depend on good will on all sides and we will have to see whether the good will that existed today in sufficient quantity to reach this achievement continues." He regretted that there was no progress on the issue of access to South Ossetia for humanitarian aid and cautioned that "we have a very long way to go in restoring security and peace on a long term sustainable basis in Georgia. The situation along the administrative lines, particularly between South Ossetia and the rest of Georgia is unsatisfactory, even dire, with attacks, raids, [and] violence." The next meeting may be held in late May or early June 2009. According to some observers, the recent Russia-Georgia conflict harms both countries. In the case of Georgia and South Ossetia, the fighting reportedly resulted in hundreds of military and civilian casualties and large-scale infrastructure damage that set back economic growth and contributed to urgent humanitarian needs. Tens of thousands of displaced persons added to humanitarian concerns. The fighting appeared to harden anti-Georgian attitudes in both South Ossetia and Abkhazia, making the possibility of re-integration with Georgia—which is still hoped for by the Saakashvili government even in the face of Russia's recognition of the regions' independence—more remote. Georgia also appeared even less eligible by some NATO members for a Membership Action Plan (MAP), usually considered as a prelude to membership, because of the destruction of some of its military capabilities and the heightened insecurity of its borders. In the case of Russia, its seemingly disproportionate military campaign and its unilateral declaration of recognition appeared to harm its image as a reliable and peaceable member of the international community. Russia also reported that its military operations and pledges to rebuild South Ossetia were costing hundreds of millions of dollars. According to a report prepared by the World Bank and other international financial institutions, the conflict "resulted in shocks to economic growth and stability in Georgia [including] a weakening of investor, lender and consumer confidence, a contraction of liquidity in the banking system, stress on public finances, damage to physical infrastructure,... and increased numbers of internally displaced persons." The conflict caused an estimated $394.5 million in damages that needed to be soon repaired and reduced projected economic growth for 2008 from 9% to 3.5%, according to the World Bank. Lessened economic growth rates may persist for several years. Commissioner of Human Rights of the COE, Thomas Hammerberg, reportedly found widespread destruction of ethnic Georgian villages and homes during a visit to South Ossetia, apparently caused by Ossetian and North Caucasian militias as part of "ethnic cleansing" efforts. Although Georgian opposition politicians and other citizens initially muted their criticism of Saakashvili after the ceasefire, there were signs later in 2008 of a growing debate about the causes and conduct of the conflict. Former legislative speaker Nino Burjanadze formed a new opposition party called Democratic Movement-United Georgia in October. Former Prime Minister Zurab Noghaideli announced in late 2008 that he would form an opposition party, and two prominent opposition parties—the New Right and Republican Parties—formed an alliance. In February 2009, Irakli Alasania, Georgia's former ambassador to the UN, joined this alliance. The opposition parties have called for Saakashvili to resign and to schedule early presidential elections. President Medvedev's vow on August 8 to "punish" Georgia denoted Russian intentions beyond restoring control over South Ossetia. When he announced on August 12 that Russian troops were ending their offensive against Georgia, he stated that Russia's aims had been accomplished and the aggressor punished. Various observers have suggested several possible Russian reasons for the "punishment" beyond inflicting casualties and damage. These include coercing Georgia to accept Russian conditions on the status of the separatist regions, to relinquish its aspirations to join NATO, and to depose Saakashvili as the president. In addition, Russia may have wanted to "punish" the West for recognizing Kosovo's independence, for seeking to integrate Soviet successor states (which are viewed by Russia as part of its sphere of influence) into Western institutions such as the EU and NATO, and for developing oil and gas pipeline routes that bypass Russia. The prospects of improved Russia-Georgia relations appeared dimmed by Russia's refusal to directly negotiate with Saakashvili, Georgia's decision on August 29 to sever diplomatic relations with Russia, and Russia's retaliatory severing of diplomatic ties with Georgia. Ruptured bilateral trade and transport ties—which have wider regional economic and humanitarian repercussions—are likely to persist for some time, according to many observers. The Russia-Georgia conflict seemed to show Putin as the dominant figure in the Russian government. Putin left the Beijing Olympics early and flew to Vladikavkaz in North Ossetia. State-controlled media showed Putin meeting with military officers and seemingly in charge of military operations. Later government-issued reports and telecasts of meetings between Medvedev and Putin during the crisis appeared to show Putin "suggesting" courses of action to Medvedev. Following international criticism of Russia's incomplete withdrawal of military troops from Georgia and its recognition of the regions as independent, both Putin and Medvedev escalated their anti-Western rhetoric, according to many observers. One Russian commentator raised concerns that the hard line followed by the Putin-Medvedev tandem strengthened the influence of the so-called siloviki —the representatives and veterans of the military, security, and police agencies—over foreign and defense policy. Many observers initially warned Russia that it risked international isolation by engaging in behavior widely condemned by the world of nations. Prime Minister Putin downplayed the significance of various sanctions considered by the West, including the value of Russia joining the World Trade Organization or retaining membership in the G-8, and appeared to implement pre-emptive trade restrictions on U.S. food exports. At the same time, the EU, the COE, and NATO appeared to retreat from considering extended sanctions against Russia (see below). South Ossetia's "president" Kokoiti has stated that his region seeks unification with Russia, although according to one Russian media report, Russian officials urged him to soft-pedal this intention for the time being and to instead state that South Ossetia wanted to remain independent. Abkhazia's "president" Bagapsh stated that the region wants to remain independent, but to have ties with Russia that appear virtually confederal in nature. In 5-10 years, he stated, a decision could be made on unification with Russia. On September 17, 2008, Russia signed Friendship, Cooperation, and Mutual Assistance agreements with Abkhazia and South Ossetia. According to some Russian authorities, these agreements provide for the regions to "decide" on the number of Russian troops they host, so render inoperable arguments by the EU and the OSCE that Russian troop levels in the regions should accord with pre-conflict numbers. The friendship agreements effectively make the regions dependencies of Russia, according to some observers. They permit Russia to establish military bases in the regions and to deploy Russian border troops to help defend the regional borders. Residents of the regions are permitted to freely enter Russia and Russian embassies protect the interests of the residents of the regions when they travel abroad. Perhaps merely codifying the existing trend before the Russia-Georgia conflict, the regions pledge to "unify" their civil, tax, welfare, and pension laws and their banking, energy, transportation, and telecommunications systems with those of Russia. The Commonwealth of Independent States dissolved the CIS "peacekeeping" mandate in the regions in mid-October 2008, but Russian troops were invited by the regions to establish bases in line with the friendship agreements. In February 2009, the Russian general staff announced that it was constructing or revamping facilities at Java and Tskhinvali in South Ossetia and Gudauta in Abkhazia for the 3,700 troops being sent to each region. It was also announced that some ships from the Black Sea Fleet would be deployed to Abkhazia's port town Ochamchire. NATO and the EU criticized the basing arrangements as destabilizing. According to some observers, Russia's recognition of the independence of Abkhazia and South Ossetia conferred legitimacy on the existing ruling groups in the regions—which include corrupt "elected" officials and organized crime leaders—and gave permanence to smuggling networks allegedly run by Russian "peacekeepers" and security personnel. These observers warn that this enhanced Russian backing increased the threats posed by smuggling and other criminal activities to Georgia's stability. In the wake of recognizing the regions, Russia appeared to reshuffle some regional officials as a condition for granting economic assistance, perhaps indicative of the criminal activities of the de facto officials. Russia and Georgia have campaigned to convince international observers that the other party initiated the conflict. Georgian officials released cell phone intercepts in September 2008 that they claimed showed that the Russian offensive had been launched before the Georgian troops moved into Tskhinvali. Russian officials have denied that these cell phone intercepts indicate a pre-planned massive movement of Russian attackers through the Roki tunnel. Russian oppositionist Andrey Illarionov has alleged that North Caucasian "volunteers" moved into South Ossetia in early August to prepare an attack. Some Russian military forces also had been prepositioned, but major troop movements took place through the Roki tunnel on the evening of August 7. Georgian troops became aware of this attack, entered South Ossetia, and raced toward the Roki tunnel to try to halt the Russian advance, he has alleged. Conversely, Russian authorities on September 25 released supposed captured Georgian "war plans" that they claimed "proved" that Georgia's attack on South Ossetia was prepared in advance to annihilate ethnic Ossetians and re-establish government control. Russia also has justified its incursion into Abkhazia and other areas of western Georgia by alleging that Georgia's "war plans" included military action in Abkhazia after control was re-asserted over South Ossetia. Examining these conflicting accusations, PACE approved a resolution on October 2, 2008, that urged an international investigation of the causes of the conflict, among other matters. In early December 2008, the EU finance ministers approved setting up such an international commission. To emphasize its international composition, former U.N. special representative to Georgia Heidi Tagliavini, from non-EU Switzerland, was picked as commission head. The commission has conducted interviews with the parties to the conflict zone and conducted other research and is expected to release a report by the end of July 2009. Georgia also set up a nonpartisan legislative commission in October 2008 to investigate the causes of the conflict. This commission heard lengthy testimony from nearly two dozen government witnesses, including President Saakashvili. In its December 2008 report, the commission concluded that Georgia's military action in South Ossetia on August 7-8 was a response to a plan set in motion by Russia over a period of months that culminated in an invasion by more than 40,000 Russian troops. Some critics of the report claimed that the commission members backed Saakashvili's account of events out of patriotism and so as not to appear pro-Russian. Estimates of dead and injured have varied, in part because Russia initially limited media and most NGO access to South Ossetia. However, early claims by sources in South Ossetia that 1,500-2,000 people were killed during the conflict with Georgia have appeared overblown. In December 2008, an official in the Russian Prosecutor's Office stated that 162 civilians had been killed in South Ossetia, and in February 2009, a Russian deputy defense minister stated that 64 military personnel had been killed and 283 wounded in the region during the conflict. Russian military sources reported that four of its warplanes had been shot down. On September 15, 2008, the Georgian government reported that 372 citizens had died, of which 168 were military servicemen, 188 civilians, and 16 policemen. However, there were dozens of "missing persons," which eventually may result in a revised death toll. These casualty figures had not been updated by early 2009. According to Georgian and NGO reports, Ossetian and allied paramilitary forces in South Ossetia continue to engage in "ethnic cleansing" against ethnic Georgians, forcing those remaining to flee the region. A similar process allegedly is taking place in Abkhazia. According to a report prepared by the World Bank for the donors' conference in October 2008, about 127,000 persons were displaced by the fighting in Georgia, South Ossetia, and Abkhazia at the height of the conflict. Over 68,000 displaced persons (in Georgia and the regions) had returned to their homes, according to the World Bank, but about 34,000 persons needed temporary shelter until they could return to their houses in the spring, and about 30,000 persons needed long-term housing because they could not return or their homes had been destroyed. The returnees were in need of assistance to restore their livelihoods and repair damage to their property. In addition, 100,000 people that were affected directly or indirectly by the conflict might need assistance. Russia's Emergency Situations Ministry reported in mid-September that almost all of the 35,000 South Ossetians whom had fled to North Ossetia during the fighting had returned to their homes and that all the temporary accommodation facilities opened in North Ossetia had been closed. Some 2,000 South Ossetians remained in the north, mainly those whose houses had been heavily damaged. The Georgian government moved quickly to provide housing for the displaced persons. Many people were housed temporarily in schools or other public buildings or lived with relatives. The government rehabilitated thousands of damaged houses or apartments and constructed nearly 4,000 houses in several new communities for people likely to be displaced for some time. Some of these houses were provided with plumbing and heating and were designed for indefinite use while others were more rudimentary and designed for temporary use. Some observers have raised concerns that these new communities are not fully provided with social services and are not near places of work. Concerns also have been raised that some displaced persons have been forced to return to conflict areas even though their housing remains damaged or they fear ongoing cross-border violence. On August 12, 2008, Georgia filled a case against Russia at the International Court of Justice (ICJ) for alleged crimes in Abkhazia and South Ossetia between 1990 and 2008. President Medvedev also had threatened to file a case with the Court about Georgia's "genocide" in South Ossetia. The Court held an urgent hearing on the case on September 8-10, 2008. Besides an examination of Russia's support for ethnic cleansing, Georgia requested that the Court declare as unlawful Russia's moves to recognize the separatist regions and Russia's denial of the right of return of internally displaced ethnic Georgians. The case also requested monetary compensation for the damage Russia has inflicted on Georgia. On October 15, the ICJ issued a "provisional measures" order to Russia and Georgia to immediately cease and desist from further acts of ethnic discrimination, to facilitate humanitarian assistance, and protect people and property in the conflict zone. Several NGOs have alleged that both Russia and Georgia committed human rights abuses during the conflict. Human Rights Watch (HRW) has alleged that the Georgian military used "indiscriminate and disproportionate force resulting in civilian deaths in South Ossetia" on August 7-8, and that the Russian military subsequently used "indiscriminate force" in South Ossetia and the Gori area, and targeted convoys of civilians attempting to flee the conflict zones. HRW has alleged that both Russia and Georgia used cluster bombs against civilians, and has rejected claims by Russia that Georgia was carrying out "genocide" in South Ossetia. HRW announced on September 1 that it had received a letter from the Georgian Defense Ministry admitting that it had used cluster bombs near the Roki tunnel. The Dutch government released a report on October 20 that concluded that Russia had used cluster bombs in Gori. Russia has encouraged hundreds of South Ossetians to file cases with the European Court of Human Rights and the International Criminal Court alleging human rights abuses by Georgia during the conflict. Georgians similarly have filed dozens of cases alleging Russian abuses. Myriad world leaders and organizations initially rushed to mediate the Georgia-Russia conflict. While many governments have appeared to consider that both Russia and Georgia may share blame for the recent conflict, they have stressed that the most important concern at present is implementation of a ceasefire regime and urgent humanitarian relief. These governments have criticized Russia for excessive use of force and peremptorily recognizing the independence of Abkhazia and South Ossetia in violation of the principle of Georgia's territorial integrity, and Georgia for attempting to reintegrate South Ossetia by force. Immediately after the events of August 7-8, the U.N. Security Council (UNSC) met daily for several days to attempt to agree on a resolution, but Russia and China refused to agree to various texts proffered by the United States, France, and Great Britain. The latter states were working on a resolution based on the EU peace plan (see below). At the UNSC meeting on August 10, U.S. Permanent Representative Zalmay Khalilzad denounced the "Russian attack on sovereign Georgia and targeting of civilians and a campaign of terror," and warned that "Russia's relations with the United States and others would be affected by its continued assault on Georgia and its refusal to contribute to a peaceful conclusion of the crisis." Churkin countered that it was "completely unacceptable" for Khalilzad to accuse Russia of a campaign of terror, "especially from the lips of a representative of a country whose action we are aware of in Iraq, Afghanistan, and Serbia." On August 10, Lavrov claimed that Rice had "incorrectly interpreted" remarks he made to her in a phone conversation earlier about Saakashvili. Lavrov emphasized that Russia "cannot consider as a partner a person [referring to Saakashvili] who gave an order to carry out war crimes," but he rejected the inference that Moscow was demanding Saakashvili's ouster as a condition for ending military operations. The presidents of the three Baltic states and Poland called on August 9 for the EU and NATO to oppose the "imperialist policy" of Russia. The next day, Polish President Lech Kaczynski unveiled a plan worked out by the Baltic states, Poland, and Ukraine, for an international stabilization force for the South Caucasus, and recommended the plan to French President Sarkozy for consideration by the EU. Commenting on the plan, Polish Foreign Minister Radoslaw Sikorski stated that an EU stabilization force was needed, since "it is no longer possible for Russian soldiers alone to assure the peace in South Ossetia." In apparent contrast to the Polish position, Italy's Prime Minister Silvio Berlusconi warned against the EU adopting an "anti-Russian" stance regarding the Russia-Georgia conflict. EU foreign ministers met in Brussels in emergency session on August 13. They emphasized support for the EU peace plan, called for bolstering OSCE monitoring in South Ossetia, and suggested that EU or U.N. observers might be necessary. European and other international leaders were overwhelmingly critical of what they viewed as Russia's non-compliance with the provision of the six-point peace plan that called for Russia to immediately withdraw its military forces from Georgia. European and other international leaders likewise were overwhelmingly critical of Medvedev's decision to recognize the independence of Abkhazia and South Ossetia. Chancellor Merkel termed the recognition "absolutely not acceptable," and raised the hope that a dialogue still could be opened with Russia, although she stated that such a dialogue presupposed "shared values, and those include respecting the territorial integrity of individual states, as well as the use of international mechanisms to resolve conflicts." Sarkozy, in his capacity as the EU President, issued a statement strongly condemning the recognition as "contrary to the principles of the independence, the sovereignty and the territorial integrity of Georgia," and that the EU would "examine from this point of view the consequences of Russia's decision." Italian Foreign Minister Franco Frattini likewise decried the apparent creation of ethnically-homogeneous enclaves, but cautioned against a Western reaction of isolating Russia. During a UNSC meeting on August 28, most members criticized Russia's non-compliance with the six-point plan and the recognition of Abkhazia and South Ossetia, including the United States, Great Britain, France, Spain, Costa Rica, Belgium, and Indonesia. U.S. Deputy Permanent Representative Alejandro Wolff reportedly condemned Russia's recognition of South Ossetia and Abkhazia as incompatible with a UNSC resolution approved in April 2008 that reaffirmed the commitment of U.N. Members to respect the territorial integrity of Georgia. He raised the question that such disregard for the resolution by Russia could be a portent of further disregard for the U.N. He also stated that Russia's attack in Abkhazia disregarded UNOMIG's mandate. Churkin responded that UNSC members should not have violated U.N. resolutions by recognizing Kosovo. Some observers called for sanctions against Russia. These included no longer inviting Russia to participate in the Group of Eight (G-8) industrialized democracies, withdrawing support for Russia as the host of the 2014 Winter Olympics in Sochi, and re-examining Russia's suitability for membership in the World Trade Organization (WTO). U.S. analyst Ariel Cohen urged the West "to send a strong signal to Moscow that creating 19 th century-style spheres of influence and redrawing the borders of the former Soviet Union is a danger to world peace." EU analyst Nicu Popescu called for the EU to sanction Russia, including by suspending talks on a new Partnership and Cooperation Agreement. In practice, however, the desire in the West for engagement with Russia on counter-terrorism and energy issues appeared to rule out imposing harsh sanctions. At a session of the European Parliament (EP) on September 3, a resolution was approved that did not impose sanctions on Russia, although it agreed that consultations on a new Partnership and Cooperation Agreement would be postponed until Russia immediately and completely withdrew its troops from Georgia. The EP strongly condemned Russia's recognition of the independence of South Ossetia and Abkhazia. It called for an international investigation of the causes of the Russia-Georgia conflict, under the aegis of the U.N. or the OSCE. However, the EP also asserted that "during the night of 7-8 August 2008 the Georgian army launched ... a ground operation using both tanks and soldiers aimed at regaining control over South Ossetia." Nonetheless, the EP condemned "the unacceptable and disproportionate military action by Russia and its deep incursion into Georgia," and stressed that there was "no legitimate reason for Russia to invade Georgia, to occupy parts of it and to threaten to override the government of a democratic country." The EP called on sending EU observers to Georgia, a proposal endorsed at the meeting of EU foreign ministers on September 6. The foreign ministers also concurred with the EP on opening an international inquiry into the causes of the conflict. Similarly, some members of the COE advocated suspending Russia's voting rights in the organization because of its violations of membership commitments on human rights. However, other members argued that Georgia also had violated commitments on human rights. At the late September-early October 2008 session of the Parliamentary Assembly of the Council of Europe (PACE), the resolution did not mention sanctions against Russia (or Georgia), instead stressing that PACE should facilitate dialogue between Russia and Georgia. On September 15, 2008, the EU External Relations Council decided on the mandate, composition, and financing of the EU mission to Georgia. The Council, composed of foreign ministers of the EU states, decided that at least 200 civilian observers would be deployed to the buffer zones around Abkhazia and South Ossetia by October 1. It also supported launching an independent international inquiry into the causes of the Russia-Georgia conflict, called for a donors' conference for Georgian rebuilding to be held in Brussels in October, and appointed Pierre Morel as Special Representative for the crisis in Georgia. At the EU-Russia summit in Nice, France, on November 14, 2008, the EU agreed to restart talks with Russia on a Partnership and Cooperation agreement. In explaining the decision, the EU's High Representative for the Common Foreign and Security Policy, Javier Solana, stated in February 2009 that the EU "opted for dialogue and negotiation [with Russia] rather than sanctions as the best means of passing our messages and defending our interests ... including by maintaining a significant mission on the ground in Georgia. Russia knows that what happens there is important for our relationship." Several Western diplomats and analysts drew parallels between Russia's activities in Georgia and the 1999 NATO bombing of Serbia (Yugoslavia), which was aimed at forcing Serb President Slobodan Milosevic to end Serbian attacks in the Kosovo region. Moscow opposed the NATO operation. According to former Greek diplomat Alex Rondos, "Russia wants to serve up to the West a textbook copy of what the West did to Serbia, but of course it's a ghastly parody." These observers point to the large-scale ethnic cleansing and the deaths of thousands of Kosovars. They are critical of Russia's disproportionate response in Georgia and stress that NATO's military aircraft and artillery did not target civilians in Serbia, as Russian forces and allied militias allegedly targeted ethnic Georgian villages in South Ossetia and across the border. They also stress that NATO halted operations after Serbia pulled its forces out of Kosovo and accepted international peacekeeping, while Russia continued operations after Georgia's withdrawal of troops from South Ossetia and its calls for a ceasefire. Lastly, the international community spent several years discussing the status of Kosovo and strengthening the capacity of the regional government for self-rule. While some commentators asserted that Georgia's military incursion into South Ossetia was unjustifiable, others argued that Georgia had been provoked by Russia and South Ossetia and had been forced to counter-attack. Taking the former view, London's Independent argued on August 10 that "U.S. Secretary of State Condoleezza Rice ... should, while defending Georgia's sovereignty, also point out to President Saakashvili that the US cannot underwrite a bellicose approach towards its separatist regions. The publication Jane ' s similarly stressed on August 14 that "Tbilisi's confidence in launching its South Ossetian operations was incredibly misplaced." Taking the latter view, U.S. analyst Robert Kagan argued that Russia "precipitated a war against Georgia by encouraging South Ossetian rebels," and that Saakashvili "[fell] into Putin's trap." Taking a seemingly dim view of Russian intentions, U.S. analyst Ronald Asmus stated that "despite everything we may have hoped for we are in a new geopolitical competition in the old Soviet spheres of influence. We may lose Georgia. We may lose the ... best chance for a democratic future in the Caucasus. The next target for Moscow will be Ukraine." One Italian commentator asserted that Russia's actions in Georgia represented the beginning of Russia's efforts to roll back the Euro-Atlantic integration of Eastern European and Soviet successor states. Some observers raised concerns that Russia's alleged attempts to bomb the Georgian sections of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline and the South Caucasus [gas] Pipeline (SCP) were Russian attempts to disrupt Caspian energy pipelines that it does not control. The BTC pipeline provides oil to Europe and the United States. The SCP provides gas to Turkey and to EU-member Greece, and may be further extended to other EU members. Azerbaijan's pledge to provide gas through a prospective Nabucco pipeline that would run through Georgia and Turkey to Europe also might face greater Russian opposition, as might the proposed trans-Caspian oil and gas pipelines, which would provide Central Asian countries with non-Russian export routes to the West. Some observers in Soviet successor states voiced concerns that Russia's actions in Georgia did not bode well for their own sovereignty and independence. Russia's Moscow Times newspaper termed Russia's actions in Georgia "the strongest possible signal of how far [Russia] is ready to go to retain influence" in other Soviet successor states, and warned that these states are likely to "seek protection from the West," because of fears that they one day might be invaded. Ukraine's officials voiced heightened concerns about Russian intentions, including over threats by Putin and others in Russia to encourage secessionism by eastern Ukraine and the Crimean peninsula. Azerbaijan's authorities also appeared to have a new level of hesitancy about settling the problem of the breakaway Nagorno Karabakh region by force, because of fears that Russia might intervene. Similarly, some officials in Armenia reportedly have added concerns that the country's close security ties with Russia could result in the infringement of Armenia's sovereignty. While Kazakhstan and Uzbekistan quickly endorsed Russia's actions and shipped humanitarian assistance to North and South Ossetia, they also refused to extend diplomatic recognition to Abkhazia and South Ossetia. Belarus faced pressure from Russia to extend diplomatic recognition to the regions, while the EU warned Belarus that its eligibility for the planned Eastern Partnership might be placed in jeopardy by such a move. On August 19, 2008, Russia agreed that 20 OSCE military observers could be deployed immediately to an area adjacent to South Ossetia to supplement eight monitors who were already in Georgia. The OSCE anticipated that the number of observers later would be bolstered to 100. Then-Secretary Rice stated that the United States would facilitate the transport and equipping of the monitors. The initial group of monitors began work at the end of August. In September 2008, however, the OSCE talks on sending 100 observers to Georgia were at least temporarily suspended, reportedly over the insistence by some members that the observers be given access to South Ossetia and Russia's refusal to permit such access. Finally, in December 2008, Russia's insistence that a proposed OSCE field office in Tskhinvali be negotiated with South Ossetia as an independent state led the OSCE to announce that no agreement could be reached on the extension and alteration of the mandate of the OSCE Mission in Georgia and that it would cease work. In February 2009, however, the OSCE agreed that the 20 new military observers would stay in Georgia until the end of June 2009, but that the eight members of the OSCE Mission in Georgia would cease work by the end of March 2009. At the January 26-29, 2009, session of the Parliamentary Assembly of the Council of Europe (PACE), a resolution called for Russia and Georgia to fully implement pledges—made as part of the ceasefire that ended the active phase of the August 2008 conflict—on the treatment and repatriation of displaced persons. The resolution condemned continuing human rights violations in Georgia's breakaway Abkhazia and South Ossetia regions (which are under Russia's control), and called for humanitarian aid workers and ceasefire monitors to be provided with open access to the regions. Although not reflected in the resolution, some members condemned the continued presence of Russian troops on Georgian territory in violation of ceasefire provisions and called for Russia to rescind its recognition of the independence of the breakaway regions. In February 2009, the UNSC renewed the mandate of UNOMIG, although referring to it only as the "United Nations mission." The renewal expires in mid-June 2009. Significantly, the UNSC resolution reinstates a buffer zone between Abkhazia and the rest of Georgia, where heavy military weaponry and armed forces are banned. In his report to the UNSC covering the period just before the UNSC meeting, the U.N. Secretary General mentioned the presence of Russian armed forces and heavy equipment, Abkhaz paramilitary forces and heavy equipment, and light forces used by Georgian police in the zone. Besides the U.N. observers, U.N. police continue to provide training and equipment to Abkhazians and Georgians. Many countries, international organizations, and NGOs quickly mobilized to deliver large amounts of relief to Georgia. The U.N. World Food Program reported that it began efforts in Georgia on August 9, and UNHCR reported that its first aid shipment arrived in Georgia on August 12. The ICRC issued a preliminary appeal on August 11 for $7.4 million to support its efforts to monitor captured or arrested persons, to provide surgical care for the wounded; and to assist civilians in South Ossetia and the rest of Georgia and persons displaced to North Ossetia. The U.N. Office for the Coordination of Humanitarian Affairs (OCHA) issued a Flash Appeal on August 18, 2008, for $58.5 million in humanitarian aid for Georgia over the next few months. Pledges made as a result of this appeal have been included in the amounts pledged at the October donors' conference (see below). Among international institutions and NGOs, Russia has permitted only the ICRC and Human Rights Watch to work in South Ossetia. Regional "president" Kokoiti has stated that he will not permit aid organizations that have their primary offices in Georgia to conduct operations in South Ossetia. In early September 2008, the International Monetary Fund (IMF) announced plans for an 18-month stand-by assistance package of $750 million for Georgia, which received final approval by the IMF in mid-September 2008. The EU and World Bank convened a donors' conference in Brussels on October 22, 2008, to garner international funds for Georgia's rebuilding. Thirty-eight countries and fifteen international organizations pledged approximately $4.5 billion in aid to Georgia for the 2008-2010 period. The amount pledged was higher than the basic needs outlined in a Joint Needs Assessment report presented to the conference, indicating the high level of international concern over Georgia's fate. The pledges are addressed to meet urgent social needs related to internally displaced people, as well as damaged infrastructure; budgetary shortfalls; loans, equity, and guarantees to the banking sector; and core investments in transportation, energy, and municipal infrastructure that will boost economic growth and employment. The United States pledged the largest amount—$1 billion—for these efforts (see below). For years, the United States had urged Georgia to work within existing peace settlement frameworks for Abkhazia and South Ossetia—which allowed for Russian "peacekeeping"—while criticizing some Russian actions in the regions. This stance appeared to change during 2008, when the United States and other governments increasingly came to support Georgia's calls for the creation of alternative negotiating mechanisms to address these "frozen" conflicts, particularly since talks under existing formats had broken down. This U.S. policy shift was spurred by increasing Russian actions that appeared to threaten Georgia's territorial integrity. Among these, the Russian government in March 2008 formally withdrew from economic sanctions on Abkhazia imposed by the Commonwealth of Independent States, permitting open Russian trade and investment. Of greater concern, President Putin issued a directive in April 2008 to step up government-to-government ties with Abkhazia and South Ossetia. He also ordered stepped up consular services for the many "Russian citizens" in the two regions. He proclaimed that many documents issued by the separatist governments and businesses which had been established in the regions would be recognized as legitimate by the Russian government. Georgian officials and other observers raised concerns that this directive tightened and flaunted Russia's jurisdiction over the regions and appeared to be moving toward official Russian recognition of their independence. A meeting of the U.N. Security Council (UNSC) on April 23, 2008, discussed these Russian moves. Although the Security Council issued no public decision, the United States, Great Britain, France, and Germany stated that same day that they "are highly concerned about the latest Russian initiative to establish official ties with ... Abkhazia and South Ossetia without the consent of the Government of Georgia. We call on the Russian Federation to revoke or not to implement its decision." The Russian foreign ministry claimed that Russia's actions had been taken to boost the basic human rights of residents in the regions. According to one U.S. media report, Bush Administration officials "were taken by surprise" by Georgia's attempt to occupy South Ossetia in early August 2008, since the Administration had cautioned Georgia against actions that might result in a Russian military response. At the same time, a "senior U.S. official" on August 9 reportedly described the fighting in South Ossetia as localized and unlikely to escalate. President Bush was at the Beijing Olympics when large-scale fighting began. Although he did not cut short his trip (unlike Putin), President Bush stated on August 9 in Beijing that "Georgia is a sovereign nation, and its territorial integrity must be respected. We have urged an immediate halt to the violence and a stand-down by all troops. We call for the end of the Russian bombings." A similar statement was issued by then-Secretary Rice. On August 10, then-Deputy National Security Adviser James Jeffrey warned Russia of a "significant long-term impact" on US-Russian relations if Moscow continued "disproportionate actions" in Georgia and urged Russia to respond favorably to Georgia's withdrawal of forces from South Ossetia. Late on August 10, Deputy Assistant Secretary of State Matthew Bryza flew to Tbilisi to assist with Koucher's EU peace plan. On August 10, Russian Foreign Minister Sergei Lavrov told then-Secretary Rice in a phone conversation that "given the continuing direct threat to the lives of Russian citizens in South Ossetia, Russian peacekeeping forces... are continuing operations to force peace on the Georgian side." U.S. Permanent Representative to the U.N. Khalilzad revealed that Lavrov had told Rice that Saakashvili "must go" as a condition for a ceasefire. Former Vice President Cheney issued a statement on August 10 after a phone conversation with Saakashvili that "Russian aggression must not go unanswered," and that the continuation of aggression "would have serious consequences for [Russia's] relations with the United States, as well as the broader international community." Also appearing to take a stronger stance, former President Bush on August 11 referred to his conversation with Putin on August 8, stating that he had told Putin that "this violence [in Georgia] is unacceptable," and that he had "expressed my grave concern about the disproportionate response of Russia and that we strongly condemn bombing outside of South Ossetia." On August 12, then-Secretary Rice stated that she was encouraged by reports from French Foreign Minister Koucher in Moscow that there was progress in talks with President Medvedev about the EU peace plan, and reiterated that the United States supports Georgia's territorial integrity and "its democratically elected government." On August 10, the U.S. military began flying 2,000 Georgian troops home from Iraq after Georgia recalled them. A U.S. military spokesman stated that "we want to thank them for the great support they have given the coalition and we wish them well." Another military spokesman stated that "we are supporting the Georgian military units that are in Iraq in their redeployment to Georgia so that they can support requirements there during the current security situation. On August 11, Putin criticized these U.S. flights as aiding Georgia in the conflict. In a strong statement on August 13, former President Bush called for Russia "to begin to repair the damage to its relations with the United States, Europe, and other nations, and to begin restoring its place in the world [by meeting] its commitment to cease all military activities in Georgia [and withdrawing] all Russian forces that entered Georgia in recent days." He raised concerns that some Russian troops remained in the vicinity of Gori and Poti. He announced that he was sending then-Secretary Rice to France to "confer with President Sarkozy" on the EU peace plan and to Georgia, "where she will personally convey America's unwavering support for Georgia's democratic government [and] continue our efforts to rally the free world in the defense of a free Georgia." He also announced that Defense Secretary Robert Gates would direct a humanitarian aid mission, which already had begun with an airlift of medical supplies to Tbilisi. Bush Administration officials stated that they hoped to maintain cooperation with Russia on anti-terrorism (including assistance in operations in Afghanistan), non-proliferation, and sanctions against Iran and North Korea. On August 14, however, Secretary Gates stated that the Russia-Georgia conflict had forced the Administration to reconsider efforts to carry on "a long-term strategic dialogue with Russia," and that "Russia's behavior ... has called into question the entire premise of that dialogue and has profound implications for our security relationship going forward, both bilaterally and with NATO." In seemingly harsh language on August 19, then-Secretary Rice asserted that Russia is "becoming more and more the outlaw in this conflict," and that by "invading smaller neighbors, bombing civilian infrastructure, going into villages and wreaking havoc and wanton destruction of this infrastructure," Russia is isolating itself from the "community of nations." Deputy Assistant Secretary of State Matthew Bryza presented the most detailed Administration position on the events in Georgia in a briefing on August 19 and in testimony on September 10. He appeared to argue that the outbreak of fighting in Georgia's breakaway South Ossetia region on the night of August 7-8 was preplanned and provoked by Russia. He pointed out that "South Ossetia's government and its security structures are run by Russian officials [who were] commanding these South Ossetian forces that were shooting at ... Georgian peacekeepers or troops and villages." He also asserted that "there was an offensive under way from Russia, through the Roki Tunnel, toward Tskhinvali and Kurta and other ethnically Georgian villages. And at that point, the Georgian leadership told some of us: We have no choice but to defend our villages and our people" and lift a cease-fire that Georgia had declared earlier. Despite this evidence, Bryza maintained, "whoever shot whom first is now no longer the issue at all. It is that Russia has escalated so dramatically and brutally.... Russia has moved well beyond South Ossetia.... It used strategic bombers to target civilian[s]," blocked the port of Poti, and destroyed east-west rail lines. Moreover, he stressed, Russian forces also invaded Georgia from its breakaway Abkhazia region, which "has nothing to do with South Ossetia at all.... In the case of Abkhazia, it was the Abkhaz who attacked the Georgians." Bryza stated that the Administration in early August had "strongly recommended" to Georgia that it "not engage in a direct military conflict with Russia." Indicative of heightened tensions in U.S.-Russia relations, Prime Minister Putin alleged on August 28, 2008, that the United States may have orchestrated the conflict in Georgia to disguise its economic and foreign policy problems and boost the prospects of a presidential candidate. He also alleged that the United States not only failed to dissuade Georgia from operations in South Ossetia on August 7-8, but armed the Georgians and directed them to attack. Then-White House press secretary Dana Perino responded that the allegations were "patently false" and "not rational," and that "it is a time for the countries who believe in sovereignty, independence, and territorial integrity to band together to fight against" Russia's violation of such principles. President Medvedev later repeated the allegations that Saakashvili had received "direct orders, or [at least] silent approval" from the United States to launch an "idiotic action" against South Ossetia. Then-Vice President Cheney visited Georgia on September 4 to assure that "America will help Georgia rebuild and regain its position as one of the world's fastest growing economies. [Saakashvili] and his democratically elected government can count on the continued support and assistance of the United States." He also stated that the United States was coming to the aid of Georgia, as it had aided Georgia after the 2003 "rose revolution" that had brought Saakashvili to power, to help Georgia "to overcome an invasion of your sovereign territory, and an illegitimate, unilateral attempt to change your country's borders by force.... We will help your people to heal this nation's wounds, to rebuild this economy, and to ensure Georgia's democracy, independence and further integration with the West." He visited Ukraine on September 5 to similarly reassure the country of U.S. support for its sovereignty and independence in the wake of Russia's invasion of Georgia and Medvedev's assertions of a Russian sphere of influence in Soviet successor states and special interests in the fate of Russian "citizens" abroad. In a speech in Italy on September 6, 2008, that appeared to mark deepened U.S.-Russian tensions, former Vice President Cheney stated that "Russia has violated the sovereignty of [democratic Georgia]; made and then breached a solemn agreement, in a direct affront to the EU; severely damaged its credibility and global standing; and undermined its own relations with the United States and other countries." Then-Secretary Rice delivered a speech on September 18 that similarly strongly excoriated Russia for its aggressive foreign policy behavior, including the invasion of Georgia. She stated that "Russia's leaders had laid the groundwork" for "what by all appearances was a premeditated invasion" of Georgia "months ago, distributing Russian passports to Georgian separatists, training and arming their militias, and then justifying the campaign across Georgia's border as an act of self-defense." However, she did not call for U.S. or international sanctions on Russia, and stated that "the Sochi declaration signed earlier this year provided a strategic framework for the United States and Russia to advance our many shared interests. We will continue by necessity to pursue our areas of common concern with Russia." In a retort on September 22 to then-Secretary Rice's speech, the Russian Foreign Ministry asserted that Russia's military response to Georgia's "attack on Russia" had been proportionate. The major Bush Administration action was the September 8 withdrawal of consideration by Congress of the U.S.-Russia Agreement for Peaceful Nuclear Cooperation, submitted to Congress in May 2008. In his letter of withdrawal, former President Bush stated that his decision was in response to "recent actions by the Government of the Russian Federation incompatible with peaceful relations with its sovereign and democratic neighbor Georgia." He added that "if circumstances should permit future reconsideration of the proposed Agreement ... the proposed Agreement will be submitted for congressional review." On August 26, former President Bush condemned Medvedev's decision to recognize South Ossetia and Abkhazia as "inconsistent with numerous U.N. Security Council Resolutions that Russia has voted for in the past and ... with the French-brokered six-point ceasefire agreement.... We expect Russia to live up to its international commitments, reconsider this irresponsible decision, and follow the approach set out in the six-point agreement." Then-Secretary Rice expressed "regret" that Russia had violated a provision of the six-point peace plan that calls for international talks on the future of Abkhazia and South Ossetia. She stated that any attempt by Russia to bring the matter of Abkhazian and South Ossetian independence before the U.N. Security Council would "simply ... be dead on arrival." The State Department also hinted at possible "consequences" for U.S.-Russia relations. The former Bush Administration's strong support for Georgia was reflected in the U.S.-Georgia Charter on Strategic Partnership, signed in January 2009, which states that "our two countries share a vital interest in a strong, independent, sovereign, unified, and democratic Georgia." The accord is similar to a U.S.-Ukraine Charter signed in December 2008 and a U.S.-Baltic Charter signed in 1998 with Estonia, Latvia, and Lithuania. In the security realm, "the United States and Georgia intend to expand the scope of their ongoing defense and security cooperation programs to defeat [threats to global peace and stability] and to promote peace and stability." Such cooperation will "increase Georgian capabilities and ... strengthen Georgia's candidacy for NATO membership." In the economic realm, the two countries "intend to pursue an Enhanced Bilateral Investment Treaty, to expand Georgian access to the General System of Preferences, and to explore the possibility of a Free-Trade Agreement." Energy security goals include "increasing Georgia's energy production, enhanc[ing] energy efficiency, and increas[ing] the physical security of energy transit through Georgia to European markets." In the realm of democratization, the two countries "pledge cooperation to bolster independent media, freedom of expression, and access to objective news and information," and to further strengthen the rule of law. The United States pledged to train judges, prosecutors, defense lawyers, and police officers. Before the signing, Georgian Foreign Minister Grigol Vashadze hailed the accord as a "stepping stone which will bring Georgia to Euro-Atlantic structures, to membership within NATO, and to [the] family of Western and civilized nations." Deputy Assistant Secretary Bryza stressed that the charter does not provide security guarantees to Georgia. He also stated that U.S.-Georgian defense cooperation programs were still being developed. According to some observers, the Charter aimed to reaffirm the United States' high strategic interest in Georgia's fate, after it had appeared that the United States (and the West) in recent months had acquiesced to increased Russian dominance in the South Caucasus. While these goals have received support from most policymakers, some observers have called for a re-evaluation of some aspects of U.S. support for Georgia. These critics have argued that many U.S. policymakers have been captivated by Saakashvili's charismatic personality and pledges to democratize and have tended to overlook his bellicosity. They also have suggested that the United States should not have unquestionably backed Georgia's territorial integrity, but should rather have encouraged reconciliation and the consideration of options short of the reintegration of the regions into Georgia. The U.S. Agency for International Development (USAID) reported on September 5 that USAID, the State Department, and the Defense Department had provided $38.36 million in direct humanitarian assistance to Georgia. Of this amount, the U.S. European Command (EUCOM) reported that its air transportation costs were $15.4 million for 59 flights to Georgia. Among U.S. Navy and Coast Guard deliveries, the USS McFaul docked at Georgia's port of Batumi to deliver nearly 80 tons of humanitarian assistance on August 24; the U.S. Coast Guard cutter Dallas docked at Batumi to deliver 34 tons of assistance on August 27; the USS Mt. Whitney docked at Poti to deliver 17 tons of aid on September 5. The Defense Department announced on September 8 that with the USS Mt. Whitney aid delivery it had completed its role in delivering urgent humanitarian supplies. On September 3, then-Secretary of State Rice announced a multi-year $1 billion aid plan for Georgia. According to the State Department's Deputy Director of Foreign Assistance Richard Greene, the Administration envisaged that over one-half of the funds could be allocated from FY2008-FY2009 budgets, and that the remainder for FY2010 could be appropriated by "the next Congress and the next administration." The Administration envisaged that its proposed $1 billion aid package would be in addition to existing aid and requests for Georgia, such as FREEDOM Support Act and Millennium Challenge Corporation (MCC) funds. The added aid was planned for humanitarian needs, particularly for internally displaced persons, for the reconstruction of infrastructure and facilities that were damaged or destroyed during the Russian invasion, and for safeguarding Georgia's continued economic growth. Besides the envisaged aid, the White House announced that other initiatives might possibly include broadening the U.S. Trade and Investment Framework Agreement with Georgia, negotiating an enhanced bilateral investment treaty, proposing legislation to expand preferential access to the U.S. market for Georgian exports, and facilitating Georgia's use of the Generalized System of Preferences. White House encouragement also was central to the elaboration by the IMF of a $750 million aid package for Georgia (as described above, in the " International Response " section). Congress acted quickly to flesh out the Administration's aid proposals for Georgia. The Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009 ( H.R. 2638 / P.L. 110-329 ), signed into law on September 30, 2008, appropriates an additional $365 million in aid for Georgia and the region for FY2009 (beyond that provided under continuing appropriations based on FY2008 funding) for humanitarian and economic relief, reconstruction, energy-related programs and democracy activities. In October 2008, Congress authorized $50 million for security assistance for Georgia under the National Defense Authorization Act for FY2009 ( P.L. 110-417 ; the so-called "Section 1207" authority). At the EU and World Bank-sponsored donors' conference on October 22, 2008, USAID Administrator Henrietta Fore announced that the United States would "make available by the end of 2008 approximately $720 million of the $1 billion we have pledged." Of this $720 million, $250 million would be provided for direct budget support, $100 million for urgent civilian reconstruction and stabilization needs, and up to $80 million for economic reconstruction. Also included in the $720 million are funds "already redirected to assist Georgia: $100 million in new funding for Georgia's Millennium Challenge Corporation Compact [and] $150 million in Overseas Private Investment Corporation support to make affordable mortgages available." She also pledged more humanitarian aid for the winter. Although U.S. officials stressed that the early U.S. aid response focused on humanitarian and economic assistance, EUCOM sent a team to Georgia in early September to assess defense needs (this EUCOM effort was separate from the earlier EUCOM humanitarian assistance assessment effort). In October, Congress authorized $50 million for FY2009 for security assistance for Georgia (see below). The State Department announced in early December 2008 that $757 million of the pledged $1 billion in new assistance had been provided or was in the process of being provided to Georgia, with the balance of $243 million to be appropriated by the next Congress. Already, $60 million had been provided in humanitarian assistance for food, water, bedding, and medicine, and $250 million had been made available to the Georgian government for fiscal stabilization and urgent governmental expenses, including pensions for government retirees, healthcare, allowances for displaced persons, secondary education, and salaries for government employees. Among in-process funding, the MCC was providing $100 million to Georgia to support existing programs, including road rehabilitation, water supply and waste water projects, gas pipeline repairs, and energy sector studies. The Defense Department was providing $50 million for urgent reconstruction and stabilization assistance, and OPIC was providing $176 million for mortgages and commercial and residential property development. Another $121 million was planned to be allocated for economic reconstruction, assistance to displaced persons, energy security-related programs, and strengthening Georgia's democratization. Some observers in Georgia and the West have argued that NATO's failure to offer Georgia a Membership Action Plan (MAP) at the April 2008 NATO summit emboldened Russia's aggressiveness toward Georgia. Others consider that NATO's pledge that Georgia eventually would become a member, as well as Georgia's ongoing movement toward integration with the West, spurred Russian aggression. Saakashvili argued on August 10 that Russia wanted to crush Georgia's independence and end its bid to join NATO. France and Germany, which had voiced reservations at the April 2008 NATO summit about extending a MAP to Georgia, may argue even more forcefully against admitting Georgia, citing both the higher level of tensions over the separatist regions, Georgia's military incursion into South Ossetia, and the danger of war with Russia. Although the United States strongly supported a MAP for Georgia at the April 2008 NATO summit, recent events may have dimmed this prospect. An emergency meeting of NATO ambassadors on August 12, 2008 reiterated "in very strong terms" support for a sovereign, independent Georgia, and "condemned and deplored [Russia's] excessive, disproportionate use of force," according to a report by NATO Secretary General Jaap de Hoop Scheffer. He termed Georgia "a highly respected partner of NATO," and stated that the question of a MAP for Georgia remains "very much alive" and may be decided in December 2008. At the same time, there was evidence of hesitancy among some NATO members about moving forward with a MAP for Georgia at the December 2008 session. NATO foreign ministers met in emergency session on August 19 in the face of Russian delays in withdrawing from Georgia. The day before the meeting, Russian Deputy Foreign Minister Alexander Grushko had warned that "Russia is fairly carrying out its obligations, including within the framework of our partnership with NATO. We continue to help NATO in Afghanistan, give transit opportunities and maintain cooperation in counteracting terrorism and the WMD non-proliferation. But if NATO tries to keep covering for Georgia we may have problems with the alliance." At a press conference following the session, NATO Secretary General Scheffer announced that "NATO-Russia Council meetings would be placed on hold until Russia adhered to the ceasefire, and the future of our relations will depend on the concrete actions Russia will take to abide by the peace plan." However, seeming to reflect disagreement within NATO about how to treat Russia, the final statement did not specifically state that NATO-Russia Council meetings would be suspended, although it did warn that "we have determined that we cannot continue with business as usual." It also stated that a new NATO-Georgia Commission would be set up to a body to oversee cooperative initiatives, including repairing Georgia's military capabilities. Russia responded by suspending most cooperation with NATO, although Russia's emissary to NATO stated on September 3 that Russia would continue to cooperate with NATO on trans-shipment of supplies to Afghanistan. The inaugural meeting of the NATO-Georgia Council was held in Tbilisi on September 15 as part of a visit by the North Atlantic Council ambassadors and Secretary-General Jaap de Hoop Scheffer. A communique adopted at the inaugural meeting reaffirmed NATO's commitment to Georgia's sovereignty and territorial integrity, raised concerns about Russia's "disproportionate" military actions against Georgia, and condemned Russia's recognition of the independence of Abkhazia and South Ossetia. The ambassadors stressed that NATO would continue to assist Georgia in carrying out the reform program set forth in Georgia's IPAP with NATO. In a separate statement, de Hoop Scheffer reportedly indicated that it might prove difficult to resume meetings of the NATO-Russia Council until Russia drew down the number of troops in South Ossetia and Abkhazia to pre-conflict numbers. On September 18-19, a meeting of NATO defense ministers further discussed Georgia's rebuilding needs and the implications of Russia's actions for Euro-Atlantic security. While the defense ministers were meeting, Russian President Medvedev accused NATO of "provoking" the August Russia-Georgia conflict rather than guaranteeing peace. At a NATO foreign ministers meeting in early December 2008, then-U.S. Secretary of State Condoleezza Rice appeared to acknowledge allied concerns about Georgia's readiness for a MAP by embracing a proposal to defer granting a MAP. The allies instead agreed to step up work within the NATO-Georgia Council to facilitate Georgia's eventual NATO membership, and to prepare annual reports on Georgia's progress toward eventual membership. At the February 20, 2009, meeting of the NATO-Georgia commission, NATO and Georgian defense ministers discussed recovery assistance to Georgia and Russia's construction of military bases in the breakaway regions. Addressing an associated meeting of NATO defense ministers, Secretary-General Jaap de Hoop Scheffer stated that "we have seen [Russia's] recognition of South Ossetia and Abkhazia. We see [Russia's] intention of establishing bases there.... And it is crystal clear that we do not agree with Russia there. We fundamentally disagree. Does that mean that this measured reengagement with Russia should stop for that reason? There my answer is, 'No it should not.' Because we should use the NATO-Russia Council ... to discuss these things where we fundamentally disagree." U.S. Defense Secretary Gates similarly endorsed exploring improved NATO ties with Russia, although he averred that the Obama Administration "has not yet looked comprehensively at its policies with respect to Russia, and so I think our position on that [on resuming NATO-Russia Council meetings], on what that ought to happen, is not yet settled." He stressed that the United States has "a continuing security relationship with Georgia. We're involved in training. We are involved in military reform in Georgia. So this is an ongoing relationship and it is a relationship that we are pursuing, both bilaterally and within the framework of our NATO allies." Congress has long been at the forefront in U.S. support for Georgia, including humanitarian, security, and democratization assistance as well as support for conflict resolution. Among recent actions, the Senate approved S.Res. 550 (Biden) on June 3, 2008, calling on Russia to disavow the establishment of direct government-to-government ties with Abkhazia and South Ossetia. Congress had begun its August 2008 recess during the height of the Russia-Georgia conflict, but many members spoke out on the issue. Several Members also visited Georgia after the ceasefire. Among the initial statements were: On August 8, House Foreign Affairs Committee Chairman Howard Berman urged all parties to cease fighting and for Russia to withdraw its troops and respect Georgia's territorial integrity. On August 8, the Senate Foreign Relations Committee's then-Chairman Joseph Biden called for U.S. officials and the U.N. Security Council to facilitate negotiations between the conflicting parties and stated that "Moscow has a particular obligation to avoid further escalation of the situation." On August 8, Representative Ileana Ros-Lehtinen stated that Russia's invasion of Georgia caused little surprise, given Russia's other increasingly aggressive foreign policy actions, and called for an international peacekeeping force for South Ossetia. On August 10, Senate Armed Services Committee Chairman Carl Levin averred that the United States does "not have much impact, I believe, in terms of [Administration] declarations anymore," but should work with Europe to make clear to Russia that its action "is way out of line" and to convince it to halt aggression in Georgia. On August 12, then-Senator Biden warned Russia that its aggression in Georgia jeopardized congressional support for legislation to collaborate with Russia on nuclear energy production and to repeal the Jackson-Vanik conditions on U.S. trade with Russia. On August 12, the bipartisan leadership of the House issued a statement strongly condemning "the recent Russian invasion of the sovereign state of Georgia," and calling for the "world community to re-engage in negotiations to end the conflict and restore stability in this region [and] ensure that the needs of ... the Georgian people are met." Senator John McCain, the Ranking Minority Member of the Senate Armed Services Committee, who had previously visited South Ossetia, condemned the Russian military incursion on August 8 and warned Russia that there could be severe, long-term negative consequences to its relations with the United States and Europe. He also stated on August 12 that he had phoned Saakashvili to offer support. Then-Senator Barack Obama, Chairman of the Senate Europe Subcommittee, on August 8 condemned the Russian military incursion into Georgia, called for Georgia to refrain from using force in South Ossetia and Abkhazia, and urged all sides to pursue a political settlement that addresses the status of the regions. Both Senators McCain and Obama have urged NATO to soon extend a MAP to Georgia. Upon ending its recess, the 110 th Congress convened several hearings and instigated other legislative actions dealing with the Russia-Georgia conflict. On September 9, the Senate Armed Services Committee held a hearing on the Current Situation in Georgia and Implications for U.S. Policy. That same day, the House Foreign Affairs Committee held a hearing on U.S.-Russia Relations in the Aftermath of the Georgia Crisis. On September 10, the Commission on Security and Cooperation in Europe held a hearing on Georgia and the Return of Power Politics. On September 17, the Senate Foreign Relations Committee held a hearing on Russia ' s Aggression Against Georgia: Consequences and Responses . On September 27, 2008, the Senate approved S.Res. 690 (Kerry), which expressed the sense of the Senate that irrespective of the origins of the Russia-Georgia conflict, the disproportionate military response by Russia was in violation of international law and diminished Russia's standing in the international community. The resolution also called on the United States to provide rebuilding aid and support democracy in Georgia, and to reaffirm that Georgia would eventually become a member of NATO. On September 30, 2008, a congressional appropriation of $365 million in added foreign assistance for Georgia and the region for FY2009 was signed into law ( H.R. 2638 ; P.L. 110-329 ). On October 7, 2008, a congressional authorization of $50 million in defense support for Georgia for FY2009 was signed into law ( S. 3001 ). In the 111 th Congress, H.Con.Res. 61 (Ros-Lehtinen), introduced on February 25, 2009, expresses the sense of Congress that Russia's continued membership in the G-8 should be conditioned on its compliance with its international obligations. The resolution adduces that Russia's military invasion of Georgia in August 2008 violated Georgia's territorial integrity, caused tens of thousands of persons to be internally displaced, and inflicted massive physical destruction. The resolution criticizes Russia's recognition of South Ossetia and Abkhazia as independent and Russia's establishment of military and naval bases in the regions.
|
In the early 1990s, Georgia and its breakaway South Ossetia region had agreed to a Russian-mediated ceasefire that provided for Russian "peacekeepers" to be stationed in the region. Moscow extended citizenship and passports to most ethnic Ossetians. Simmering long-time tensions escalated on the evening of August 7, 2008, when South Ossetia and Georgia accused each other of launching intense artillery barrages against each other. Georgia claims that South Ossetian forces did not respond to a ceasefire appeal but intensified their shelling, "forcing" Georgia to send in troops. On August 8, Russia launched air attacks throughout Georgia and Russian troops engaged Georgian forces in South Ossetia. By the morning of August 10, Russian troops had occupied the bulk of South Ossetia, reached its border with the rest of Georgia, and were shelling areas across the border. Russian troops occupied several Georgian cities. Russian warships landed troops in Georgia's breakaway Abkhazia region and took up positions off Georgia's Black Sea coast. French President Nicolas Sarkozy, serving as the president of the European Union (EU), was instrumental in getting Georgia and Russia to agree to a peace plan on August 15-16. The plan called for both sides to cease hostilities and pull troops back to positions they held before the conflict began. It called for humanitarian aid and the return of displaced persons. It called for Russian troops to pull back to pre-conflict areas of deployment, but permitted temporary patrols in a security zone outside South Ossetia. The plan also provided for a greater international role in peace talks and peacekeeping, both of seminal Georgian interest. On August 25, President Medvedev declared that "humanitarian reasons" led him to recognize the independence of the regions. This recognition was widely condemned by the United States and the international community. President Sarkozy negotiated a follow-on agreement with Russia on September 8, 2008, that led to at least 200 EU observers to be deployed to the conflict zone and almost all Russian forces to withdraw from areas adjacent to the borders of Abkhazia and South Ossetia by midnight on October 10. On August 13, former President Bush announced that then-Secretary of State Condoleezza Rice would travel to France and Georgia to assist with the peace plan and that Defense Secretary Robert Gates would direct U.S. humanitarian aid shipments to Georgia. Secretary Rice proposed a multi-year $1 billion aid plan for Georgia. Several Members of Congress visited Georgia in the wake of the conflict and legislation has been passed in support of Georgia's territorial integrity and independence. P.L. 110-329, signed into law on September 30, 2008, provides $365 million in added humanitarian and rebuilding assistance for Georgia for FY2009.The August 2008 Russia-Georgia conflict is likely to have long-term effects on security dynamics in the region and beyond. Russia has augmented its long-time military presence in Armenia by establishing bases in Georgia's breakaway Abkhazia and South Ossetia regions. Georgia's military capabilities were at least temporarily degraded by the conflict, and Georgia will need substantial U.S. and NATO military assistance to rebuild its forces. The conflict temporarily disrupted railway transport of Azerbaijani oil to Black Sea ports and some oil and gas pipeline shipments, although no pipelines were reported damaged by the fighting. Although there have been some concerns that the South Caucasus has become less stable as a source and transit area for oil and gas, Kazakhstan has begun to barge oil across the Caspian to fill the oil pipeline from Baku, Azerbaijan, to Ceyhan, Turkey (the BTC pipeline) and the European Union still plans to begin construction of the Nabucco gas pipeline from Azerbaijan to Austria in 2010.
|
O n October 23, 2015, the U.S. Environmental Protection Agency (EPA) published its final Clean Power Plan rule (CPP or Rule) to regulate emissions of greenhouse gases (GHGs), specifically carbon dioxide (CO 2 ), from existing fossil fuel-fired power plants. The goal of the Rule, according to EPA, is to help protect human health and the environment from the impacts of climate change. The CPP has been one of the more singularly controversial environmental regulations ever promulgated, and the controversy is reflected in the enormous multi-party litigation over the Rule in the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit). Numerous petitions challenging the Rule have been consolidated under the caption West Virginia v. EPA . While the litigation is still ongoing at the circuit court level, an interlocutory—that is, mid-litigation—application to the Supreme Court resulted in a stay, or pause, of the Rule. This report provides legal background on the Rule, its Clean Air Act (CAA) framework under Section 111, and some of the main climate-related lawsuits that have preceded the present litigation over the CPP. It then gives an overview of the participants in the litigation, including Members of Congress, who have offered briefs in support of both sides. This report explains the major events in the litigation as of the date of publication, including the Supreme Court stay and the D.C. Circuit oral argument, and the expected schedule of events in the near term. It then presents condensed summaries of some of the main arguments on the merits. This report concludes with a brief look at parallel litigation in the D.C. Circuit that is challenging a related EPA regulation, which limits GHG emissions from new, modified, and reconstructed power plants. The CAA encompasses a number of program authorities, all with the general aim of protecting human health and the environment from emissions that pollute ambient air. Debate over the use of the CAA to regulate GHG emissions has its origins at least as far back as 1999, when several groups filed a petition urging EPA to regulate GHG emissions from new motor vehicles and motor vehicle engines under CAA Section 202. EPA denied the petition in 2003 after soliciting public comments. Shortly thereafter, some of the groups were joined by 12 states and others in filing a petition for review of EPA's decision in the D.C. Circuit. The D.C. Circuit, in a fractured opinion, deferred to EPA's denial of the petition. On appeal, however, in its 2007 decision in Massachusetts v. EPA , a five-Justice majority of the Supreme Court held that EPA has statutory authority to regulate GHG emissions under CAA Section 202(a)(1), which requires the EPA Administrator to set emission standards for "any air pollutant" from motor vehicles "which in his judgment cause[s], or contribute[s] to" air pollution which "may reasonably be anticipated to endanger public health or welfare." GHGs, the Court said, unambiguously fell within the broad definition of "air pollutant." The Court also found that EPA had acted arbitrarily and capriciously in explaining its denial of the petition. Citing the Massachusetts v. EPA decision, EPA issued an "endangerment" finding and a "cause or contribute" finding in December 2009. These findings formed the basis for the light-duty vehicle GHG emission standards and corporate average fuel economy (CAFE) standards issued jointly by EPA and the National Highway Traffic Safety Administration (NHTSA) in 2010. In 2011, in American Electric Power Co. v. Connecticut (" AEP "), the Supreme Court unanimously held that EPA's authority to regulate GHG emissions under the CAA—including its power under Section 111(d), the basis of the CPP—displaced any common law tort or nuisance claims against power plants and other GHG emissions sources. The Court in AEP explicitly ruled that "air pollutant" includes GHGs when applied to power plants under Section 111, as under Section 202 for motor vehicles. The Court concluded that federal judges may not set limits on GHG emissions because the CAA "empower[s] EPA to set the same limits," and therefore did not allow the plaintiffs, including states, to proceed with their lawsuits against power plant operators. With GHGs being regulated under CAA Section 202, EPA proceeded with regulating GHGs under other CAA authorities for stationary sources. In particular, EPA interpreted the mobile source GHG regulations as triggering regulations under the Prevention of Significant Deterioration (PSD) program. The PSD program generally requires new or modified stationary sources that will emit threshold amounts (250 or 100 tons per year depending on the type of source) of air pollutants subject to regulation under the CAA to obtain permits and comply with emissions limitations that reflect the "best available control technology" (BACT). EPA likewise sought to regulate GHGs under the Title V permit program. Title V requires permits for "major sources" with the potential to emit 100 tons per year of any air pollutant. As EPA noted, GHG emissions tend to be "orders of magnitude greater" than emissions of other types of air pollutants, so the statutory thresholds would have swept in many smaller sources not previously subject to CAA permitting. EPA addressed this by issuing a "tailoring rule," structured to phase in GHG permitting under the PSD and Title V programs first for "anyway" sources already subject to permitting for other air pollutants, and then to non-anyway sources meeting higher thresholds. In 2014, in Utility Air Regulatory Group v. EPA (" UARG "), the Supreme Court rejected EPA's interpretation of the "triggering" provisions for the stationary source programs; it held that EPA cannot regulate a power plant solely due to its GHG emissions, striking down EPA's "tailoring" rule. Justice Scalia, writing for a five-Justice majority of the Court, stated the following: EPA's greenhouse-gas-inclusive interpretation of the PSD and Title V triggers … [is] unreasonable because it would bring about an enormous and transformative expansion in EPA's regulatory authority without clear congressional authorization. When an agency claims to discover in a long-extant statute an unheralded power to regulate "a significant portion of the American economy," we typically greet its announcement with a measure of skepticism. On the other hand, in a part of the decision joined by seven Justices, the Supreme Court affirmed EPA's authority under the CAA to require Best Available Control Technology (BACT) to regulate GHG emissions from power plants if the source is regulated for other air pollutants, holding EPA's interpretation of such requirements reasonable. In sum, UARG held that EPA "may not treat greenhouse gases as a pollutant for purposes of defining a 'major emitting facility' … in the PSD context or a 'major source' in the Title V context.... EPA may, however, continue to treat greenhouse gases as a 'pollutant subject to regulation under this chapter' for purposes of requiring BACT for 'anyway' sources." As a practical matter, UARG affirmed EPA's ability to regulate roughly 83% of U.S. stationary-source GHG emissions under PSD and Title V permitting programs, and struck down its ability to regulate the additional 3% that would have been reached had the tailoring rule been upheld. In 2011, EPA finalized a settlement agreement with states and others to promulgate New Source Performance Standards (NSPSs) for GHG emissions from fossil fuel-fired power plants under Section 111(b) of the CAA, and emission guidelines covering existing power plants under Section 111(d). President Obama also directed EPA to issue GHG regulations under Section 111(b) and 111(d) in a presidential memorandum issued in June 2013. As characterized by EPA, Section 111 operates to address one of three "general categories of pollutants emitted from existing stationary sources," the other two being (1) "criteria" air pollutants under the National Ambient Air Quality Standards (NAAQS) program under CAA Sections 108-110; and (2) "hazardous air pollutants" (HAP) under the National Emission Standards for Hazardous Air Pollutants (NESHAP) program under CAA Section 112. Section 111 addresses "air pollution which may reasonably be anticipated to endanger public health or welfare." Section 111 directs EPA to list categories of stationary sources that cause or contribute significantly to such air pollution; to establish NSPSs for new sources within any such category; and then to issue a "procedure" requiring states to submit plans that establish standards of performance for existing sources in a category, under certain conditions. In other words, NSPSs under Section 111(b) may trigger what EPA terms "emission guidelines" under Section 111(d). Portions of CAA Section 111 primarily relevant to the CPP litigation are excerpted below (with indentations and bracketed notations added for readability): (a) Definitions. For purposes of this section: (1) The term "standard of performance" means a standard for emissions of air pollutants which reflects the degree of emission limitation achievable through the application of the best system of emission reduction [BSER] which (taking into account the cost of achieving such reduction and any non-air quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated. … (3) The term "stationary source" means any building, structure, facility, or installation which emits or may emit any air pollutant.... … (b) (1) (A) The Administrator shall … publish (and from time to time thereafter shall revise) a list of categories of stationary sources. He shall include a category of sources in such list if in his judgment it causes, or contributes significantly to, air pollution which may reasonably be anticipated to endanger public health or welfare. (B) Within one year after the inclusion of a category of stationary sources in a list under subparagraph (A), the Administrator shall publish proposed regulations, establishing Federal standards of performance [i.e., NSPSs] for new sources within such category.... … (d) (1) The Administrator shall prescribe regulations which shall establish a procedure similar to that provided by section [1]10 of this title [which provides for State Implementation Plans for NAAQS] under which each State shall submit to the Administrator a plan which (A) establishes standards of performance for any existing source for any air pollutant (i) for which air quality criteria have not been issued or which is not included on a list published under section [1]08(a) … [From this point, there is dispute in the litigation regarding how subparagraph (i) continues; the House-originated amendment, which appears in both the U.S. Code and the Statutes at Large , ends subparagraph (i) with " or emitted from a source category which is regulated under section [1]12 " while the Senate-originated amendment, which appears only in the Statutes at Large and not the U.S. Code , ends subparagraph (i) with " or section [1]12(b) " ] but (ii) to which a standard of performance under this section would apply if such existing source were a new source, and (B) provides for the implementation and enforcement of such standards of performance. Regulations of the Administrator under this paragraph shall permit the State in applying a standard of performance to any particular source under a plan submitted under this paragraph to take into consideration, among other factors, the remaining useful life of the existing source to which such standard applies. (2) The Administrator shall have the same authority— (A) to prescribe a plan for a State in cases where the State fails to submit a satisfactory plan as he would have under section [1]10(c) of this title in the case of failure to submit an implementation plan, and (B) to enforce the provisions of such plan in cases where the State fails to enforce them as he would have under sections [1]13 and [1]14 of this title with respect to an implementation plan.... An analysis by the American College of Environmental Lawyers observed that since the 1970s, EPA has promulgated emission guidelines under Section 111(d) of the CAA on seven occasions (as well as six additional occasions in conjunction with the requirements of CAA Section 129, which the 1990 CAA amendments added to specifically require Section 111 NSPS and emission guidelines meeting certain requirements for solid waste incinerators). Air pollutants and source categories for which EPA has issued emission guidelines under Section 111(d) include, among others, methane and non-methane compounds from large landfills; acid mist from sulfuric acid production units; fluoride emissions from phosphate fertilizer plants; reduced sulfur emissions from kraft pulp mills; and fluoride emissions from primary aluminum plants. In addition, EPA's 2005 Clean Air Mercury Rule (CAMR) delisted coal-fired power plants from CAA Section 112 and, instead, established a cap-and-trade system for mercury under Section 111(d); the D.C. Circuit vacated CAMR in 2008 on grounds unrelated to its cap-and-trade structure. EPA finalized Section 111(b) NSPSs for GHG emissions from new, modified, and reconstructed power plants at the same time as the Clean Power Plan. As discussed below, these NSPSs, which must apply for the CPP under Section 111(d) to have effect, are also being challenged in the D.C. Circuit. EPA published the proposed "Carbon Pollution Emission Guidelines for Existing Electric Utility Generating Units" on June 18, 2014. The Agency conducted significant outreach to interested parties before the Rule's proposal. EPA continued its outreach after the proposal and held several public hearings and received more than 4.3 million public comments, the most ever for an EPA rule. The CPP, as it became known, was finalized on August 3, 2015, and published in the Federal Register on October 23, 2015. Several Congressional Review Act (CRA) resolutions of disapproval were introduced following receipt of the CPP by Congress, including S.J.Res. 24 , which was passed by the Senate on November 17, 2015, and by the House on December 1, 2015. President Obama vetoed S.J.Res. 24 on December 18, 2015. Other resolutions and bills have been introduced both for and against EPA regulation of GHGs from power plants. The CPP is a detailed rule with many definitions and provisions not touched on here, many of which are the subject of specific challenges or defenses in the present litigation. This report provides only a basic summary as context for the following discussion of the litigation challenging the Rule. For more information on the CPP, see CRS Report R44341, EPA's Clean Power Plan for Existing Power Plants: Frequently Asked Questions , by James E. McCarthy et al., and CRS Report R44145, EPA's Clean Power Plan: Highlights of the Final Rule , by Jonathan L. Ramseur and James E. McCarthy. Applying CAA Section 111, EPA determined the "best system of emission reduction" (BSER) for affected electric generating units based on three components, or as EPA calls them, "building blocks": 1. heat rate (i.e., efficiency) improvements at affected power plants, 2. generation shifts among affected power plants (particularly from coal generation to natural gas combined cycle generation), and 3. increased use of renewable energy for electricity generation. EPA then used the BSER to derive national emission performance rates for each of the two subcategories of power plants affected by the Rule: 1. fossil fuel-fired electric steam generating units, of which coal generation accounts for 94%—oil and natural gas contribute the remainder—and 2. natural gas combined cycle (NGCC) units. Then, EPA calculated state-specific targets by applying the national rates to each state's baseline generation mix. States could reach their targets without needing to "comply" with the assumptions in the "building blocks" or the subcategory-specific rates, which are not themselves binding. In general, policies to reach the state-specific targets set by EPA would be determined by state plans. States could use an emission-standards approach or a "state measures" approach and, under the latter, could submit multi-state plans or use a variety of other policies or programs. In addition, state plans could measure compliance using an emission rate target, measured in pounds of CO 2 per megawatt-hour (MWh) of electricity, or a mass-based target, measured in tons of CO 2 . The CPP also requires state plans to include certain other components and considerations, such as electric reliability. EPA cannot legally compel a state to submit a Section 111(d) plan. Rather, if a state fails to submit a satisfactory plan by EPA's deadline, CAA Section 111(d) authorizes EPA to prescribe a federal plan for the state. This authority is the same, Section 111(d) says, as EPA's authority to prescribe a federal implementation plan when a state fails to submit a state implementation plan to achieve the NAAQS. EPA published a proposed federal plan for existing power plants, along with models for state plans, at the same time it published the final CPP. The CPP, as promulgated, set a deadline of September 6, 2016, for each state to submit an implementation plan to EPA (or face EPA imposition of a federal plan on sources in the state). In lieu of a completed plan, the CPP authorized a state to make an initial submittal by that date and request up to two additional years to complete its submission. In light of the stay issued in conjunction with the pending litigation challenging the rule, these near-term deadlines lack legal effect. If the Rule is ultimately upheld, then new initial compliance deadlines would have to be set thereafter. The eight-year interim compliance period for the CPP, as promulgated, begins in 2022 and runs through 2029. The interim period is separated into three steps (2022-2024, 2025-2027, and 2028-2029), each with its own interim goal. Under this timeline, affected power plants would have to meet each of the first, second, and third steps' CO 2 emission performance rates or follow an EPA-approved emissions reduction trajectory designed by the state itself for the eight-year period from 2022 to 2029. The CPP, as promulgated, requires compliance with the state's final goal by 2030. If the Rule is upheld, it is possible that some or all of these later compliance dates could be delayed or adjusted as well. Challenges to the CPP began well before the final Rule was published in the Federal Register . For example, when the Rule was proposed in 2014, Murray Energy Corporation (a coal company) and the states of West Virginia, Alabama, Indiana, Kansas, Kentucky, Louisiana, Nebraska, Ohio, Oklahoma, South Carolina, South Dakota, and Wyoming filed petitions for review in the D.C. Circuit. They made several arguments in the alternative: that the court had authority to, and should, issue an extraordinary writ under the All Writs Act; that EPA's public statements about its legal authority to regulate CO 2 emissions constituted final agency action subject to judicial review; and that the court should strike down the 2011 settlement agreement that EPA reached with several other States and environmental groups setting a timeline for deciding on Section 111 rules for power plants. A panel of the D.C. Circuit rejected these arguments and denied the petitions, saying the following: Petitioners are champing at the bit to challenge EPA's anticipated rule restricting carbon dioxide emissions from existing power plants. But EPA has not yet issued a final rule. It has issued only a proposed rule. Petitioners nonetheless ask the Court to jump into the fray now. They want us to do something that they candidly acknowledge we have never done before: review the legality of a proposed rule.... We do not have authority to review proposed agency rules. Oklahoma also sued to challenge the proposal in federal district court in Oklahoma and did not prevail; the 10 th Circuit denied Oklahoma's motion for an injunction pending appeal. States and energy companies also filed emergency petitions for an extraordinary writ in the D.C. Circuit in August 2015, after EPA had released, but not published, the final CPP. A circuit panel again denied these petitions on September 9, 2015. Petitions for panel reconsideration and for rehearing en banc to essentially revive the earlier lawsuits challenging the proposed rule were denied as well, on September 29, 2015. Parties began filing petitions in the D.C. Circuit challenging the final CPP starting on the day the Rule was published in the Federal Register , October 23, 2015. CAA Section 307(b) requires that such petitions for review must be filed in the D.C. Circuit within 60 days after the Rule's publication in the Federal Register . The deadline for petitions for review of the CPP was therefore December 22, 2015. Parties that filed petitions challenging the CPP include 26 states. West Virginia and Texas spearheaded a coalition of 24 state petitioners in filing the lead case. Oklahoma, North Dakota, and Mississippi filed their own petitions. The state of Nevada, while not a petitioner, filed a brief supporting the petitioners, raising the number of states opposing the CPP to 28. On March 7, 2017, the court granted North Carolina's motion to withdraw as a petitioner. See Figure 1 . Other petitioners challenging the Rule include three labor unions, a number of rural electric cooperatives and an association representing them, more than two dozen industry and trade groups, several nonprofit public policy organizations, and more than two dozen fossil-fuel-related companies and local electric utilities. Other fossil-fuel-related companies have moved to intervene on behalf of the petitioners. In all, more than 100 parties filed dozens of petitions challenging the CPP. All of these petitions have been consolidated into one case, captioned West Virginia et al v. EPA et al . All petitioners jointly filed two briefs on the merits. In addition, various amici curiae (non-party "friends of the court") have filed briefs on the merits in support of the petitions challenging the Rule. These include a brief filed by Members of Congress, as discussed below. Also among those who filed briefs as amici curiae are a group of scientists; 166 state and local chambers of commerce and other business associations; several legal foundations; electric utilities; former Public Utility Commissioners; and groups representing women, minorities, seniors, and taxpayers. In total, one intervenor brief and 12 amicus briefs were filed in support of the petitioners opposing the CPP. Respondents are EPA and its current Administrator, Gina McCarthy, in her official capacity. Parties that have intervened in this case in support of respondents include a coalition of 18 states, the District of Columbia, and five other cities and a county (including some in states that have filed petitions challenging the CPP). Other parties intervening in support of the CPP include regional, state, and municipal utilities and power companies; more than a dozen nonprofit organizations (including environmental organizations); and several energy industry associations. Two former EPA Administrators are supporting the CPP as amici curiae: William Ruckelshaus, who headed the agency in 1970, when the CAA was enacted, and again in the 1980s; and William Reilly, the EPA Administrator at the time Congress passed the Clean Air Act Amendments of 1990. Former Secretaries of State and Defense and a Career Diplomat for the State Department also filed a brief supporting the CPP as amici curiae, as did a policy institute; a coalition of medical groups; scientists; grid experts; companies and business and labor groups; faith groups; and a local government coalition comprising the National League of Cities, the U.S. Conference of Mayors, and 54 other cities and localities. As discussed below, Members of Congress also filed a brief in support of the CPP. In total, four intervenor briefs and 18 amici curiae briefs were offered in support of the CPP. Four states have not joined the litigation: Alaska (for which EPA did not set a goal in the final Rule), Idaho, Pennsylvania, and Tennessee. Large groups of Members of Congress have filed amici curiae briefs on both sides of the litigation. A brief opposing the CPP was joined by 34 current Senators and 171 current Representatives in the 114 th Congress. The brief argues, among other things, that Congress excluded power plants regulated under CAA Section 112 from "concurrent regulation" under Section 111(d) and that EPA "usurped the role of Congress" through the CPP's "expansive regulatory requirements." A brief in support of the CPP was joined by 44 current and former Senators and 164 current and former Representatives; it argues, among other things, that Congress conferred "broad authority" on EPA in the CAA to help the agency achieve the act's broad anti-pollution objectives, and that the CPP is "consistent with the text, structure, and history" of the CAA. Many petitioners filed motions to stay the CPP alongside or soon after their petitions for review. Briefing on the stay motions concluded in late December 2015. On January 21, 2016, the D.C. Circuit panel comprising Judges Srinivasan, Rogers, and Henderson issued an order denying the petitioners' motions to stay the CPP for the duration of the litigation. The court's per curiam order denying the motions to stay did not detail the court's reasoning, saying only that "[p]etitioners have not satisfied the stringent requirements for a stay pending court review." However, the case cited in the order, Winter v. Natural Resources Defense Council , as well as petitioners' stay motions and respondents' opposition briefs, measured the motions against the four traditional factors for a stay: (1) likelihood of success on the merits, (2) irreparable harm to the movant absent a stay, (3) lack of substantial harm to others if a stay is granted, and (4) public interest. Thus, the stay briefing previewed some of the legal and factual arguments on both sides, including arguments relating to the scope of EPA's authority and the reasonableness of EPA's decisions. The circuit panel's January 21 order also resolved another matter that had been disputed by the parties: the timing and manner in which the litigation will proceed. The petitioners had jointly requested that the D.C. Circuit bifurcate what they deemed "fundamental issues of legal authority" from record-based challenges to programmatic elements, in order to expedite consideration of the former. The respondents and respondent-intervenors opposed the petitioners' scheduling proposal, urging that the case be briefed and argued in one round addressing all issues. The circuit court's order rejects bifurcation of the case into two phases as requested by petitioners; the order does, however, expedite briefing of the case in order to allow oral argument in the current term of the court. The panel ordered briefing on all issues to be completed in April 2016. In a procedurally rare step, various state and industry parties applied to the Supreme Court in late January 2016 for an immediate stay of the Rule, though the circuit court's order was a preliminary decision in a case that is still pending. They submitted their applications to Chief Justice John Roberts, circuit justice for the D.C. Circuit, who referred the actions to the full Court. At the request of the Court, EPA and others provided response briefs in opposition to the applications. The Court's response was likewise unusual: On February 9, 2016, the Supreme Court issued brief orders granting the applications and staying the Rule. The orders did not provide explanation. The stay pauses the CPP's legal effect while the Rule undergoes judicial review, and EPA may not enforce the Rule for the duration of the stay. (Nevertheless, some states are continuing to plan and prepare, to varying degrees, for the possibility that the Rule will eventually be upheld.) The Court was split five to four, with Chief Justice Roberts and Justices Scalia, Thomas, Alito, and Kennedy granting the applications, and Justices Ginsburg, Breyer, Sotomayor, and Kagan in favor of denying the applications. The stay order was one of Justice Scalia's last votes on the Supreme Court. Justice Scalia's death on February 13, 2016, and the resulting current vacancy on the Court, will likely affect the course of the CPP litigation—although in ways that are uncertain at present. The three-judge panel originally set to hear West Virginia v. EPA comprised Judge Sri Srinivasan, Judge Judith Rogers, and Judge Karen LeCraft Henderson. However, on May 16, 2016, the full D.C. Circuit ordered, "on the court's own motion, that these [consolidated] cases … be rescheduled for oral argument before the en banc court on Tuesday, September 27, 2016." The Federal Rules of Appellate Procedure provide for hearings en banc in limited circumstances: A majority of the circuit judges who are in regular active service and who are not disqualified may order that an appeal or other proceeding be heard or reheard by the court of appeals en banc. An en banc hearing or rehearing is not favored and ordinarily will not be ordered unless: (1) en banc consideration is necessary to secure or maintain uniformity of the court's decisions; or (2) the proceeding involves a question of exceptional importance. The order was a surprise to many participants and observers. While the order delayed argument by almost four months, it is possible that the ultimate effect will be to expedite resolution of the litigation by essentially skipping the usual step of a panel decision. The D.C. Circuit en banc court comprises 11 active judges. Two judges did not participate in the decision to hear the case en banc: Chief Judge Merrick Garland and Judge Nina Pillard. Reasons for recusal are generally not given and were not given in this instance. Judge Garland has not been participating in cases and matters while his Supreme Court nomination remains pending. It was unclear, however, why Judge Pillard recused herself from the initial decision to hear the case en banc. On September 22, 2016 (five days prior to oral argument), the court issued a notice that Judge Pillard will participate in hearing argument. As a result, the en banc court that heard oral arguments in West Virginia v. EPA included 10 judges. For oral argument, the court focused on five main areas: (1) statutory issues related to state authority and electricity generation shifts among affected power plants and renewable energy providers; (2) different amendments affecting CAA Sections 111(d) and 112; (3) constitutional issues; (4) notice issues; and (5) record-based issues. The court had scheduled 3.5 hours of oral argument on these issues, but the argument on September 27, 2016, lasted about seven hours. Following the Supreme Court's stay, the CPP litigation continues in the D.C. Circuit. This report does not aim to provide a comprehensive or representative preview of the many, often nuanced legal arguments that have been presented to the court for or against EPA's CPP. The sections below offer a few highly condensed examples, drawn from litigation filings and analyses of the oral arguments, to illustrate the range of issues and to give a flavor of some of the points raised. Arguments are generally summarized in the same order briefed, with petitioners and their allies having submitted the first round of briefs against the CPP, and respondents EPA and Administrator McCarthy and their allies having then responded in the CPP's defense. As a threshold matter, the parties debate the standards by which a court should evaluate EPA's interpretation and implementation of CAA Section 111. Under the framework of Chevron v. Natural Resources Defense Council, Inc. , a court reviewing an agency rule defers to the agency's interpretation of an ambiguous statute if the agency's interpretation is reasonable. In the 2014 UARG v. EPA decision, however, the Supreme Court opined that where a statutory interpretation by EPA "would bring about an enormous and transformative expansion in EPA's regulatory authority"—which some petitioners say the CPP would do—a court should demand "clear congressional authorization." Petitioners emphasize this and other language from UARG . They also highlight language from King v. Burwell , the 2015 Supreme Court decision which, though it ultimately upheld the Affordable Care Act's insurance premium tax credits in all states, declined to give deference to the Internal Revenue Service's (IRS's) interpretation of that act because the IRS lacked "expertise in crafting health insurance policy…." Petitioners' position against applying deference in the CPP litigation is illustrated by the first paragraph of their initial merits brief's Introduction: EPA … purports to have discovered sweeping authority in section 111(d) of the Clean Air Act—a provision that has been used only five times in 45 years—to issue a "Power Plan" that forces States to fundamentally alter electricity generation throughout the country. But as the Supreme Court recently said, courts should "greet … with a measure of skepticism" claims by EPA to have "discover[ed] in a long-extant statute an unheralded power to regulate a significant portion of the American economy" and make "decisions of vast economic and political significance," [ UARG ], especially in areas outside an agency's "expertise," King v. Burwell .… These arguments are echoed and further discussed in the briefs of several amici, as well as in the brief of the intervenors supporting the petitioners. The intervenors' brief also opposes Chevron deference on the grounds that the CPP is, in their view, an example of lawmaking, among other reasons. Respondents, in contrast, argue for standard Chevron deference on statutory interpretation, and the likewise familiar "arbitrary and capricious" standard for review of agency actions under the Clean Air Act. With respect to Chevron deference, EPA expands on its argument within its defense of including generation-shifting within its selected "best system": [T]he familiar two-step Chevron standard … fully applies to the interpretation of ambiguity that concerns the scope of an agency's regulatory authority. Petitioners, citing King v. Burwell , claim that Chevron does not apply. They are wrong. The CAA clearly delegates to EPA authority to fill gaps in the Act concerning the appropriate amount of pollution reduction that should be obtained from long-regulated major pollution sources.... Unlike Burwell , this case involves EPA's construction of a statute that it has long administered and of provisions that go to the core of EPA's mission to protect public health and welfare. … Petitioners construe UARG as obliterating the second step of Chevron in economically and politically significant cases. Under Petitioners' view, ambiguity in such cases must necessarily be resolved against the implementing agency's exercise of its regulatory authority …. But UARG does not nullify Chevron . UARG simply reflected one application of Chevron to particular facts, which are readily distinguishable from those here.… A number of EPA's supporting intervenors and amici share the agency's emphasis on deference and "normal administrative law principles." During the oral argument, the judges questioned whether the court should apply a heightened standard of review beyond the traditional Chevron deference, citing UARG as an example where the Supreme Court ruled that "[w]e expect Congress to speak clearly if it wishes to assign to an agency decisions of vast 'economic and political significance.'" The judges raised the "major questions" doctrine, citing King v. Bur w ell , in questioning if the CPP was of such "deep 'economic and political significance'" that the court should not presume that Congress delegated interpretive authority and defer to the agency's interpretation of CAA Section 111 unless Congress expressly did so. The court spent a significant portion of the oral argument on whether the CPP was "transformative" in terms of the Rule's impact on the power sector or the method in which EPA has chosen to regulate GHG emissions from power plants. The standard of review applied in this case will likely draw attention to the broader legal debate surrounding the application of Chevron deference to an agency's statutory interpretation. Petitioners focus much of their challenge on EPA's overall design of the CPP and, especially, its inclusion of electricity generation-shifting measures—exemplified by building blocks two and three, discussed above. They allege that this exceeds EPA's scope of authority under Section 111(d). Arguments that EPA cannot use Section 111(d) to regulate existing power plants at all because power plants regulated for hazardous air pollutants under Section 112 are discussed in the next section. Petitioners have argued that, for various reasons drawn from both statutory text and context, Section 111 authorizes EPA to require only measures that can be applied to the "performance" of an individual "source" (also known as measures "inside the fenceline"), such as adoption of pollution control devices or other design or operational standards. They say that Section 111 precludes generation-shifting from one type of electric generating unit to another, and does not authorize what they characterize as a reorganization of the nation's electric grid or states' energy economies. Petitioners also maintain that EPA "cannot require States to adopt as a 'standard of performance' reduction obligations that can be met only through non -performance by regulated sources," saying the CPP "does not involve a source improving its emissions performance when it generates, but instead consists of plants reducing or ceasing work, or nonperformance, as their production is 'shifted' to EPA-preferred facilities." During oral argument, the petitioners argued that power plants would be "subsidizing their competition" because the CPP effectively forces them to buy emission credits from renewable energy providers to meet their emission limits. In their view, EPA has "confuse[d] 'standards of performance' with other [air quality based] programs" in the CAA, such as the NAAQS or acid rain cap-and-trade program. This view is expanded on by various amici curiae, including the Members of Congress supporting the petitioners. EPA wrote in the preamble to the final CPP that "the phrase 'system of emission reduction' … is capacious enough to include actions taken by the owner/operator of a stationary source designed to reduce emissions from that affected source, including actions that may occur off-site and actions that a third party takes pursuant to a commercial relationship with the owner/operator." In its brief, EPA states that "[t]he plain meaning of the word 'system' is expansive," that "statutory context makes clear that the word 'performance' refers to emissions performance, not production performance," and that the agency appropriately applied contextual constraints on BSER by, among other factors, limiting the CPP to actions taken by sources that result in emission reductions from sources. Altogether, EPA says, petitioners "posit limitations on EPA's discretion that are not compelled by the statute, and would frustrate the statutory objective to protect public health and welfare." Several of EPA's supporting intervenors and amici curiae generally agree; for example, intervenor power companies state that "[e]lectricity providers have been shifting generation among affected units and to zero-emitting sources as a means of achieving emission reductions for decades, as these strategies achieve greater reductions at lower cost than by relying on control technology alone." Part of the oral argument focused on the definition of "system" with respect to BSER. Some of the judges questioned whether EPA's interpretation of BSER went beyond the Section 111(d) boundaries, while other judges noted that EPA's choice of generation-shifting as BSER was a reflection of what has already been demonstrated and implemented for the power sector. Petitioners also argue that another limitation on EPA's authority is the authority given by law to the Federal Energy Regulatory Commission (FERC), and that EPA's design of the CPP violates that limitation. They state: "Congress has clearly confirmed the States' plenary authority in this area and granted to a different agency—FERC—the limited federal jurisdiction in this sphere." A brief filed in opposition to the CPP by 18 former state Public Utility Commissioners also contends that the CPP is contrary to the Federal Power Act (FPA), in part because of what they deem EPA's "unprecedented" interpretation of the term "system" in CAA Section 111. They also describe the CPP's effects on states with different regulatory models (vertical integration, restructured, and municipal utilities and electric cooperatives). EPA counters that the CPP "does not intrude on FERC's power under the Federal Power Act …. The Rule appropriately limits air pollution under the CAA. It does not regulate any kind of electricity sales or rates—interstate or intrastate. Thus, the dividing line between interstate and intrastate rate regulation addressed in the cases cited by Petitioners has no relevance here." EPA adds that it consulted with FERC and "participated in multiple FERC technical conferences." A group of former state environmental and energy officials, including Public Utility Commissioners, also filed a brief in support of the CPP, arguing in part that "[b]y design, the CPP respects and preserves the fundamental roles of grid operators and the jurisdiction of state regulatory bodies, including environmental agencies and Public Utility Commissions (PUC)." One core set of arguments in the CPP litigation relates to the interpretation of language in CAA Section 111(d)(1)(A), which sets forth exclusions to EPA's authority to issue Section 111(d) emission guideline rules. To understand the dispute, it is useful to briefly review the history of the subsection and its cross-reference to the hazardous air pollutant (HAP) program under CAA Section 112. Prior to the CAA Amendments of 1990, Section 111(d) required EPA to prescribe regulations for states to submit plans establishing and implementing standards of performance for any existing source, for any air pollutant meeting two requirements: (1) the air pollutant must be one "for which air quality criteria have not been issued or which is not included on a list published under section [1]08(a) or [1]12(b)(1)(A) of this title," and (2) the air pollutant must be one to which a Section 111(b) NSPS would apply if such existing source were a new source. At that time, Section 112(b)(1)(A) described a process for listing HAPs. (Section 108(a) describes a process for listing "criteria" air pollutants; this cross-reference has not changed, nor has the second requirement.) Thus, for any air pollutant to which a Section 111(b) NSPS applied for new sources, EPA had to regulate the same pollutant under Section 111(d) for existing sources unless that air pollutant was already listed under the NAAQS or HAP programs. In 1990, Congress made substantial amendments to CAA Section 112; among other changes, it replaced the former HAP listing process with a list of nearly 200 HAP, now contained in Section 112(b). In doing so, it made Section 111(d)'s cross-reference to Section 112(b)(1)(A) obsolete, as there was no longer an (A). Both the House and the Senate offered amendments to the cross-reference— both of which were included in the final legislation that was passed, signed into law by President Bush, and included in the Statutes at Large . Under the House-originated provision, the Section 111(d) authority applies for any air pollutant that "is not included on a list published under section [1]08(a) of this title or emitted from a source category which is regulated under section [1]12 of this title.... " The House-originated amendment was added to the U.S. Code by the House Office of the Law Revision Counsel. The Senate-originated 1990 amendment to CAA Section 111(d)(1)(A) simply excludes from Section 111(d) regulation any air pollutant "included on a list published under section [1]08(a) or [1]12(b).... " It is not in the U.S. Code . Because power plants are a source category which is regulated under Section 112 for mercury and other HAP, petitioners and their supporters argue that EPA is barred from regulating power plants under Section 111(d) for CO 2 in any manner. Petitioners claim that EPA itself has previously given the U.S. Code text its "literal" meaning, and that "EPA's attempts to escape the literal reading of the exclusion are unavailing." In particular, they dispute EPA's "new assertions of ambiguity" and any reliance on the Senate-originated amendment, which they describe as an "erroneous 'conforming amendment.'" Petitioners also cite a footnote in the 2011 Supreme Court case AEP v. Connecticut , which said that "EPA may not employ [section 111(d)] if existing stationary sources of the pollutant in question are regulated under … § [1]12." Members of Congress who submitted an amicus curiae brief against the CPP further discuss the Section 112 exclusion and its legislative history, as did petitioners' intervenors, who further argue that EPA's interpretation violates constitutional principles of separation of powers. EPA generally counters that it "reasonably interpreted" Section 111(d) and its exclusion language, "which is ambiguous in several respects[,] consistent with the Act's purpose, the statutory context, and the legislative history," as well as its own past rulemakings. The Agency states, among other things, that "Petitioners' interpretation of Section 111(d)—which would strip that provision of nearly all effect—is not reasonable, let alone mandatory," and that "when construing [the House-originated amendment] in a particular statutory context, one must take a 'commonsense' approach, and ask not only 'who' is regulated under Section 112 (i.e., source categories including power plants), but also 'what.'" Essentially, EPA interprets Section 111(d)(1)(A) to exclude from Section 111(d) regulation any HAP emitted from a source category regulated under Section 112; otherwise, it says, EPA would have to choose between regulating HAP or Section 111 air pollutants, leaving a "gap" and allowing the "unregulated emission of pollutants not listed as 'hazardous' or 'criteria,' but nonetheless dangerous to public health or welfare." In addition, EPA argues that it "properly considered" the Senate-originated amendment as a "clear indication of congressional intent when interpreting Section 111(d)," stating that "[i]t is black-letter law that the U.S. Code cannot prevail over the Statutes at Large when the two are inconsistent." EPA's supporters also weighed in on the Section 112 exclusion issue, including the current and former Members of Congress who filed an amici curiae brief supporting the CPP. During the oral argument, the judges appeared to grapple with the two differing amendments of Section 111(d) and the complexity and ambiguity of the legislative history. Some judges questioned whether the distinction between "conforming" and "substantive amendments" was confusing the issue further. The judges' questions sought to find an interpretation that would give some effect to both amendments, while ensuring that the resulting interpretation would not create a "loophole" such that sources may evade regulation of certain pollutants. Petitioners contend that the CPP violates the U.S. Constitution, and that CAA Section 111(d) must be interpreted more narrowly than EPA interprets it so as to avoid certain constitutional issues. For example, petitioners, including the 26 state petitioners opposing the CPP, claim that the CPP impermissibly invades traditional state police powers over the electrical grid and "commandeers" and "coerces" states and their officials and legislatures. They argue that it does so even with the federal implementation plan option: In order to pass constitutional muster, cooperative federalism programs must provide States with a meaningful opportunity to decline implementation. But the Rule does not do so; States that decline to take legislative or regulatory action to ensure increased generation by EPA's preferred power sources face the threat of insufficient electricity to meet demand. The Rule is thus an act of commandeering that leaves States no choice but to alter their laws and programs governing electricity generation and delivery to accord with federal policy. However, during the oral argument, some judges questioned whether the CPP was any different from other regulatory programs (such as the Americans with Disabilities Act) that impose certain provisions that require state action to implement. Additionally, in arguing that the court should apply a non-deferential "clear statement" standard of review, petitioners cite D.C. Circuit precedent that "'[f]ederal law may not be interpreted to reach' areas traditionally subject to State regulation 'unless the language of the federal law compels the intrusion' with 'unmistakably clear … language.'" Intervenors opposing the CPP expand on several constitutional arguments. In addition to federalism and Tenth Amendment claims, they state that "EPA's attempts to justify the Rule … trigger a separation-of-powers violation by usurping both the Legislative Branch's lawmaking power and the Judicial Branch's power to 'say what the law is.'" Constitutional arguments are also expanded on by the amici curiae Members of Congress, and by several of the legal groups and other amici opposing the CPP. EPA, in contrast, defends the CPP as a "textbook example of cooperative federalism." EPA provides, among other reasons, that states can opt to do nothing, in which case the federal plan option imposes no new regulatory obligations on states. The state and municipal intervenors supporting EPA also support the CPP as a lawful implementation of EPA's obligations under the cooperative federalism structure of Section 111(d), saying, among other things, that "[t]he fact that state regulatory agencies will continue exercising their ordinary oversight over their electric utilities—including over decisions made by power plants to comply with a federal plan—does not mean the Rule commandeers States." Several amici also dispute constitutional claims against the CPP, including the former EPA Administrators, whose brief describes their view how the CPP fits within the cooperative federalism model. The amici curiae Members of Congress supporting the CPP also counter separation of powers arguments, in part on the grounds that the CAA delegated discretion to EPA with "meaningful criteria" that EPA followed. Petitioners and their supporters also base federalism arguments on the text of the CAA. As stated in the brief submitted by 166 business associations, "Section 111(b) grants EPA authority to establish 'standards of performance' for new stationary sources; but Section 111(d) grants the States authority to establish those standards for existing sources. By displacing the authority reserved to the States in setting standards of performance for existing sources … EPA has violated the statute's unambiguous terms." In addition, as matter of federal law, in the words of the amici curiae brief filed by the Pacific Legal Foundation and others, "[s]ince at least 1964, the national electric power system has been characterized by a 'bright line' divide between federal authority over wholesale sales of power in interstate commerce, regulated by the federal government, and state authority over planning, siting, and providing generation resources to local customers." EPA counters, among other things, that it does have authority under Section 111(d) and its long-standing regulations to establish a minimum level of stringency, and that the CPP still allows each state to set particular standards of performance for particular sources: Under Section 111(d) …, the agency promulgates "guidelines" for states to follow when submitting "satisfactory" plans establishing emission standards for existing sources. While it is the states' job to establish such standards, those standards must "reflect[]" the "degree of emission limitation achievable through the application of the [BSER] … the Administrator determines has been adequately demonstrated." 42 U.S.C. § 7411(a)(1) (emphasis added [in brief]). EPA and its supporters also argue, for example, that the CPP generally preserves the existing federal-state division of authority relating to the electrical grid. Petitioners jointly submitted two briefs on the merits: the first on "core legal issues" such as those described above, and the second on "procedural and record based issues." As summarized below, many issues within the latter set were also addressed by the amici curiae in support of petitioners. EPA and various of its supporters have largely disputed these procedural and record based challenges. Petitioners maintain that EPA has not satisfied its legal burden to show that the BSER in the CPP, or its component building blocks, are "adequately demonstrated" or the resulting emission guidelines "achievable" as required under the definition of "standard of performance" in CAA Section 111(a)(1). They also argue that EPA failed to account sufficiently for reliability of the electrical grid or for the need to build new infrastructure, such as transmission lines. In addition, the petitioners oppose EPA's cost-benefit analysis for the Rule as "fundamentally flawed." As a legal matter, they urge that the potential for states to opt for a multi-state emission credit trading program to meet plan requirements cannot "save" the Rule from these alleged deficiencies in achievability. Petitioners contend that achieving the required emission reductions is an "impossible task" for states. To support this argument, petitioners submitted a letter to the court on September 23, 2016 (four days before the oral argument), citing California's proposed state plan to implement the CPP that would limit trading to states that had plans as stringent as California's requirements. They claim that the proposed California plan that limits its carbon trading program may prevent robust trading systems from developing and shows that EPA has not demonstrated that states such as Montana, Kentucky, North Dakota, and West Virginia will be able to meet their reduction goals within their own borders. When petitioners raised the proposed California trading program during the oral argument, the judges noted that California's plan was still in the proposal phase and questioned whether these issues should be deferred until states experience such difficulties during planning and implementation. A number of amici support these general arguments. For example, the brief of the 166 state and local business associations objects that the CPP would result in "devastating economic costs" and "decimate[]" some areas' employment and tax bases by raising costs of operation for American enterprise." Groups representing women, minorities, and seniors, as well as taxpayers, allege that price increases resulting from coal-fired power plant closures and new infrastructure and efficiency requirements would most heavily impact disadvantaged groups. Pedernales Electric Cooperative, which describes itself as "the largest non-profit electric distribution cooperative in the United States," frames the CPP's time frame as "unrealistic" and says that the CPP will have negative impacts on planning, reliability, and security, concerns echoed by the Municipal Electric Authority of Georgia (MEAG). MEAG also describes that it is subject to irrevocable long-term contracts based on specific power plants that will continue to impose payment obligations irrespective of the CPP, and says that adding on new contracts would force its communities to "pay[] twice" for electricity, resulting in negative environmental justice impacts. EPA responds that it identified an achievable degree of emission limitation by applying the best system, framing its modeling and other analysis as reasonable and its estimates as conservative. EPA spends a substantial portion of its brief walking through its data and approach and working to counter petitioners' factual claims on those points. It also argues, among other things, that it was not required to perform individual plant achievability analyses. EPA states that achieving the emission rates would not require trading, though its analysis in the record demonstrates that trading programs are likely to be established. EPA also contends that it reasonably considered costs, infrastructure, and grid reliability, including specific concerns raised by rural cooperatives and others, and that it reasonably calculated and confirmed all of the state-specific goals. EPA cites extensively to its Rule preamble and technical supporting documents in the rulemaking docket. Intervenors and amici supporting EPA expand on these arguments relating to the achievability of the emission standards and the evidentiary basis for the BSER. Power companies, including cities doing business through their utilities, maintain that EPA appropriately considered the availability of emissions credit trading programs, and deny that the Rule would impair electric reliability in light of the "tremendous flexibility" provided to states and power companies. Environmental and public health organizations also emphasize what they characterize as the "wide array of flexible compliance options," and explain their view that EPA reasonably applied the statutory factors to determine the degree of emission limitation required. A coalition of wind, solar, and other advanced energy associations spends much of its brief arguing that "[t]he record demonstrates that EPA's determination of the [BSER], and the Building Blocks in particular, was eminently reasonable," and that EPA reasonably considered other aspects of achievability. Comparable arguments are set forth in briefs submitted by, among others, former state environmental and energy officials. One brief, submitted by a trio of consumers' groups, aims to rebut empirical claims by petitioners and their amici regarding electricity costs, saying that consumer costs would not meaningfully increase and that, rather, the CPP would reduce electricity costs by improving efficiency. Petitioners contend that the CPP should have been tailored to individual state circumstances. Wisconsin challenges EPA's calculation of its baseline emissions in light of the imminent retirement of a nuclear plant; Arizona and Utah raise issues regarding EPA's accounting for trading between those states and Indian tribes; New Jersey argues that EPA failed to property take into account its deregulation of energy services; North Carolina argues that EPA arbitrarily excluded its emission reductions from consideration; Wyoming charges that EPA ignored its "unique circumstances"; and Utah argues that the CPP "would cause particular harm" to that state. EPA generally counters these arguments one by one in its brief, saying overall that it reasonably calculated all state-specific goals and determined that all states would be able to develop compliant plans. EPA also states that it reasonably determined that pre-2013 generating facilities could not provide emission-rate credits. During the oral argument, the judges suggested that these issues may be premature and that states will have future opportunities to seek judicial review if the reduction targets prove to be unachievable. A number of claims pertain primarily to certain industry sectors or subsectors. For example, petitioners claim that in the CPP, EPA "ignores" large parts of the nation's electrical system: "existing renewable energy, nuclear generation that provides approximately 20% of the nation's power with zero emissions, hydroelectric generation that supplies the majority of electricity in many regions of the country, co-generation units, and waste-to-energy facilities with very low carbon footprints." As a result, they say, EPA has "failed to consider an important aspect of the problem." They also object to what they characterize as the Rule's limitations on the use of enhanced oil recovery that also results in associated CO 2 storage, and its lack of different emission guidelines or compliance times for lignite coal-fired power plants. EPA, in response, cites to the record and argues, among other things, that it adequately explained its treatment of hydropower, nuclear plants, and waste-to-energy facilities. EPA also insists that its limitations and reporting requirements for enhanced oil recovery are reasonable and do not change an oil recovery well's permitting status, and that it reasonably determined that no other subcategories of sources were necessary. In addition to issues raised in the briefing in West Virginia v. EPA , several other petitions for review brought by entities including the National Alliance of Forest Owners, Biogenic CO 2 Coalition, American Forest & Paper Association, and American Wood Council are, at the request of the petitioners and EPA, being held in abeyance pending potential administrative resolution of biogenic GHG emissions issues in the CPP. Some challengers have disputed the adequacy of certain other procedural aspects of the issuance of the Rule under the CAA and the Administrative Procedure Act. Petitioners charge that the final CPP "could not have been divined from its proposal," and that "[b]y departing so radically from that proposal, EPA promulgated a Rule on which the public had no opportunity to comment." EPA maintains that the final CPP is a logical outgrowth of the proposal and comments, and that EPA properly followed all other procedural requirements. EPA, moreover, criticizes petitioners and others for referencing sources and documents that were not made a part of the rulemaking record. Similar to the state-specific record-based issues discussed above, the judges during oral argument questioned whether the notice issue was ripe for review because petitioners' administrative petitions for review were still pending before EPA. Petitioners argued that EPA had effectively denied their administrative petitions when the agency in its brief argued that it had given adequate notice. Finally, in addition to the many arguments made by the parties to the case, points raised in the briefs of amici curiae expand on the parties' arguments and bring other issues, perspectives, and facts to the court's attention. Again, this report does not aim to provide a comprehensive or representative preview of the many legal and factual claims in the CPP litigation. The many points raised by amici include, but are not limited to, the following points, which—like those previously discussed—have been highly condensed from their original forms. The Pacific Legal Foundation and allies claim that EPA failed to make the required endangerment finding under CAA Section 111 and that EPA could not rely on the endangerment finding that it made in 2009 in the context of motor vehicles. They also insist that if EPA is to regulate GHGs, it may only do so through NAAQS under CAA Section 108, "the regulatory path Congress prescribed for air pollutants in the 'ambient air' emitted from 'numerous or diverse' sources." Groups representing seniors, minorities, and women argue, among other things, that "EPA's plans to incentivize investment in low-income communities will do nothing to help those facing immediate increases in electricity rates." A group of 13 scientists submitted a brief contending that the lines of evidence cited by EPA in support of its scientific conclusions on the dangers of GHGs and climate change have been "definitively invalidated by real world empirical temperature data," and that EPA's Social Cost of Carbon analysis is "nonsense that no rational person would use for public policy." Former officials Madeleine K. Albright, Leon E. Panetta, and William J. Burns assert that the CPP is "integral to continued U.S. leadership in the fight against climate change," having inspired other countries' commitments to emission reductions, and that "global warming is a national security issue." A brief of the Union of Concerned Scientists argues that the CPP "plays a key role in the worldwide implementation of the breakthrough Paris Agreement." Technology companies Amazon.com, Inc., Google Inc., Microsoft Corp., and Apple Inc. (for which former EPA Administrator Lisa P. Jackson is now Vice President of Environmental Initiatives) submitted a brief arguing that the CPP "will help Tech Amici—and countless other companies—power their operations in ways consistent with their environmental commitments and business needs." Several other consumer brand companies also highlight their environmental commitments and state that they would face "economic and social disruptions as a direct result of inaction on regulating power plant emissions." Forty-one Christian and Jewish faith groups provided a brief asserting "a moral imperative to protect the Earth and all its inhabitants from a climate crisis of our own making." A group of 20 scientists submitted a brief regarding the science of climate change, its impacts (particularly in the United States), and the contribution by combustion of fossil fuels. A coalition of public health groups filed another brief arguing that climate change, "caused by utility sector carbon emissions, has adverse human health impacts," especially on vulnerable populations, in light of impacts on heat, ozone, particulate matter, pollen, and microbial hazards. Taken together, the briefs in the CPP litigation touch on not only legal and technical issues under CAA Section 111 and administrative law principles, but also broader policy debates regarding the environment, the economy, and governance. As noted above, oral argument was held on September 27, 2016. As a practical matter, the court may take some months after oral argument to issue a decision. Once the D.C. Circuit issues a judgment, a dissatisfied party may seek Supreme Court review. Because of the high stakes of the case and because whichever side is dissatisfied with the result is likely to appeal (and indeed, parties from both sides could file cross-appeals of different aspects of the decision), the case is widely considered a near certainty to reach the Supreme Court, most likely in 2017 or 2018. The D.C. Circuit's decision to hear the case en banc in the first instance could potentially streamline the litigation and hasten Supreme Court review somewhat, relative to the initial and ordinary schedule in which a case must first be decided by a three-judge panel before any petitions may be filed for rehearing of the panel decision en banc. In addition to the direct legal challenge to the CPP rule for CO 2 from existing power plants under CAA Section 111(d), 25 states—led by North Dakota and West Virginia—have filed petitions in the D.C. Circuit challenging EPA's final NSPS rule for CO 2 from new, modified, and reconstructed power plants under CAA Section 111(b), which it calls the "Carbon Pollution Standards. " The states have been joined by other petitioners including a labor union, a rural electric cooperatives association, several other fossil-fuel-related companies and utilities, and several industry and trade groups; most of the petitioners overlap with those who also filed challenges to the CPP, although there are somewhat fewer petitioners challenging the NSPS. The petitions have been consolidated under the case caption North Dakota v. EPA . Most of the states and a number of the nonprofit organizations that intervened in support of EPA in the CPP case also intervened in the NSPS challenge in support of EPA. In the Section 111(b) litigation, one of the primary issues is EPA's establishment of standards of performance based on technologies including carbon capture and sequestration/storage (CCS). Natural gas plants and modified coal plants can reach the final NSPSs with efficient generation technology, but new coal plants would need to implement partial CCS. Critics of the NSPSs for power plants say, for example, that CCS technology is not yet commercially available nor fully technically feasible, and therefore that it is not "adequately demonstrated" or the "best system" under Section 111(b). They also argue that EPA improperly relied on separate demonstrations of individual components of the technology, and that the NSPSs are otherwise arbitrary, capricious, an abuse of discretion, contrary to law, or unconstitutional. EPA, in the Section 111(b) final rule's preamble, argued that its Carbon Pollution Standards were reasonable and lawful. EPA provided rationales for basing the standard for new coal plants on partial CCS: It explained technical configurations and operational flexibilities that may be available; worked through its analyses of feasibility, cost, and other criteria; and discussed "alternative compliance options that new source project developers can elect to use, instead of … partial CCS, to meet the final standard of performance." In addition to the D.C. Circuit litigation, petitions were filed before EPA seeking administrative reconsideration of the NSPS rule; EPA denied the petitions in May 2016. The D.C. Circuit suspended the briefing schedule in the North Dakota v. EPA case in June 2016 to allow the court to consolidate new lawsuits filed challenging EPA's denial of the petitions. On August 30, 2016, the court issued a revised briefing schedule to begin on October 13, 2016, with opening briefs and conclude by February 6, 2017. The court has scheduled oral arguments for April 17, 2017. As noted above, the finalization of NSPSs for new air pollutant sources under Section 111(b) of the CAA is a prerequisite for the use of authority under Section 111(d) to regulate existing sources, so this litigation could threaten EPA's basis for the CPP. Thus, regardless of the outcome of West Virginia v. EPA , the litigation in North Dakota v. EPA potentially could impact the CPP as well.
|
On October 23, 2015, the U.S. Environmental Protection Agency (EPA) published its final Clean Power Plan rule (Rule) to regulate emissions of greenhouse gases (GHGs), specifically carbon dioxide (CO2), from existing fossil fuel-fired power plants. The aim of the Rule, according to EPA, is to help protect human health and the environment from the impacts of climate change. The Clean Power Plan would require states to submit plans to achieve state-specific CO2 goals reflecting emission performance rates or emission levels for predominantly coal- and gas-fired power plants, with a series of interim goals culminating in final goals by 2030. The Clean Power Plan has been one of the more singularly controversial environmental regulations ever promulgated by EPA, and the controversy is reflected in the enormous multi-party litigation over the Rule ongoing in the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit). Numerous petitions challenging the Clean Power Plan have been consolidated into one case, West Virginia v. EPA. While the litigation is still ongoing at the circuit court level, an unusual mid-litigation application to the Supreme Court resulted in a stay of the Rule, meaning that the Rule does not have legal effect at least for the duration of the litigation. On September 27, 2016, the en banc (full court) D.C. Circuit heard oral argument for the case. This report provides legal background on the Rule, its Clean Air Act (CAA) framework under Section 111, and climate-related lawsuits that have preceded the present litigation over the Clean Power Plan. It then gives an overview of the participants in the current litigation, including two groups of Members of Congress, who have offered briefs in support of both sides. This report highlights the major events in the litigation as of the date of publication, including the Supreme Court stay and oral argument, and the likely timetable of events in the near term. Some of the main arguments on the merits are then briefly summarized and excerpted from court filings, including the standard of review to apply to EPA's action; the scope of EPA's overall authority under CAA Section 111; whether Section 111 allows the Clean Power Plan's inclusion of generation-shifting, such as from coal-fired power plants to lower-emitting sources of electricity; the interpretation of a statutory exclusion in CAA Section 111 that cross-references CAA Section 112's regulation of hazardous air pollutants, particularly in light of the apparent enactment in 1990 of differing House and Senate amendments to the same cross-reference; constitutional arguments relating to federalism and separation of powers; record-based challenges to the achievability and reasonableness of the Rule; and arguments regarding rulemaking procedures. This report concludes with a brief look at parallel litigation in the D.C. Circuit, consolidated as North Dakota v. EPA, which is challenging a related EPA regulation that imposes new source performance standards (NSPSs) limiting CO2 emissions from new, modified, and reconstructed fossil fuel-fired power plants.
|
The Veterans Health Administration (VHA), within the Department of Veterans Affairs (VA), operates the nation's largest integrated direct health care delivery system, provides care to approximately 6.7 million unique veteran patients, and employs more than 311,000 full-time equivalent employees. While Medicare, Medicaid, and the Children's Health Insurance Program (CHIP) are also publicly funded programs, most health care services under these programs are delivered by private providers in private facilities. In contrast, the VA health care system could be categorized as a veteran-specific national health care system, in the sense that the federal government owns a majority of its health care delivery sites, employs the health care providers, and directly provides the majority of health care services to veterans. It should be noted that VA health care is not a health insurance plan similar to what many individuals or employers purchase in the private health insurance market and does not have the same health insurance plan characteristics, such as coinsurances, deductibles, and premiums. This report provides responses to frequently asked questions about health care provided to veterans through the VHA. It is intended to serve as a quick reference to provide easy access to information. Where applicable, it provides the legislative background pertaining to the question. In general, not all veterans are eligible and entitled for free VA health care services . Generally, a veteran has to meet certain criteria to be eligible for VA health care: (1) meet the statutory definition of a "veteran"; (2) meet the statutory definition of "active duty"; and (3) serve a minimum period of active duty. Although numerous claims have been made concerning "promises" to military personnel and veterans with regard to "free health care for life," presently, free medical benefits for life are not offered by VA to all veterans. Early history does point to a "promise" for service-connected veterans; "but no provision was made for implementing the promise." For instance, "Article III of the War Risk Insurance Act, in addition to making provision for compensation, provides that the United States shall furnish to the injured person such reasonable governmental medical, surgical, and hospital services, and such supplies, including artificial limbs, trusses, and similar appliances." Eligibility for enrollment in VA health care has evolved over time. Prior to eligibility reform in 1996, all veterans were technically eligible for some care. However, the actual provision of care was based on available resources. The Veterans' Health Care Eligibility Reform Act of 1996 ( P.L. 104-262 ) established two eligibility categories and required VHA to manage the provision of hospital care and medical services through an enrollment system based on prioritization. (See Appendix A for the criteria for the Priority Groups.) P.L. 104-262 authorized the VA to provide all needed hospital care and medical services to veterans with service-connected disabilities; former prisoners of war; veterans exposed to toxic substances and environmental hazards such as Agent Orange; veterans whose attributable income and net worth are not greater than an established "means test"; and veterans of World War I. These veterans are generally known as "category A" or "core" veterans. The other category of veterans includes those with no service-connected disabilities and/or with attributable incomes above an established "means test." P.L. 104-262 also authorized the VA to establish a patient enrollment system to manage access to VA health care. As stated in the report language accompanying P.L. 104-262 , [t]he Act would direct the Secretary, in providing for the care of 'core' veterans, to establish and operate a system of annual patient enrollment and require that veterans be enrolled in a manner giving relative degrees of preference in accordance with specified priorities. At the same time, it would vest discretion in the Secretary to determine the manner in which such enrollment system would operate. Furthermore, P.L. 104-262 was clear in its intent that the provision of health care to veterans was dependent upon available resources. The committee report accompanying P.L. 104-262 states that the provision of hospital care and medical services would be provided to "the extent and in the amount provided in advance in appropriations Acts for these purposes. Such language is intended to clarify that these services would continue to depend upon discretionary appropriations." Eligibility statuses of some veterans may become invalid at any time. "Enrolled veterans who are receiving health care benefits, and are later determined to not be eligible for enrollment will be notified via letter 60 days prior to disenrollment." Figure 1 illustrates the process of VA's determination of ineligibility procedures for currently enrolled veterans. Veterans' family members are not eligible for enrollment in VA health care services. However, certain dependents and survivors may receive reimbursement from the VA for some medical expenses. The Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA) pays for health care services to dependents and survivors of certain veterans. It is primarily a fee-for-service program that provides reimbursement for most medical care that is provided by non-VA providers or facilities. On May 5, 2010, President Barack Obama signed into law the Caregivers and Veterans Omnibus Health Services Act of 2010 ( P.L. 111-163 ), which expanded the CHAMPVA program to include the primary family caregiver of an eligible veteran who has no other form of health insurance, including Medicare and Medicaid. Health care services provided include counseling, training, and mental health services for the primary family caregiver. For more information, see CRS Report RS22483, Health Care for Dependents and Survivors of Veterans , by [author name scrubbed]. Enrollment in VA health care is based primarily on veteran status (i.e., previous military service), service-connected disability, 22 and income. 23 At a minimum, the veteran must have served (1) in the military, naval, or air service; (2) for the required minimum period of duty; and (3) received a discharge or release that is under other than honorable (e.g., general, honorable, under honorable conditions). The Veterans' Health Care Eligibility Reform Act of 1996 ( P.L. 104-262 ) required the VA to establish an enrollment system. The VA must establish which categories of veterans are eligible to be enrolled for VA health care. Once a veteran is enrolled, a veteran will remain enrolled in the VA health care system; unless the veteran formally wishes to disenroll. "Enrolled veterans may seek care at any VA facility without being required or requested to reestablish eligibility for VA health care enrollment purposes." Exact requirements for enrollment eligibility depend on various criteria, such as when and in which component (i.e., active, Reserves, or National Guard) the veteran served. See below for questions and answers about returning combat veterans and members of the Reserves and National Guard. Veterans returning from a combat theater of operations are eligible to enroll in VA health care for five years from the date of their most recent discharge or release without having to demonstrate a service-connected disability or satisfy an income requirement. Veterans who enroll under this extended enrollment authority continue receiving health services after the five-year eligibility period ends. This special period of enrollment eligibility for VA health care was established in 1998 and expanded in 2007. In 1998, Congress—responding to the growing concerns of Persian Gulf War Veterans' undiagnosed illnesses—passed the Veterans Programs Enhancement Act of 1998 ( P.L. 105-368 ); entitling a veteran who served on active duty in a theater of combat operations during a period of war after the Persian Gulf War to be eligible to enroll in VA health care during a two-year period following the date of discharge. In 2007, the National Defense Authorization Act (NDAA), FY2008 ( P.L. 110-181 ) extended the period of enrollment eligibility for VA health care from two to five years for veterans who served in a theater of combat operations after November 11, 1998. If returning veterans do not enroll during this five-year enrollment window (from the most recent date of discharge), future applications for enrollment will be evaluated according to the Priority Group classifications described in Appendix A . For this reason, the VA encourages veterans to take advantage of the enhanced enrollment period. The Clay Hunt Suicide Prevention for American Veterans Act ( P.L. 114-2 ) authorized an additional one-year period of eligibility to enroll for those veterans who were discharged from active duty after January 1, 2009, and before January 1, 2011, but did not enroll during the five-year period of post discharge eligibility. This one-year period began on February 12, 2015, the enactment date of the Clay Hunt Suicide Prevention for American Veterans Act. It ended on February 12, 2016. When not activated to full-time federal service, members of the Reserve components have limited eligibility for VA health care services. Similar to regular active duty servicemembers, members of the Reserve components may be eligible for enrollment into the VA health care system based on veteran status (i.e., previous military service), service-connected disability, and income. Reservists achieve veteran status and are exempt from the 24-month minimum duty requirement (as described above) if they (1) were called to active duty, (2) completed the term for which they were called, and (3) were granted a discharge that is under other than honorable conditions. Members of the Reserve components may be granted service connection for any injury they incurred or aggravated in the line of duty while participating in inactive duty training sessions, annual required training sessions, or active duty for training. Injuries incurred during transfer from or to any of the above training sessions may also be granted as service-connected disabilities. Additionally, Reserve component members who experience a heart attack or stroke may have those medical events established as service-connected conditions. The granting of service-connection assures Reserve component members' eligibility to receive care from the VA for those conditions. When not activated to full-time federal service, members of the National Guard have limited eligibility for VA health care services. Similar to regular active duty servicemembers, members of the National Guard may be eligible for enrollment in VA health care based on veteran status (i.e., previous military service), service-connected disability, and income. National Guard members achieve veteran status and are exempt from the 24-month minimum duty requirement (as described above) if they (1) were called to active duty by federal executive order, (2) completed the term for which they were called, and (3) were granted an other than dishonorable discharge. National Guard members are not granted service-connection for any injury, heart attack, or stroke that occurs while performing duty ordered by a governor for state emergencies or activities. A veteran may apply for enrollment at any time of year by submitting the application for enrollment (online, in person, by mail, or by telephone) to a VA health care facility. 31 To receive VA health care, veterans must enroll by completing and submitting the VA's application for Health Benefits (VA Form 10-10EZ). The application form includes information about the veteran's military service, demographics, and (as applicable) financial status. There are many avenues for veterans to apply for enrollment: Applying Online. Veterans may fill out and submit their benefit application electronically through the VA website. After completing the application, a confirmation message will appear immediately on the veteran's screen. If recently discharged, the VA will gather veterans' service information for them. Applying in Person. Veterans may go to their local VA health facility to apply for health care services. Within five to seven days, veterans will receive their enrollment notification letters in the mail. Applying by Mail. Veterans who choose to mail their VA Forms 10-10EZ to the VA may either download the form from the VA's website or pick up a form from their local VA health facility. Applying by Telephone. Provisions for applications taken over the telephone changed. Previously, all veterans who applied for VA health care over the telephone had to wait five to seven days to receive, sign, and return their applications to the VA. At present, veterans can complete and submit their VA Forms 10-10EX over the telephone. Beginning March 15, 2016, all veterans who served in a theater of combat operations after November 11, 1998, and were discharged or released from active service on or after January 28, 2003, could apply for enrollment over the telephone. Applications for other veterans to submit their enrollment application over the telephone are scheduled to begin on July 15, 2016. The VA processes applications through either a VA medical facility or Health Eligibility Center (HEC). Veterans designate where they would like their application to be processed, with the exception of four medical facilities. If veterans choose to have their applications processed through their local VA health facility, the staff will process their applications by using the Veterans Health Information Systems and Technology Architecture (VistA). VistA is an integrated electronic health record system that the VA uses to deliver care, which also includes administrative tools. If the veterans choose to have a Health Eligibility Center (HEC) process their applications, the staff within the center will use the Workload Reporting and Productivity (WRAP) tool. HEC staff uses the WRAP tool to maintain and distribute health applications to reviewers, along with supporting documentations. Illustrated in Figure 2 is a flowchart of how the VA processes health care applications. Veterans who are accepted into the VA health care system and placed into a priority group are considered enrollees. 39 Veterans who are approved to receive medical benefits may schedule their first VA health care appointment after receiving their approved enrollment notification letter. Veterans will also receive their personalized Veterans Health Handbook through the mail. This handbook will inform each veteran of his or her medical benefits, copay status, and Enrollment Priority Group assignment. Veterans who are found ineligible by the VA to receive medical benefits may appeal the decision. The VA will mail letters to unenrolled veterans explaining why they are unable to receive medical benefits. Within the letters are instructions that veterans must follow in order to appeal the VA's decision. Enrollment Cancellation —Veterans may cancel their health care enrollment with the VA at any time. Applications for reenrollment are accepted at any time by the VA. "Acceptance for future VA health care enrollment will be based on eligibility factors at the time of application, which may result in a denial of enrollment." The VA offers all enrolled veterans a standard medical benefits package that includes (among other things) inpatient care, outpatient care, and prescription drugs. The VA's standard medical benefits package promotes preventive and primary care and offers a broad spectrum of inpatient, outpatient, surgical and preventive health services as illustrated in Figure 3 . The VA's standard medical benefits package addresses the health care needs of enrolled female veterans by providing (directly or through access to non-VA providers) gynecological care, maternity care, infertility, breast and reproductive oncology, and care for conditions related to military sexual trauma (MST), among other services. In addition, the Caregivers and Veterans Omnibus Health Services Act of 2010 ( P.L. 111-163 ) authorized the VA to provide certain health care services to a newborn child of a female veteran receiving maternity care furnished by the VA. Health care for the newborn will be authorized for a maximum of seven days after the birth of the child if the veteran delivered the child in a VA facility or in another facility pursuant to a VA contract for maternity services. Under current regulations, the VA is not authorized to provide or cover the cost of in vitro fertilization (IVF), abortions, abortion counseling, or medication to induce an abortion (e.g., mifepristone, also known as RU-486). The VA does provide infertility services to veterans. Infertility services are provided to both service and nonservice-connected veterans. Illustrated in Figure 4 is a listing of men and women infertility services offered by the VA. Eligibility for dental care is extremely limited, and differs significantly from eligibility requirements for medical care. For VA dental care eligibility, enrolled veterans are categorized into classes, which form the basis for the scope of dental treatment provided. Table 1 describes the eligibility criteria and scope of treatment for VA-provided dental care. The VA Dental Insurance Program (VADIP) is a pilot program that provides premium-based dental insurance coverage through which eligible individuals may choose to obtain dental insurance from a participating insurer. 42 The Caregivers and Veterans Omnibus Health Services Act of 2010 ( P.L. 111-163 ) authorized the VHA to conduct a three-year pilot program to assess the feasibility and advisability of providing private, premium-based dental insurance coverage to eligible veterans and certain survivors and dependents. Generally, survivors and dependents that would qualify for the program will be Civilian Health and Medical Program of the VA (CHAMPVA) beneficiaries. Under the three-year pilot program (set to expire in August 2016), the VHA contracted with qualified dental insurance carriers that provide dental insurance and administer all aspects of the dental insurance plan. The VHA administers the contract with the private insurer and verifies eligibility of veterans, survivors, and dependents. Generally, the VA provides audiology and eye care services (including preventive care services and routine vision testing) for all enrolled veterans. The VA does not provide hearing aids or eye glasses for normally occurring hearing or vision loss. Hearing aids and eyeglasses are provided to the following veterans: Veterans with any compensable service-connected disability. Veterans who are former prisoners of war (POWs). Veterans who were awarded a Purple Heart. Veterans receiving compensation for an injury, or an aggravation of an injury, that occurred as the result of VA treatment. Veterans in receipt of an increased pension based on being permanently housebound and in need of regular aid and attendance. Veterans with hearing or vision impairment resulting from diseases or the existence of another medical condition for which the veteran is receiving care or services from VA, or which resulted from treatment of that medical condition (e.g., stroke, polytrauma, traumatic brain injury, diabetes, multiple sclerosis, vascular disease, geriatric chronic illnesses, toxicity from drugs, ocular photosensitivity from drugs, cataract surgery, and/or other surgeries performed on the eye, ear, or brain resulting in a vision or hearing impairment). Veterans with significant functional or cognitive impairment evidenced by deficiencies in the ability to perform activities of daily living. Veterans who have hearing and/or vision impairment severe enough that it interferes with their ability to participate actively in their own medical treatment and to reduce the impact of dual sensory impairment (combined hearing and vision loss). The VA provides long-term care services (including residential, home-based, and community-based care) for veterans meeting specified criteria, which may include service-connected conditions and the need for such care. The Veterans Millennium Healthcare and Benefits Act ( P.L. 106-117 ) requires the VA to provide nursing home services to all enrolled veterans who are 70% or more service-connected disabled, or 60% or more service-connected disabled and unemployable and in need of such care, or who are service-connected for a condition that makes such care necessary. The VA meets the requirements of P.L. 106-117 by providing short- and long-term nursing care, respite, and end-of-life care through three different settings: Community Living Centers (CLCs) located on VA medical campuses; contracted care in Community Nursing Homes (CNHs); and through the State Veterans Nursing Home (SVNH) program. Under the SVNH program, the VA subsidizes state-operated, long-term care facilities for veterans through a grant and per diem program in states that have petitioned the VA to build and operate a SVNH. The SVNH program primarily provides long-stay, maintenance-level care. Each SVNH is owned and operated by its host state; however, approximately two-thirds of new construction costs and about one-third of per diem costs are provided by the VA. For those veterans who are 70% or more service-connected disabled and reside in a SVNH, the VA provides the full cost of care. The VA provides a range of non-institutional home and community based services for veterans, which include the following: Skilled Home Care—The Purchased Skilled Home Care Program (formerly known as fee basis home care) is a professional home care service that is purchased from private-sector providers by every VA medical center. A VA primary care provider must recommend Skilled Home Care in order for a veteran to receive it. The professional home care services program covers mostly nursing services, including medical care, social services, occupational therapy, physical therapy, skilled nursing care, and speech and language pathology. Home Based Primary Care—This program (formerly known as Hospital Based Home Care) began in 1970 and provides medical care to chronically ill or disabled veterans in their own homes through an interdisciplinary treatment team. These services are paid for by the VA and provided by VA personnel. Veteran-Directed Home & Community Based Care—The VA partners with federal Area Agencies on Aging to purchase needed services. This program allows the veteran to decide on a case mix of services to best meet care needs and those of the caregiver. Spinal Cord Injury/Disorders Bowel & Bladder Care—These programs provide specialized home care services for veterans with spinal cord injuries and related disorders. Services include respite care, long-term care, bowel and bladder care, and caregiver education to veterans. Homemaker/Home Health Aide—This program began in 1993 and provides assistance with personal care and related support services for veterans in their own homes through the homemaker/home health aide (H/HHA) benefit. H/HHA services may include assistance with activities of daily living (ADLs), as well as instrumental activities of daily living (IADLs). Eligibility for the H/HHA program is based on a clinical judgment by the H/HHA Coordinator and interdisciplinary team that determine if the veteran would, in the absence of H/HHA services, require nursing home equivalent care. The VA pays for these services. H/HHA services are provided by contracted providers. H/HHAs are personnel who are trained and have completed a competency evaluation, and are under the general supervision of a nurse. Community Residential Care (CRC) —CRC is a form of enriched housing that provides health care supervision to eligible veterans not in need of hospital or nursing home care, but who, because of medical and psychiatric and/or psychosocial limitations, as determined through a statement of needed care, are not able to live independently and have no suitable family or significant others to provide the needed supervision and supportive care. CRCs currently encompass assisted living facilities; personal care homes; family care homes; psychiatric community residential care homes; and medical foster homes. In general, each of the settings listed above must provide room, board, assistance with activities of daily living, and supervision as determined on an individual basis. The individual veteran makes the final choice of facility, and the cost of residential care is financed by the veteran's own resources. However, placement in residential settings is subject to inspection and approval by the appropriate VA medical center. Under certain circumstances, the VA may reimburse non-VA providers for health care services rendered to VA-enrolled veterans on a fee-for-service basis. Current law authorizes the VA to provide care outside of the VA health care system under the following circumstances: (1) when a clinical service cannot be provided at a VA medical center (VAMC); (2) when a veteran is unable to access a VA facility due to geographic inaccessibility; or (3) in emergencies when delays could lead to life-threatening situations. Table 2 lists multiple services that are offered in the community. Non-VA care may include outpatient care, inpatient care, emergency care, medical transportation, and dental services. The Veterans Choice Program (VCP), or Choice Card Program, is a new, temporary program that provides veterans the ability to receive medical care in the community from non-VA providers under certain circumstances. On August 7, 2014, President Obama signed the Veterans Access, Choice, and Accountability Act of 2014 ( H.R. 3230 ; H.Rept. 113-564 ; P.L. 113-146 ). The Department of Veterans Affairs Expiring Authorities Act of 2014 ( H.R. 5404 ; P.L. 113-175 ), the Consolidated and Further Continuing Appropriations Act, 2015 ( H.R. 83 ; P.L. 113-235 ), the Construction Authorization and Choice Improvement Act ( H.R. 2496 ; P.L. 114-19 ), and the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 ( H.R. 3236 ; P.L. 114-41 ) made amendments to some provisions in P.L. 113-146 . The act, as amended, makes a number of changes to programs and policies of the Veterans Health Administration (VHA) within the Department of Veterans Affairs (VA) that aim to increase access to care outside the VA health care system. Among other things, the act established a new program (the Veterans Choice Program) that would allow the VA to authorize care for veterans outside the VA health care system if they meet any of the following requirements: 30 Day Wait List : Veteran is informed by the local VA medical facility that an appointment may not be scheduled either: Within 30 days of when the veteran's clinician determines he/she need to be seen (clinically determined date), o r Within 30 days of when the veteran wishes to see a provider. 40 Miles or More D i stance: Veteran lives 40 miles from a VA medical facility that has a full-time primary care physician. 40 Miles or Less Distance: Veteran does not reside in Guam, American Samoa, or the Republic of the Philippines and : Travel by Air, Boat, or Ferry: Veteran travels by air, boat, or ferry in order to seek care from their local VA facility; or Unusual or Excessive Burden : Veteran incurs traveling burden based on environmental factors, geographic challenges, or a medical condition. State or Territory without a VA facility that provides inpatient, emergency and complex surgical care ( Full-Service VA Medical Facility ) : Veteran residence is more than 20 miles from a VA medical facility and is in either: Alaska, or Hawaii, or New Hampshire (excluding veterans who live 20 miles of the White River Junction VAMC), or U.S. Territory (excluding Puerto Rico). Generally, to participate in the Veterans Choice Program (VCP) a veteran must be enrolled in the VA health care system. VA staff must determine a veteran's eligibility within 10 business days from the date of request. VA staff would review clinical and administrative records of veterans to determine appropriate medical benefits packages and clinical criteria. The VA informs the veteran if he/she is eligible to participate in the VCP. Veterans and network providers should verify eligibility status by calling the Choice Program Call Center at 866-606-8198 before scheduling any medical appointments. Table 3 lists Community Programs that are not covered by the Veterans Choice Program. A private Third Party Administrator (TPA) administers the program on behalf of the VA. The VA signed contracts with two health care companies—Health Net Federal Services, LLC, and TriWest Healthcare Alliance Corporation—to help VA administer the Veterans Choice Program (VCP). Responsibilities of the contractors consist of managing: appointments, counseling services, providers, billing, Veterans Choice Program card distributions, and the call center. Veterans found eligible under the VCP will receive a call from their respective contractor. Health Net or TriWest will provide veterans with information about the organization and schedule their appointments. All appointments for veterans must be within 30 calendar days. Once the appointments are scheduled, the contractor will inform the VA. After receiving the notification, the veteran's local VA facility staff will cancel his/her appointment at the VA if an appointment has been made. All authorizations of care are issued by either Health Net or TriWest. Non-VA health care services must be pre-authorized prior to being delivered to veterans. Medical services rendered to veterans without prior authorization may not be covered by the VA. Furthermore, veterans who do not live more than 40 miles from their nearest VA medical facility must first be unable to schedule an appointment with that VA facility; prior to requesting services under the VCP. Veterans' out-of-pocket costs under the Choice Program are the same as those currently under the VA health care system. However, if a veteran has other health insurance (OHI), the veteran may have to pay out-of-pocket costs associated with the other insurance plan. As explained in VA's final rulemaking: For some veterans, particularly those with their own health insurance, there may be some differences under the Program [VCP], because while VA will attempt to cover the veteran's financial obligations under his or her insurance plan, VA cannot pay more than the Medicare rate (with limited exceptions) for the services provided, meaning the veteran may owe some copayment, cost share, or deductible amount from their other health insurance to the provider. VA is unable to completely eliminate any potential copayment liability because under the Program [VCP], VA is a secondary payer while under other non-VA care, we [VA] are the primary payer, and our payment to the non-VA health care provider is payment in full. Project ARCH is a five-year pilot program to evaluate how to improve access to health care for rural and highly rural veterans by providing these services closer to where they live through contractual agreements with non-VA medical providers. The Veterans' Mental Health and Other Care Improvements Act of 2008 ( P.L. 110-387 P.L. 110-387 ) was signed into law on October 10, 2008. Section 403 of this law required VA to conduct pilot programs during a three-year period to provide non-VA health care services through contractual arrangements to eligible veterans. The Caregiver and Veterans Omnibus Health Services Act of 2010 ( P.L. 111-163 P.L. 111-163 ), signed into law in May 2010, made technical corrections to Section 403 of P.L. 110-387 . P.L. 110-387 . In February 2011, the VA issued a Request for Proposals (RFP) for interested parties to submit proposals to provide services, and the Project ARCH sites became operational on August 29, 2011. The three-year pilot program was set to expire on August 29, 2014. Section 104 of the Veterans Access, Choice, and Accountability Act of 2014 ( P.L. 113-146 ) extended this pilot program by another two years from the date of enactment of P.L. 113-146 , and it is now set to expire on August 7, 2016. Furthermore, P.L. 113-146 also stipulated that the Secretary must ensure that medical appointments for those veterans eligible to participate in Project ARCH are scheduled not later than 5 days after the date on which the appointment is requested and occur no later than 30 days after such date. The Project ARCH pilot provides a range of specified health care services to eligible veterans in Veterans Integrated Service Networks (VISN) 1, 6, 15, 18, and 19. Eligibility for Project ARCH is based on statutory language. Specifically, eligible individuals include veterans who are enrolled in VA for health care services as of the date of the commencement of the pilot program and meet the statutory definition of "covered veterans." Veterans may also participate in the pilot program if they are eligible to enroll under Section 1710(e)(3)(C) of Title 38 of the U.S.C. This includes Operation Enduring Freedom (OEF)/Operation Iraqi Freedom (OIF) veterans and veterans who served on active duty in a theater of combat operations or in combat against a hostile force during a period of hostilities after November 11, 1998. Covered veterans are defined as those veterans residing in a pilot VISN: More than 60 minutes away from the nearest VA health care facility providing primary care services, More than 120 minutes away from the nearest VA health care facility providing acute hospital care, or More than 240 minutes away from the nearest VA health care facility providing tertiary care. Five pilot sites have been established across the country: Caribou, ME; Farmville, VA; Pratt, KS; Flagstaff, AZ; and Billings, MT. Health care services provided include primary care, outpatient specialty care, inpatient acute care, and outpatient diagnostic radiology services, among others. It should be noted that not all services are provided at all pilot sites (see Table 4 ). The VA may pay for emergency 61 care provided to enrolled veterans by non-VA providers based on several factors, such as whether the care is for a service-connected condition or not. Prior to the passage of the Veterans' Emergency Care Fairness Act ( P.L. 111-137 ), a veteran who was enrolled in the VA's health care system was reimbursed for emergency treatment received at a non-VA hospital. However, the statute only permitted such VA reimbursement if the veteran had no other outside health insurance, no matter how limited that other coverage was. P.L. 111-137 required the VA to pay for emergency treatment for a nonservice-connected condition if a third party is not responsible for paying for the full cost of care. The law also set two limitations on reimbursement as follows: (1) the VA is the secondary payer where a third-party insurer covers a part of the veteran's medical liability (e.g., his or her automobile insurance coverage, private health insurance, or Medicare Part A and Medicare Part B); and (2) the VA is only responsible for the difference between the amount paid by the third-party insurer and the VA allowable amount. Veterans would continue to be responsible for copayments owed to the third-party insurer; if the veteran was responsible for copayments under a private health insurance or Medicare plan, then the veteran would still be liable to pay this (copayment rates and or coinsurance rates are set by the individual insurance policy or Medicare and not the VA). P.L. 111-137 clarifies that veterans are not liable for any remaining balance due to the provider after the third-party insurer and the VA have made their payments. Table 5 lists certain criteria that veterans must meet in order to get reimbursement for emergency services received from non-VA health facilities. Whether a veteran is required to pay for VA health care services depends primarily on (1) whether the condition being treated is service-connected, and/or (2) the veteran's enrollment Priority Group. 62 Veterans who are enrolled in the VA health care system do not pay any premiums; however, some veterans are required to pay copayments for medical services and outpatient medications related to the treatment of a nonservice-connected condition. Table 6 summarizes which Priority Groups are charged copayments for inpatient care, outpatient care, outpatient medication, and long-term care services. Only veterans in Priority Group 1 (those who have been rated 50% or more service-connected) and veterans who are deemed catastrophically disabled by a VA provider are never charged a copayment, even for treatment of a nonservice-connected condition. For veterans in other priority groups, VHA currently has four types of nonservice-connected copayments for which veterans may be charged: outpatient, inpatient, extended care services, and medication. Veterans in all priority groups are not charged copayments for a number of outpatient services, including the following: publicly announced VA health fairs; screenings and immunizations; smoking and weight loss counseling; telephone care; laboratory services; flat film radiology; and electrocardiograms. For primary care outpatient visits, there is a $15 copayment charge and for specialty care outpatient visits, a $50 copayment. Veterans do not receive more than one outpatient copayment charge per day. That is, if the veteran has a primary care visit and a specialty care visit on the same day, the veteran pays only for the specialty care visit. For veterans required to pay an inpatient copayment charge, rates vary based upon whether the veteran is enrolled in Priority Group 7 or not. Veterans enrolled in Priority Group 8 and certain other veterans are responsible for the VA's full inpatient copayment. Veterans enrolled in Priority Group 7 and certain other veterans are responsible for paying 20% of the VA's inpatient copayment. Veterans in Priority Groups 1 through 5 do not have to pay inpatient or outpatient copayments. Veterans in Priority Group 6 may be exempt due to special eligibility for treatment of certain conditions. For veterans required to pay long-term care copayments, these charges are based on three levels of nonservice-connected care, including inpatient, noninstitutional and adult day health care. Actual copayments vary depending on the veteran's financial situation. The VHA bills private health insurers for medical care, supplies, and prescriptions provided to veterans for their nonservice-connected conditions. While the VA cannot bill Medicare, it can bill Medicare supplemental health insurance carriers for covered services. Veterans are not responsible for paying any remaining balance of the VA's insurance claim that is not paid or covered by their health insurance carrier. Any payment received by the VA is used to offset ''dollar for dollar'' a veteran's VA copayment responsibility. For medication copayments, veterans are not billed if they have a service-connected disability rating of 50% or greater, are former prisoners of war (POWs), catastrophically disabled, or if the medication is for a service-connected disability . Veterans enrolled in Priority Groups 2 through 6 have a $960 calendar-year cap on the amount that they can be charged for these copayments. Veterans who are unable to pay VA's copayment charges may submit requests for assistance, including waivers, hardships, compromises, and repayment plans. Beginning January 1, 2017, VA is proposing to change the copayment rate of nonservice-connected conditions that are treated in an outpatient setting. Currently, medication copayments are either $8 or $9 per 30-day or less supply. The new proposed rule, if adopted in 2017, would place medications into three tiers. For a 30-day or less supply of medication, Tier 1 medications would cost $5; Tier 2 would cost $8; and Tier 3 would cost $11. Provided the v eterans meet certain eligibility criteria, they could contribute towards health savings accounts (HSAs). The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 ( P.L. 114-41 ) expands the ability of veterans who receive care from the VA for service-connected conditions to contribute towards health savings accounts. HSAs are one way individuals can pay for unreimbursed medical expenses (deductibles, copayments, and services not covered by health insurance) on a tax-advantaged basis. Only eligible individuals can establish and fund HSAs. To be an eligible individual, one must be covered under a qualifying high-deductible health plan (HDHP), cannot have any other insurance or coverage except what is permitted, and cannot be claimed as a dependent on a different taxpayer's return. In general, an individual's eligibility to contribute to an HSA is determined on a monthly basis. Previously, receiving care from VA limited veterans' ability to contribute to HSAs. Veterans who were otherwise eligible to contribute to an HSA (i.e., veterans who were eligible individuals) could contribute in a month only if they had not received care from the VA in the preceding three months. Veterans who were otherwise eligible but had received care from the VA in the preceding three months were not allowed to contribute to the HSA for the month. Under P.L. 114-41 , individuals are not prohibited from contributing to an HSA merely because they receive medical care from the VA for a service-connected disability. In other words, individuals who are otherwise eligible to contribute to an HSA will not be prevented from doing so merely because they receive care from the VA. This change went into effect January 1, 2016. The VA has the authority to bill most health care insurers for nonservice-connected care provided to veterans enrolled in the VA health care system. The Consolidated Omnibus Budget Reconciliation Act of 1985 ( P.L. 99-272 ), enacted into law in 1986, gave the VHA the authority to bill some veterans and most health care insurers for nonservice-connected care provided to veterans enrolled in the VA health care system to help defray the cost of delivering medical services to veterans. This law also established means testing for veterans seeking care for nonservice-connected conditions. Congress authorized the VHA to collect reasonable charges for medical care or services (including the provision of prescription drugs) from a third party to the extent that the veteran or the provider of the care or services would be eligible to receive payment from the third party for (1) a nonservice-connected disability for which the veteran is entitled to care (or the payment of expenses of care) under a health plan contract; (2) a nonservice-connected disability incurred as a result of the veteran's employment and covered under a worker's compensation law or plan that provides reimbursement or indemnification for such care and services; or (3) a nonservice-connected disability incurred as a result of a motor vehicle accident in a state that requires automobile accident reparations (no fault) insurance. Similarly, the VHA can receive payments from Medicare supplemental coverage plans for nonservice-connected conditions for which the veteran receives care at VHA facilities. Veterans are not responsible for paying any remaining balance of the VA's insurance claim not paid or covered by their health insurance. Any payment received by the VA is used to offset ''dollar for dollar'' a veteran's VA copayment responsibility. The VA is statutorily prohibited from billing Medicare 80 in most situations. Additionally, veterans are responsible for paying all Medicare premiums, deductibles, and co-insurance. The VA has no authority to reimburse Medicare beneficiaries for expenses they incur to obtain medical care under Medicare. 81 In general, Medicare is prohibited from reimbursing for any services provided by a federal health care provider unless the provider is determined by the Secretary of Health and Human Services (HHS) to be providing services to the public as a community institution or agency; the provider is providing services through facilities operated by the Indian Health Service (IHS); or the services were provided in an emergency (in a hospital setting). Medicare is also prohibited from making payments to any federal health care provider who is obligated by law or contract to render services at public expense. Therefore, the VHA is statutorily prohibited from receiving Medicare payments for services provided to Medicare-covered veterans. Although the legislative history does not indicate congressional intent for this decision, "a safe assumption to be drawn from the exclusion of Medicare [from paying for health care services provided through other federal entities] is that Congress wanted to avoid the unnecessary transfer of federal funds from Medicare to the VA when the money is all coming out of the same coffer." It should be noted that there is a narrow exception to this statutory prohibition of Medicare reimbursing the VHA. Under current law the VHA can be reimbursed by Medicare (notwithstanding any condition, limitation, or other provision in title XVIII of the Social Security Act) when the VA provides services to Medicare-covered individuals who are not eligible for care under Chapter 17 of Title 38 United States Code (U.S.C.) and who are afforded VA care or services under a "sharing" agreement. Medicare can reimburse veterans for VA copayment amounts charged for VA authorized services provided by non-VA sources (or provide credit toward Medicare may also pay for (Medicare covered) services for which the VA does not make any payment. "For example, if a veteran is authorized 'fee basis' care at VA expense for a service-connected back injury, and treatment for a different condition for which the VA does not pay, Medicare can pay for the (covered) services that are not reimbursable by the VA." Appendix A. VA Priority Groups and Their Eligibility Criteria The VA classifies veterans into eight enrollment Priority Groups based on an array of factors including (but not limited to) service-connected disabilities or exposures, prisoner of war (POW) status, receipt of a Purple Heart or Medal of Honor, and income. The criteria for each Priority Group are summarized in Figure A-1 . The eight Priority Groups fall into two broad categories. The first group is composed of veterans with service-connected disabilities or with incomes below an established means test. These veterans are regarded by the VA as "high priority" veterans, and they are enrolled in Priority Groups 1-6. Veterans enrolled in Priority Groups 1-6 include the following: veterans in need of care for a service-connected disability; veterans who have a compensable service-connected condition; veterans whose discharge or release from active military, naval, or air service was for a compensable disability that was incurred or aggravated in the line of duty; veterans who are former prisoners of war (POWs); veterans awarded the Purple Heart; veterans who have been determined by the VA to be catastrophically disabled; veterans of World War I; veterans who were exposed to hazardous agents (such as Agent Orange in Vietnam) while on active duty; and veterans who have an annual income and net worth below a VA-established means test threshold. The VA looks at applicants' gross household income (earned and unearned) and deductible medical expenses for the previous year to determine their specific priority categories and whether they have to pay copayments for nonservice-connected care. In addition, veterans are asked to provide the VA with information on any health insurance coverage they have, including coverage through employment or through a spouse. The VA may bill these payers for treatment of conditions that are not a result of injuries or illnesses incurred or aggravated during military service. The second group of veterans is composed of those who do not fall into one of the first six priority groups—primarily veterans with nonservice-connected medical conditions and with incomes above the VA-established means test threshold (see Table A-1 ). These veterans are enrolled in Priority Groups 7 or 8.
|
The Veterans Health Administration (VHA), within the Department of Veterans Affairs (VA), operates the nation's largest integrated health care delivery system, provides care to approximately 6.7 million unique veteran patients, and employs more than 311,000 full-time equivalent employees. Eligibility and Enrollment. Contrary to claims concerning promises of "free health care for life," not every veteran is automatically entitled to medical care from the VA. Eligibility for VA health care is based primarily on veteran status resulting from military service. Generally, veterans must also meet minimum service requirements; however, exceptions are made for veterans discharged due to service-connected disabilities, members of the Reserve and National Guard (under certain circumstances), and returning combat veterans. The VA categorizes veterans into eight Priority Groups, based on factors such as service-connected disabilities and income (among others). Dependents, caregivers, and survivors of certain veterans are eligible for the Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA), which reimburses non-VA providers or facilities for their medical care. Medical Benefits. All enrolled veterans are offered a standard medical benefits package, which includes (but is not limited to) inpatient and outpatient medical services, pharmaceuticals, durable medical equipment, and prosthetic devices. For female veterans, the VA provides gender-specific care, such as gynecological care, breast and reproductive oncology, infertility treatment, maternity care, and care for conditions related to military sexual trauma. Under current regulations, the VA is not authorized to provide, or cover the costs of, in vitro fertilization, abortion counseling, abortions, or medication to induce abortions. Generally the VA provides audiology and eye care services (including preventive services and routine vision testing) for all enrolled veterans, but eyeglasses and hearing aids are provided only to veterans meeting certain criteria. Eligibility for VA dental care is limited and differs significantly from eligibility for medical care. For veterans with service-connected disabilities who meet certain criteria, the VA provides short- and long-term nursing care, respite, and end-of-life care. Under certain circumstances, the VA may reimburse non-VA providers for health care services rendered to VA-enrolled veterans. Once such program is the Veterans Choice Program (VCP). Such community care may include outpatient care, inpatient care, emergency care, medical transportation, and dental services. Costs to Veterans and Insurance Collections. While enrolled veterans do not pay premiums for VA care, some veterans are required to pay copayments for medical services and outpatient medications related to the treatment of nonservice-connected conditions. Copayment amounts vary by Priority Group and type of service (e.g., inpatient versus outpatient). The VA has the authority to bill most health care insurers for nonservice-connected care; any insurer's payment received by the VA is used to offset ''dollar for dollar'' a veteran's VA copayment responsibility. The VA is statutorily prohibited from receiving Medicare payments (with a narrow exception).
|
Libya's political transition has been disrupted by armed non-state groups and threatened by the indecision and infighting of interim leaders. After an armed uprising ended the 40-plus-year rule of Muammar al Qadhafi in late 2011, interim authorities proved unable to form a stable government, address pressing security issues, reshape the country's public finances, or reconcile. Qadhafi left state institutions weak and deprived Libyans of experience in self-government, compounding stabilization challenges. At present, armed militia groups and locally organized political leaders remain the most powerful arbiters of public affairs. An atmosphere of persistent lawlessness has enabled militias, criminals, and Islamist terrorist groups to operate with impunity. Insecurity became prevalent in Libya following the 2011 conflict and deepened in 2014, driven by overlapping ideological, personal, financial, and transnational rivalries. Elections for legislative bodies and a constitutional drafting assembly held in 2012 and 2014 were administered transparently, but were marred by declining rates of participation, threats to candidates and voters, and zero-sum political competition. Issues of dispute have included governance, military command, national finances, and control of oil infrastructure. U.S. Africa Command (AFRICOM) has emphasized the importance of a political solution for stability, and in March 2018, told Congress that, in light of prevailing turmoil, "the risk of a full-scale civil war remains real." In December 2015, some Libyan leaders endorsed the U.N.-brokered political agreement to create a Government of National Accord (GNA) to oversee the completion of the transition. GNA Prime Minister-designate Fayez al Sarraj and members of a GNA Presidency Council have attempted to implement the agreement and have competed for influence with political figures and armed forces based in eastern Libya, including leaders of the House of Representatives elected in 2014 and Field Marshal Khalifa Haftar's "Libyan National Army" (LNA) movement. The United Nations (U.N.) Security Council and the United States have recognized the GNA, but it has made little progress in overcoming disputes that have split the country politically and geographically. U.S. officials and other international actors have worked since 2014 to convince Libyan factions and their various external supporters that inclusive, representative government and negotiation are preferable to competing attempts to achieve dominance through force of arms. The U.N. Security Council has authorized financial and travel sanctions on individuals and entities responsible for threatening "the peace, stability or security of Libya," obstructing or undermining "the successful completion of its political transition," or supporting others who do so. A U.N. arms embargo is in place, and U.S. executive orders provide for sanctions against those undermining the transition. A U.N.-sponsored Action Plan launched in 2017 seeks to complete the transition in 2018, and Libyans and outsiders are debating its implementation, including the timing and sequencing of elections and a constitutional referendum. Past mediation efforts struggled to gain traction and outsiders have at times pursued their own agendas through ties with Libyan factions. Such competition by proxy raises the stakes of Libya's internal rivalries and complicates negotiations. The State Department suspended operations at the U.S. Embassy in Tripoli in July 2014 and has delayed the reintroduction of U.S. personnel on a permanent basis in light of prevailing security conditions. U.S. diplomats engage with Libyans and monitor U.S. programs in Libya via the Libya External Office (LEO) at the U.S. Embassy in Tunisia. U.S. military strikes and advice supported some Libyan forces in Operation Odyssey Lightning, a 2016 campaign to eliminate and expel thousands of Islamic State (IS, aka ISIS/ISIL) supporters from the central coastal city of Sirte ( Table 1 ). Periodic U.S. strikes target IS members and other terrorists. U.S. officials judge that the threats posed by IS members and Al Qaeda have been degraded, but note that these groups remain dangerous and could resurge if political and security conditions deteriorate. Congress has conditionally appropriated funding for limited U.S. transition support and security assistance programs for Libya since 2011 and is considering the Trump Administration's request for additional assistance funds for FY2019. Congress continues to shape U.S. policy toward Libya through its oversight of existing diplomatic, foreign assistance, and defense activities and its consideration of new proposals and requests. Relative resource investment and a lack of physical presence in Libya arguably limit U.S. influence on the ground. The Administration and some Members of Congress are considering options for future engagement in Libya with two interrelated goals: supporting the emergence of a unified, capable national government, and reducing transnational threats posed by terrorists and other actors who have exploited Libya's instability. Pursuing these objectives simultaneously presents U.S. policymakers with complicated choices about relative priorities and the interrelated consequences of a range of options. Points of active discussion concern the nature and extent of U.S. partnership with different Libyans; the type, timing, and extent of U.S. assistance; the potential utility or costs of sanctions or other coercive measures; and the degree of cooperation or confrontation with other outside actors seeking to influence developments. These issues will likely shape U.S. policy debates about Libya for the foreseeable future. Libya's 2011 uprising and conflict brought Muammar al Qadhafi's four decades of authoritarian rule to an end. Competing factions and alliances—organized along local, regional, ideological, tribal, and personal lines—have jockeyed for influence and power in post-Qadhafi Libya, at times with the backing of rival foreign governments. According to Ghassan Salamé, the Special Representative of the U.N. Secretary-General (SRSG) and head of the U.N. Support Mission in Libya (UNSMIL), Libyans are struggling to overcome a political "discourse of hatred" and "mutual exclusion" that has prevented the completion of the country's transition to date. This discourse is in part a legacy of Muammar al Qadhafi's decades of divisive rule and in part a product of the internal divisions, rampant insecurity, and zero-sum competition that have followed Qadhafi's downfall. Although some observers attribute Libya's divisive politics to simple binaries—"Islamist versus secular," "east versus west," "tribe versus tribe," "urban versus rural," "ethnic majority versus ethnic minority," or "old-regime officials versus newly empowered groups"—many of these factors and others often interact to shape local and national dynamics. Since 2011, a series of transitional governing arrangements have been endorsed in two national elections and a constitutional drafting assembly referendum, but rates of participation have declined over time. The net result has been a de facto accrual of transitional leaders with competing claims of legitimacy who have been locked in an inconclusive political struggle. After years of rivalry and conflict, many Libyan actors make claims to some degree of political legitimacy and possess some means to assert themselves by force, but none have consolidated enough political support or military force to provide credible leadership or durable security on a national scale. Sustained national civil war has been avoided, but violent clashes have occurred in many areas, and the threat of wider conflict persists. In this context, key post-Qadhafi political issues for Libyans have included the relative powers and roles of local, regional, and national government; the weakness of national government institutions and security forces; the role of Islam in political and social life; the involvement in politics and security of former regime officials; and the proper management of the country's large energy reserves, related infrastructure, and associated revenues. Factors that have shaped the relative degree of conflict, mutual accommodation, and reconciliation among Libyan factions since 2014 include the relative ability of numerous factions to muster sufficient force or legitimacy to assert dominance over each other; the inability of rival claimants to gain exclusive access to government funds controlled by the Central Bank or sovereign assets held overseas; the U.N. arms embargo and the potential widening of U.N. sanctions; and the threats posed to Libyans by extremist groups, including the Islamic State. Among the range of external actors seeking to shape developments in Libya, the United States has at times acted unilaterally and directly to protect its national security interests. Other countries have done the same. At the same time, the United States and other external parties have expressed support for multilateral initiatives to encourage compromise and consensus in support of Libya's transition. Some foreign observers have praised the role of the United Nations and other third parties in promoting national reconciliation, but have argued that continuous efforts are needed to engage all Libyan actors with influence or direct control over security, natural resources, infrastructure, and sources of revenue if stability is to be achieved. Various Libyans have at times accused the U.N. and other third parties of unwarranted interference in Libya's domestic affairs, particularly when they perceive outside interventions to undercut their interests or serve those of their rivals. For the United States and other outsiders, key issues related to post-Qadhafi Libya have included transnational terrorist and criminal threats emanating from Libya; the security and continued export of Libyan oil and natural gas; Libya's role as a transit country for Europe-bound refugees and migrants; the security of weapons stockpiles and unconventional weapons materials; and the country's orientation in various region-wide political competitions. For a more detailed description of Libya's history and political evolution, see Appendix A . For a description of select Libyan political actors, see Appendix D . Developments in post-Qadhafi Libya have unfolded in three general phases, the third of which is still under way: 1. an immediate post-Qadhafi period (October 2011 to July 2012) focused on identifying interim leaders and recovery from the 2011 conflict; 2. a contested transitional period (July 2012 to May 2014) focused on legitimizing and testing the viability of interim institutions; and 3. a period of confrontation and mediation (May 2014 to present) characterized by tension and violence among loose political-military coalitions, multifaceted conflict between their members and violent Islamist extremist groups, and enhanced efforts by third parties to promote reconciliation. In the initial consolidation phase, members of the anti-Qadhafi Transitional National Council (TNC) oversaw the promulgation of an Interim Constitutional Declaration in August 2011 and the organization in July 2012 of the country's first general election since the 1950s ( Figure 1 ). Early on, disagreements over the makeup and leadership of an interim cabinet hinted at the deeper political, ideological, interpersonal, and regional fault lines that would later disrupt the transition. The TNC government made little progress in reconstituting or reforming government entities, establishing security, or demobilizing militias that had formed to fight Qadhafi and his allies. Although many Libyans expressed hope that the July 2012 national election for the General National Congress (GNC) would endow a new government with sufficient legitimacy and support to address sensitive issues, the contest heightened the stakes of political competition. The September 2012 attacks on U.S. personnel and facilities in Benghazi had a chilling effect on international efforts to support Libya's transition, as did subsequent incidents in which militia groups demonstrated their willingness and ability to disrupt the workings of the national government in order to preserve their interests. Overall, the GNC government's tenure was marred by gridlock, mutual suspicion, and political intimidation by armed groups. By late 2013, amid preparations for another national election for members of a constitutional drafting assembly, GNC members were polarized by disputes over the GNC's remaining term of office, the passage of laws excluding any former regime officials from public office, and proposals to elevate the status of Islamic law in the country's legal system. Disputes flared over governance, the selection of new interim representatives, and responsibility for ensuring security in the face of a rising wave of criminality and Islamist insurgent violence. By mid-2014, the transition process outlined in 2011 had all but collapsed, and the outbreak of violence between two rival political-military coalitions compounded the complexity of Libya's already diverse, atomized security environment. The outcome of the June 2014 election for a new House of Representatives (HOR) to replace the GNC was contested by GNC holdouts, setting the stage for more than a year of stalemate and failed attempts at mediation. In eastern Libya, the Tobruk-based HOR and Benghazi-focused forces aligned with the "Libyan National Army" (LNA) coalition's Operation Dignity initiative, asserted their legitimacy, and moved to target a range of Islamist forces and other militias. In western Libya, the Tripoli-based remnants of the GNC and the GNC-aligned Libya Dawn militia grouping contested the HOR's legitimacy and rejected the LNA. As violence flared, U.S. diplomats were evacuated. Over time, individual members of these two coalitions reached parallel cease-fire agreements, and some communities and militias agreed to participate in U.N.-sponsored peace talks. Divisions and disputes persisted, repeated attempts to broker an agreement failed, and political relationships remained fluid through 2015. In December 2015, a U.N.-facilitated Libyan Political Agreement (LPA) was signed in Skhirat, Morocco, bringing together members of Libya's competing coalitions to call for the creation of a new, inclusive Government of National Accord (GNA). The GNA was designed to incorporate members of opposing groups and rival post-Qadhafi elected bodies under new institutional arrangements. The agreement called for a nine-member GNA Presidency Council made up of representatives from Libya's key factions and regions to assume national security and economic decisionmaking power, with the HOR retaining legislative power in consultation with a new High Council of State (HCS) made up in part of former GNC members. Since late 2015, Libyan politics have been defined in large part by Libyans' evolving views of the agreement and the repositioning of locally organized political councils and militias in response to GNA leaders' attempts to implement it. The HOR accepted the GNA agreement in principle in January 2016, but HOR leaders prevented the wider body from endorsing the GNA's proposed cabinet through a required procedural vote and from incorporating the LPA into the interim constitutional declaration. Khalifa Haftar and the LNA—a coalition of military units, militia groups, and local fighters—opposed the terms of an annex of the LPA that called for command of the military to shift to the GNA's Presidency Council once the HOR ratified the agreement. HOR leader Aqilah Issa Saleh had appointed Haftar as military commander in March 2015 after the HOR voted to create the position. Pro-Haftar forces have largely consolidated security control over much of northeastern Libya since 2015, and in September 2016 moved to take control of important oil infrastructure sites in the eastern Sirte basin (see map in Table 1 ). Although they subsequently transferred key facilities to friendly Petroleum Forces Guard members and allowed national oil authorities to operate them, the move appeared to increase Haftar's insistence upon being recognized as the legitimate leader of Libya's national armed forces and his allies' insistence on rejecting the GNA Presidency Council. In September 2016, the HOR promoted Haftar from General to Field Marshal. In western Libya, GNA Prime Minister Fayez al Sarraj and GNA cabinet members gained administrative control over ministries and agencies in Tripoli, but did not fully consolidate their political position or establish national security control. By rejecting and withholding endorsement of proposed GNA ministers, HOR members prompted questions about the GNA's legitimacy among some Libyans. Efforts to ensure regional, ethnic, and political representation in the GNA Presidency Council complicated its decisionmaking, and the Council has suffered from boycotts and resignations. In practice, the power and effectiveness of GNA-led ministries has remained limited, and third parties, including the United States, have balanced efforts to build capacity at the national level with local community engagement and relief efforts. Security arrangements also remain divisive, with LNA leaders refusing to recognize the authority of the GNA over LNA forces. LNA leaders continue to warn against the incorporation of what they consider to be militias or extremists into national security bodies, a position widely viewed as seeking the exclusion of some of their pro-GNA counterparts. In contrast, some western Libya-based GNA supporters have called for the exclusion of Field Marshal Haftar from a security role in any future government. The GNA Presidency Council's critics have described it as being at the mercy of western Libyan militia groups, while simultaneously questioning the council's mandate to create any new legitimate security forces until broader political questions are settled. Global concern about the trafficking and detention of migrants in western Libya has been accompanied by increased international attention to the region's political economy and security since 2017. The GNA's presence in Tripoli is underwritten by the support of powerful local militia groups, some of whom are reportedly involved in human rights abuses, crime, and illegal detentions (see " Human Rights and Religious Freedom "). Some pro-GNA militia forces in western Libya have formal security roles and some Misratan forces that battled with U.S. military support in 2016 to recapture the city of Sirte from the Islamic State organization may seek a formal security role in the future. As political and diplomatic negotiations have continued, the prospect of military confrontation has loomed. LNA forces declared victory over numerous opposing militia groups in Benghazi in 2017 after a costly, destructive three-year battle, but the LNA has not yet appeared capable of a military victory against rivals in western Libya despite threats and some expanded operations in central and southern Libya. Forces aligned with the GNA and the LNA have clashed in areas of central and southern Libya since mid-2017, even as LNA officers and GNA-affiliated military officers have met for several rounds of talks in Cairo as part of an Egyptian government-led process that seeks to unify and reorganize Libya's national military forces. LNA forces have encircled militia forces in Derna (see map in Table 1 ), including some armed Islamist groups. GNA Prime Minister-designate Sarraj and Field Marshal Haftar met in Abu Dhabi in May 2017 and in Paris in July 2017, raising hopes for a process leading to mutually agreed amendments of the LPA and implementation of a modified GNA arrangement. After progress stalled and fears of military confrontation grew, the U.N. launched a new Action Plan in September, leading to talks among Libyans on reducing the size of the GNA Presidency Council from nine to three and modifying the roles of legislative and executive entities. While the parties made some progress, they did not reach agreement about national security leadership or the sequencing of a required constitutional referendum or planned elections by the end of 2017. The atmosphere at the end of 2017 was particularly confrontational, as the LPA neared its two-year anniversary. Field Marshal Haftar asserted his view that the agreement and the legitimacy of associated institutions had expired. His statement came in the wake of direct statements by the U.N. Security Council and U.S. government describing the LPA as "the only viable framework to end the Libyan political crisis." Observers then speculated that Haftar and his supporters might resort to unilateral measures and/or seek to impose a solution by force. That outcome was avoided, but Haftar has paired subsequent statements about wanting elections "as soon as possible" with statements questioning Libya's readiness for democracy and implying that the LNA could resort to other means. The U.N. Action Plan and related diplomatic and assistance efforts foresee the potential holding of a constitutional referendum and national legislative and executive elections as soon as possible, but key decisions remain to be taken and communicated about the timing, sequencing, and content of planned electoral exercises. The draft constitution endorsed by the Constitutional Drafting Assembly in July 2017 cleared one key judicial challenge in February 2018, but the timing and sequencing of a planned referendum relative to elections remain to be determined. In March 2018, members of the High Council of State voted to replace Abderrahman al Swehli, a powerful western Libyan figure from Misrata and prominent critic of the LNA and HOR, with Khalid al Meshri of the Justice and Construction movement, Libya's Muslim Brotherhood-affiliated party. Al Meshri and HOR leaders subsequently met in Morocco, but their discussions apparently did not result in agreement on legislation for planned elections. A successful national voter registration drive and leaders' continued engagement in discussions with UNSMIL are positive signs, but rivals also appear to be leveraging the non-implementation of legislative and bureaucratic arrangements to influence the scope and pace of progress. Electoral laws await amendment or replacement, and candidate eligibility criteria and campaign finance regulations await definition. On May 2, the Islamic State organization claimed a deadly suicide bombing and shooting attack against the headquarters of the High National Election Commission (HNEC). Following the attack, HNEC director Emad al Sayeh reported that the commission's technical voter data was secure and insisted that the attack would not disrupt plans for elections later this year. It is unclear whether the attack may negatively affect the ability of HNEC to follow through with its technical and administrative agenda for supporting proposed democratic exercises promptly and credibly. In order to carry out elections and/or a referendum, thousands of personnel and volunteers need to be recruited and trained, new technological capabilities need to be deployed to voting sites across the country, and official election and/or referendum materials need to be procured. HNEC is preparing to hold both presidential and parliamentary elections and is awaiting the finalization of required legislation and the provision of necessary financial and logistical support by government authorities. The U.N. Action Plan's original goal for implementation by the end of 2018 added renewed urgency to efforts to resolve Libya's political crises, but observers and officials have yet to identify any significant breakthroughs. The potential prize of a renewed electoral mandate has proven attractive to leading actors on all sides, but zero-sum political calculations have thus far outweighed efforts to find common ground and move ahead. The Islamic State Under current conditions and trends, unresolved political differences and rivalries may influence and potentially undermine functional efforts to prepare for and secure democratic exercises proposed as part of the U.N. Action Plan. Violent extremists, criminal organizations, and disgruntled political factions may pose unique security risks to voters, election authorities, and poll workers. Election administration experts expect that the coordination of security efforts among competing Libyan factions, rival national bureaucracies, and local militias may prove particularly challenging even under ideal circumstances. The conduct and outcome of any elections or referenda may influence the willingness of parties to abide by the results. At an April 2018 meeting, the United Nations, the EU, the African Union, and the Arab League issued a joint statement supporting the U.N. Action Plan and proposed elections, saying that the conduct of such elections requires a conducive political and security environment where all Libyan parties commit in advance to respect and abide by their results and voters are allowed to safely exercise their democratic rights throughout the country without intimidation or interference, including from armed groups, criminal networks and other non-sate actors. Looking beyond the scope of the LPA, Libyans' experiences since 2011 suggest that some key policy areas are likely to remain politically sensitive and potentially divisive. These include the composition and leadership of Libyan security forces, efforts to combat extremist groups, the nature and extent of Libyan requests for international security assistance, demobilization of local militias, control of national financial institutions and reserves, and the security of energy infrastructure sites vital to the country's economic future. Prior to and following the outbreak of conflict in Libya in 2011, the United Nations, the United States, and other actors adopted a range of sanctions measures intended to convince the Qadhafi government to end its military campaign against opposition forces and civilians. The measures also sought to dissuade third parties from providing arms or facilitating financial transactions for the benefit of Libyan combatants. United Nations Security Council Resolution 1970 established a travel ban on Qadhafi government leaders, placed an embargo on the unauthorized provision of arms to Libya, and froze certain Libyan state assets. After the conclusion of the 2011 conflict, U.N. and U.S. sanctions measures were modified but remained focused on preventing former Qadhafi government figures from accessing Libyan state funds and undermining Libya's transition. Asset-freeze measures changed to give transitional leaders access to some state resources, but some limitations also remained in place to ensure that funds were transparently and legitimately administered by transitional authorities. U.S. Treasury officials issued a series of general licenses that gradually unblocked most Libyan state property and allowed for transactions with Libyan Central Bank and Libyan National Oil Company. U.N. arms embargo provisions were modified over time, but remained in place in a bid to ensure that weapons transfers to Libya were authorized by the transitional government. When fighting broke out among Libyan factions in 2014, the Security Council moved to expand the scope of the modified sanctions provisions to allow for the targeting of actors who were contributing to the conflict. Resolution 2174, adopted in August 2014, authorized the placement of U.N. financial and travel sanctions on individuals and entities in Libya and internationally found to be "engaging in or providing support for other acts that threaten the peace, stability or security of Libya, or obstruct or undermine the successful completion of its political transition." Resolution 2174 strengthened the arms embargo provisions by requiring advance approval by the sanctions committee for transfers of arms. Resolution 2213, adopted in March 2015, expanded the scope of sanctionable activities related to the standards articulated in Resolution 2174. At present, modified sanctions provisions of Resolutions 1970, 2174, and 2213 remain in force. The U.N. Security Council has recognized the GNA as Libya's governing authority since December 2015, in an effort to confer international legitimacy on its leaders and encourage unification efforts. Resolutions 2259, 2278, and 2362 call on Member States to recognize and support the GNA and to comply with Security Council efforts to enforce asset freeze, travel ban, and arms embargo measures. The Security Council endorsed the LPA in December 2015 by adopting Resolution 2259, which calls on member states to support the implementation of the agreement, reiterates the threat of possible sanctions against spoilers, and calls for member states to provide security support to the GNA upon request. Security Council Resolution 2278, adopted on March 31, 2016, identifies the GNA as the party of responsibility for engagement with the Security Council on issues related to Libyan financial institutions, oil exports, and arms transfers. Resolution 2278 "urges Member States to assist the Government of National Accord, upon its request, by providing it with the necessary security and capacity building assistance, in response to threats to Libyan security and in defeating ISIL, groups that have pledged allegiance to ISIL, Ansar Al Sharia, and other groups associated with Al-Qaida operating in Libya." In June 2017, the Security Council adopted Resolution 2357 and 2362—extending the mandate for maritime enforcement of oil shipment monitoring and reaffirming arms embargo, asset freeze, and travel ban measures. When the LPA reached the end of its originally intended duration in December 2017, the Security Council restated its endorsement of the agreement and of the GNA as enduring reference points for the completion of Libya's transition to a hoped-for permanent representative government structure. In February 2011, President Barack Obama issued Executive Order 13566, blocking the property under U.S. jurisdiction of the government of Libya, Qadhafi, his family, and other designated individuals. The U.S. government modified its sanctions enforcement measures in support of the LPA in April 2016, by amending the scope of the national emergency with respect to Libya declared in Executive Order 13566. The amendments (issued in Executive Order 13726) were based on President Barack Obama's finding that the ongoing violence in Libya, including attacks by armed groups against Libyan state facilities, foreign missions in Libya, and critical infrastructure, as well as human rights abuses, violations of the arms embargo imposed by United Nations Security Council Resolution 1970 (2011), and misappropriation of Libya's natural resources threaten the peace, security, stability, sovereignty, democratic transition, and territorial integrity of Libya and thereby constitute an unusual and extraordinary threat to the national security and foreign policy of the United States. Under the modified executive order, property under U.S. jurisdiction may be blocked and entry to the United States may be prohibited for individuals and entities found to be engaging or to have engaged in a range of actions, including threatening the peace, stability, or security of Libya and obstructing, undermining, delaying, or impeding the adoption of or transfer of power to a Government of National Accord or successor government. To date, the U.S. government has placed related sanctions on former GNC government prime minister Khalifa Ghwell and HOR leader Aqilah Issa Saleh for obstructing the implementation of the LPA. President Trump extended the national emergency with respect to Libya for one year on February 9, 2018. In February 2018, the Trump Administration announced sanctions targeting six individuals accused of illicit oil smuggling from Libya and a number of related entities. The European Union (EU) consolidated its sanctions on Libya in January 2016. In April 2016, the EU imposed sanctions on Saleh, Ghwell, and GNC official Nuri Abu Sahmain. The EU last extended its sanctions for six months in March 2018. Under current U.N. Security Council resolutions, arms transfers to Libya may occur provided the GNA approves and the transfer is notified to the United Nations panel established pursuant to Security Council Resolution 1970. In practice, unauthorized arms transfers to Libya continue to take place, as documented in reports produced by the Resolution 1970 committee and its Panel of Experts. The Panel of Experts report released in June 2017 documents lethal and nonlethal foreign support in violation of the arms embargo for armed groups from eastern Libya and Misrata, including support for the expansion of both sides' air force capabilities. In June 2016, the Security Council adopted Resolution 2292 authorizing member states to assist in the maritime enforcement of the arms embargo and extended that authority in June 2017 under Resolution 2357. The EU has authorized its migration-focused naval mission in the Mediterranean to assist in arms embargo enforcement (see " European and International Responses "). Struggles for control over Libya's central "oil crescent" and adjacent areas in 2017 led some observers to warn of a potential expansion of unauthorized foreign military assistance to parties to the conflict. In March 2017, the commander of U.S. AFRICOM, General Thomas Waldhauser, expressed particular concern about possible Russian intervention in Libya on behalf of General Haftar and the LNA. The United States and European Union continue to call on armed groups to refrain from violence and respect ceasefire arrangements, while warning against the use of force in attempts to impose a solution to the political crisis. Conflict and instability in Libya have taken a severe toll on the country's economy and weakened its fiscal and reserve positions since 2011. As of 2014, Libya was estimated to have the largest proven crude oil reserves in Africa and the ninth largest globally. Oil and natural gas supply 97% of the government's fiscal revenue, and a combination of supply disruptions and market forces caused oil production and revenue to plummet from 2014 through 2016, devastating state finances. Although state revenue has declined from its post-2011 high points, state financial obligations have increased, with public spending on salaries, imports, and subsidies all having expanded. Libyan officials have identified more than 1.75 million state employees (equivalent to more than 25% of the population) and estimate that salaries consume nearly 60% of the state budget. Government payments to civilians and militia members have continued since the outbreak of conflict in 2014, and Central Bank authorities have simultaneously paid salaries for military and militia forces aligned with opposing sides in the internal conflicts. To manage deficits and continue payments of salaries and subsidies, Libyan officials have drawn on state financial reserves, but reports of delays in salary payments persist. World Bank/International Monetary Fund statistics and U.N. estimates suggest that foreign exchange reserves have fallen from their high point of $124 billion in 2012 to an estimated $69 billion in 2017. In August 2017, the U.N. Secretary-General reported that the budget deficit was then "much higher than previously projected" and predicted that foreign currency reserves would remain dangerously low through the end of 2017. An expansion of oil production since mid-2017 has provided a much-needed injection of new financial resources, with domestic production remaining near 1 million bpd for most of the period from December 2017 through April 2018. As oil production has rebounded, Libya has faced calls from fellow Organization of the Petroleum Exporting Countries (OPEC) members to participate in the group's production cut agreement. Libyan authorities reportedly have agreed to recognize a cap near the current 1 million bpd level of production. Fighting near the oil crescent region and intermittent shutdowns of pipelines by militias, terrorist attacks, and labor and property disputes have demonstrated the prospect of potential disruptions or production declines. In March 2018, SRSG Salamé told the U.N. Security Council that, "Libya's finances remain precarious. Despite the country now producing well over 1 million barrels a day and generating rosy macro-economic indicators, the country does not enjoy a true economic recovery." Salamé warned of "signs of a looming monetary and fiscal crisis" and cautioned against "underinvestment or sabotage" of oil revenues. He also said that, "government expenditure is bloated and continues to increase, but more spending, so far, does not lead to better services." Libyan implementing and auditing agencies have attempted to improve budget execution, but serious challenges remain. Among these challenges have been rivalries among parallel leaders of key national institutions such as the Central Bank, National Oil Company (NOC), and Libya's sovereign wealth fund—the Libya Investment Authority (LIA). These opaque, consequential rivalries have reflected the country's underlying political competition over time. Central Bank officials in Tripoli and Bayda have become embroiled in the rivalry between the GNA Presidency Council and the HOR government, with the United States and other backers of the GNA Presidency Council recognizing the Tripoli-based institution as legitimate. In May 2016, the Bayda-based bank moved to issue its own currency and to access secured assets held at the Bayda Central Bank branch, leading the U.S. government to warn against actions not authorized by the GNA Presidency Council that could undermine confidence among Libyan consumers and international trading partners. When the HOR nominated a replacement for Tripoli-based Central Bank chairman Sadiq al Kabir in December 2017, the GNA State Council protested the nomination, noting that it hadn't been consulted pursuant to Article 15 of the LPA, which provides for appointments to select sovereign positions. UNSMIL also rejected the move, but the HOR nominee, Mohammed Shukri, was confirmed as head of the Bayda-based bank in January 2018. The Tripoli Central Bank also invalidated Bayda-issued dinar coins in late 2017. In August 2016, the GNA Presidency Council named an interim steering committee for the LIA after a long-simmering dispute between rival board members and chairmen brought the fund's leadership to a standstill. The LIA's assets reportedly exceed $60 billion, much of which remain frozen pursuant to U.N. Security Council Resolutions 1970 and 1973 (2011), as modified by Resolution 2009 (2011). The GNA council authorized the steering committee to represent the LIA in ongoing legal proceedings, but not to manage assets. In February and May 2017, Libyan court rulings invalidated the GNA appointment and authorization on the grounds that the GNA's tenure had still not been approved under the terms of the LPA. Leadership of the LIA remains in dispute, and in March 2018 the chief executive appointed by figures in eastern Libya resigned, amid a new round of questions about the value and status of LIA assets. Some news reports allege that some frozen LIA assets have been redirected by individuals and authorities in countries where assets are held, but LIA officials have denied that this is the case. Disputes involving the National Oil Company also have ebbed and flowed since early 2016. In April 2016, the U.N. Security Council blacklisted an oil tanker that had taken on hundreds of thousands of barrels of oil sold by the HOR-affiliated branch of the national oil company, but the sanctions were withdrawn at the GNA Presidency Council's request on May 12. A deal to unite the Tripoli and Benghazi branches of the NOC was reached in early July 2016, but appeared to unravel later that month after GNA officials reached a related agreement with Petroleum Forces Guard personnel that then held key oil infrastructure. Benghazi-based NOC officials issued statements lifting force majeure orders on oil terminals seized by LNA forces in September 2016 and in March 2017 moved to cancel the July 2016 agreement. Tripoli-based NOC Chairman Mustafa Sanalla has called for the NOC to be depoliticized and wrote in June 2017 that he and his colleagues "intend to remain neutral until there is a single legitimate government we can submit to." According to Sanalla, "NOC is like a glue, unifying the country. I make sure I'm very neutral." U.N. Security Council Resolution 2362 (2017) stresses "the need for the Government of National Accord to exercise sole and effective oversight over the National Oil Corporation, the Central Bank of Libya, and the Libyan Investment Authority as a matter of urgency, without prejudice to future constitutional arrangements pursuant to the Libyan Political Agreement." Transnational terrorist groups and locally organized armed extremist groups, including the Islamic State organization and Al Qaeda in the Islamic Maghreb (AQIM), remain active in Libya. The Islamic State established a branch of its organization in Libya after Libyan fighters and foreigners arrived from Syria in 2014, generating significant concern among Libyans and the international community. IS supporters announced three affiliated wilayah (provinces) corresponding to Libya's three historic regions— Wilayat Tripolitania in the west, Wilayat Barqa in the east, and Wilayat Fezzan in the southwest—and took control of Muammar al Qadhafi's hometown—the central coastal city of Sirte—in mid-2015. By early 2016, senior U.S. officials estimated that the group's strength had grown to as many as 6,000 personnel across the country, among a larger community of Libyan Salafi-jihadist activists and militia members. On May 19, 2016, the U.S. State Department announced the designation of the Islamic State's branch in Libya as a Foreign Terrorist Organization (FTO) under Section 219 of the Immigration and Nationality Act and as a Specially Designated Global Terrorist (SDGT) entity under Executive Order 13224. As in other countries, IS supporters in Libya have faced resistance from a wide array of local armed groups—including Islamists—that do not share their beliefs or recognize the authority of IS leader and self-styled caliph Abu Bakr al Baghdadi. IS backers failed to impose their control on rivals in their original stronghold the city of Darnah in far eastern Libya, and were forced from the town by a coalition of other Islamists in late 2015. In Benghazi, isolated pockets of IS supporters were besieged and defeated in several areas of the city by various LNA-affiliated forces. While grappling with western and eastern Libyan forces in parallel attempts to expand their territory elsewhere, IS fighters pressed for control over national oil and water infrastructure assets along the country's central coast in 2016. After related clashes damaged vital national oil infrastructure and Sirte-based IS fighters launched more aggressive attacks to the west, pro-GNA militia forces from Misrata and surrounding areas mobilized to confront the group in and around Sirte. U.S. military support (including airstrikes dubbed Operation Odyssey Lightning) aided these pro-GNA forces' operations from August to December 2016. U.S.-supported Libyan forces succeeded in retaking control of the city, but suffered significant casualties in the process. The U.S. Department of the Treasury sanctioned Libya-based IS financiers in April 2017. The Islamic State claimed the May 2017 suicide bombing attack in Manchester, United Kingdom, that involved a British citizen of Libyan descent who had spent time in Libya immediately prior to the bombing. In August, the U.N. Secretary-General described the group as "no longer in control of territory in Libya although it continues to be active within the country." In September 2017, U.S. strikes targeted IS personnel and equipment south of Sirte. A Defense Department spokesman said The United States will track and hunt these terrorists, degrade their capabilities and disrupt their planning and operations by all appropriate, lawful and proportional means, including precision strikes against their forces, terror training camps and lines of communications, [and] partnering with Libyan forces to deny safe havens for terrorists in Libya. Islamic State forces claimed an attack on a court complex in central Misrata in October 2017 that killed 4 and wounded 40. Additional U.S. strikes on IS targets were reported in November 2017. In January 2018, an AFRICOM spokesperson said that AFRICOM expects the Islamic State "to give priority to the restructuring of security forces and infrastructure, and to launch strikes, which may include targets in the Libyan oil crescent." Surviving members of the Islamic State may seek support from members of other Islamist militias that similarly have been defeated by other rivals or excluded from national security bodies under future political arrangements. In March 2018, U.S. AFRICOM Commander General Waldhauser described IS forces in Libya as "dispersed and disorganized and likely capable of little more than localized attacks." He also said that U.S. military support for anti-IS fighters would continue and emphasized the importance of political reconciliation as a prerequisite for lasting security. On May 2, 2018, the Islamic State claimed responsibility for a suicide bombing and shooting attack against the headquarters of the Libyan High National Election Commission that killed several employees. Islamic State leaders have called for attacks on election sites in several countries and have encouraged supporters in Libya to regroup and carry out new strikes. Armed Islamist groups in Libya occupy a spectrum that reflects differences in ideology as well as their members' underlying personal, familial, tribal, and regional loyalties. Since the 1990s, the epicenters of Islamist militant activity in Libya have largely been in the eastern part of the country, with communities like the coastal town of Darnah and some areas of Benghazi, the east's largest city, coming under the de facto control of armed Salafi-jihadist groups in different periods since 2011. Some Islamists whose armed activism predates the 2011 revolution, such as members of the Darnah-based Abu Salim Martyrs Brigade, have formed new coalitions to pursue their interests in the wake of the revolution. The emergence of the Ansar al Sharia organization in 2012 demonstrated the appeal of transnationally minded Salafist-jihadist ideology in Libya, and the group persisted alongside other Islamist and secular militia groups in the Benghazi Revolutionaries' Shura Council (BRSC) in battling LNA forces for control of Benghazi. Ansar al Sharia condemned the military operations against it by Haftar-aligned forces as a "war against the religion and Islam backed by the West and their Arab allies." In 2014, the U.S. State Department announced the designation of Ansar al Sharia in Benghazi and Ansar al Sharia in Darnah as FTOs and as SDGT entities under Executive Order 13224. The group announced its dissolution in a May 2017 communiqué. Ansar al Sharia supporters in Darnah were members of the coalition group that expelled the Islamic State from the city. Militia members, including Islamists, that fled fighting in Benghazi have gathered in Darnah and are being targeted by LNA operations. The relationship between supporters of the Islamic State organization and members of Ansar al Sharia and other Salafist-jihadist groups once seen as aligned with Al Qaeda is unclear. Press reports also have suggested that some IS fighters fled Sirte for areas of southwestern Libya, where other Islamist extremist operatives, including Al Qaeda members reportedly are active. The region's remote, less governed areas serve as safe havens or transit areas for terrorist and smuggling operations in neighboring Niger and Algeria. The State Department reports that the AQIM-affiliated Al Murabitoun group is active in the area and, in 2015, described the group as "one of the greatest near-term threats to U.S. and international interests in the Sahel, because of its publicly stated intent to attack Westerners and proven ability to organize complex attacks." A June 2015 U.S. airstrike in eastern Libya targeted prominent Al Murabitoun figure Mokhtar Belmokhtar, who led the group responsible for the January 2013 attack on the natural gas facility at In Amenas, Algeria, in which three Americans were killed. His death in the June 2015 strike that targeted him has not been confirmed, and local allies denied he was killed. A French air strike reportedly again targeted Belmokhtar in late 2016, but his death has not been publicly confirmed. Observers note that in early 2017, in a video announcement of a merger among four jihadist networks active in Mali, Al Murabitoun was represented by one of Belmokhtar's deputies. In March 2018, AFRICOM announced the death of AQIM senior figure Musa Abu Dawud and an associate in a U.S. airstrike near Ubari in southwest Libya. Average Libyans have faced tenuous economic and security circumstances for much of the post-2011 period amid unreliable state salary and subsidy support, weak state service provision and law enforcement, inflationary pressures, and hard currency shortages. Economic hardship has amplified the negative effects of deteriorations in local security and an overall decline in respect for the rule of law. In March 2018, SRSG Salamé told the U.N. Security Council that "Libyan men, women and children are increasingly kidnapped for profit," and decried what he described as "an economic system of predation" and "plundering." In subsequent press interviews he has urged Libyan authorities and international supporters to act against prominent organized groups involved in the smuggling of people, fuel, subsidized goods, and drugs and to use investigations and sanctions to bring an end to the "predation of public money." Prominent armed groups, including the LNA and militias aligned with the GNA, reportedly are linked to a wide variety of illicit activities and maintain informal detention centers where human rights abuses take place. According to a report released jointly in April 2018 by the U.N. Office of the High Commissioner for Human Rights and UNSMIL, "Men, women and children across Libya are arbitrarily detained or unlawfully deprived of their liberty based on their tribal or family links and perceived political affiliations. Victims have little or no recourse to judicial remedy or reparations, while members of armed groups enjoy total impunity." The 2017 State Department report on human rights conditions in Libya notes the GNA's "limited effective control over security forces" and concludes that, in 2017, impunity from prosecution was a severe and pervasive problem. The government took limited steps to investigate abuses, but constraints on its reach and resources reduced its ability to prosecute and punish those who committed abuses. Security forces outside government control--to include armed groups in the West and LNA forces in the East--also did not adequately investigate credible allegations of killings and other misconduct by their personnel. Intimidation by armed actors resulted in paralysis of the judicial system, impeding the investigation and prosecution of those believed to have committed human rights abuses, including against public figures and human rights defenders. Libyans are mostly Sunni Muslims (97%), and the interim Constitutional Declaration protects the rights of non-Muslims to practice their religion and prohibits religious discrimination. The Islamic State organization abused religious minorities in areas under its control through 2016. According to the 2016 U.S. State Department report on religious freedom conditions in Libya, LNA forces targeted opponents they consider to be Islamists. The report, released in August 2017, also describes efforts by some armed non-state actors in areas nominally under GNA and HOR/LNA authority to enforce what they consider to be the requirements of Islamic law, including restrictions on individuals' social practices and the demolition of religious buildings and materials. The report states that government's limited reach and control over non-state actors has meant that "its response to instances of violence against members of minority religious groups was limited to condemnations." Conflict and weak governance have transformed Libya into a major staging area for the transit of non-Libyan migrants seeking to reach Europe and have encouraged increasing outflows of migrants present in Libya since mid-2014. Data collected by migration observers and immigration officials suggest that many migrants from sub-Saharan Africa transit remote areas of southwestern and southeastern Libya to reach coastal urban areas where onward transit to Europe is organized. Others, including Syrians, enter Libya from neighboring Arab states seeking onward transit to refuge in Europe. In March 2018, the International Organization for Migration (IOM) reported that more than 662,000 migrants were in Libya, among more than 165,000 internally displaced persons and more than 48,400 refugees and asylum seekers from other countries identified by the United Nations High Commissioner for Refugees (UNHCR). In total, more than 181,000 migrants arrived by sea to Italy in 2016, with the vast majority having departed from western Libya. At least 4,581 died in transit in the central Mediterranean. IOM estimates that 2016 was the deadliest year for migrants ever recorded in the Mediterranean. In 2017, at least 119,310 migrants arrived by sea to Italy, and at least 2,824 died on the central Mediterranean route. This represents an approximately 34% reduction in arrivals by sea to Italy and an approximately 38% reduction in deaths at sea compared to 2016. Observers attribute these declines to new efforts by Italian and European Union authorities to work with government and nongovernment figures inside Libya to prevent migrant departures and patrol coastal waters (see below). Some critics of the new European approaches allege that the new policies provide financial benefit and bestow political importance on unaccountable local militia groups, who may threaten the human rights and security of migrants subject to detention and economic hardship in Libya. A patchwork of Libyan local and national authorities and nongovernmental entities assume responsibility for responding to various elements of the migrant crisis, including the provision of humanitarian assistance and medical care, the patrol of coastal and maritime areas, and law enforcement efforts targeting migrant transport networks. Violence and insecurity in Libya complicate international attempts to assist Libyan partners in these efforts and to improve coordination among Libyan stakeholders. Reports suggest that many migrants transiting Libya remain subject to difficult living conditions, their human rights are frequently violated, and they remain vulnerable to violence at the hands of armed groups, smugglers, and interim authorities. In 2017, IOM relayed reports concerning the abuse of migrants transiting Libya and of "slave markets" operating intermittently in the country, echoing details in press accounts. The incidence and prevalence in Libya of migrant trafficking for purposes of slavery has not been precisely quantified, but reports make clear that some migrants are subject to repeated instances of extortion and exploitative detention by security actors and traffickers. In January 2018, SRSG Salamé told the Security Council that "we have evidence that many migrants are subject to grave abuses inside and outside official places of detention, including various forms of sexual violence." In February 2018, the U.N. Secretary-General reported to the U.N. Security Council that the humanitarian situation in Libya had deteriorated since late 2017, and that "refugees and migrants continued to be subjected to violence, forced labor and other grave violations and abuses." The State Department's 2017 Trafficking in Persons report designated Libya as a "special case" for the second year in a row in light of its weak governance and ongoing conflict. The report said that the GNA "struggled to gain institutional capacity and the resources to address trafficking, as the government was focused on consolidating control over its territory and countering extremist violence throughout 2016 and into 2017." According to the report, "Libya is a destination and transit country for men and women from sub-Saharan Africa and Asia subjected to forced labor and sex trafficking, and it is a source country for Libyan children subjected to recruitment and use by armed groups within the country. Instability and lack of government oversight continued to allow for human trafficking crimes to persist and become highly profitable for traffickers." Responses to the broader phenomenon of migrant transit of Libya predate recent concerns stemming from more detailed reporting about detention conditions and enslavement. European countries have worked for years to limit the trafficking of individuals from Libya to southern Europe and to save the lives of migrants at sea. In May 2015, the European Union decided to create a naval force (EUNAVFOR MED Operation Sophia) "to break the business model of smugglers and traffickers ... in the Southern Central Mediterranean and in partnership with Libyan authorities." The force was inaugurated in June 2015 and is presently authorized through December 2018. In October 2015, the U.N. Security Council adopted Resolution 2240, conditionally authorizing member states to inspect and seize vessels on the high seas off the coast of Libya suspected of involvement in migrant smuggling or human trafficking. In mid-2016, European officials authorized two further tasks for the force: training the Libyan coast guard and navy, and contributing to the enforcement of the United Nations arms embargo, as authorized by Resolution 2292 and extended by Resolution 2357. Coast guard training began in October 2016, and EUNAVFOR MED forces periodically seize weapons on the high seas in support of the arms embargo . As of February 2018, 27 EU member states supported the Rome-based EU mission, and it had saved more than 42,000 lives at sea since its inception in June 2015. In April 2017, the EU Trust Fund for Africa announced a €90 million program to better protect migrants along the central Mediterranean route and to provide related management assistance in Libya. In February 2018, the EU Trust Fund announced a €115 million program to support UNHCR and IOM. The EU also mobilized €46 million in December 2017 for border security programs in Libya and an additional €50 million to support Libyan municipalities that host migrants. In response to recent concerns about migrant detention and slavery, the European Union, African Union, and United Nations have established a Task Force to improve migrant protection along migration routes to, from, and in Libya. Through the Task Force, IOM has facilitated the return of more than 15,000 migrants to their home countries from Libya through a voluntary humanitarian returns program since December 2017. In parallel, the Task Force has supported UNHCR-led evacuations of more than 1,300 refugees from Libya as of March 2018. Some refugee advocates are critical of the arrangements and report that some evacuees remain vulnerable. Terrorist organizations active in Libya and the continuing weakness of Libya's national security bodies and government institutions pose a dual risk to U.S. and international security. Whereas U.S. intervention in Libya in 2011 was motivated largely by concern regarding threats posed to Libyans by the Qadhafi government, U.S. policy since has been defined by efforts to contain and mitigate the negative effects of state collapse and support transition efforts. Operations by Libyan partner forces, backed by U.S. military strikes, succeeded in ending the Islamic State organization's control over territory in central and western Libya during 2016, but little parallel progress has been made toward achieving durable political reconciliation. Armed groups empowered under counterterrorism or transition support arrangements may complicate efforts to achieve negotiated agreements by asserting themselves relative to transitional political leaders. Today, U.S. and Libyan officials in the country's various governing entities share concerns about remaining extremists, the weakness of state institutions, and flows of migrants, refugees, and contraband within and across Libya's largely un-policed borders. Current U.S. efforts focus on supporting the implementation of the U.N. Action Plan, preventing Libyan territory from being used to support terrorist attacks, and providing stabilization and transition assistance to local communities and national government entities. Libya's natural resources and economic potential may provide future opportunities for strengthening U.S.-Libyan trade and investment ties, but circumstances have not allowed such ties to flourish. The Trump Administration has maintained U.S. recognition of the GNA and signaled continuing interest in providing U.S. foreign aid and security assistance to support Libya's transition. Then-Ambassador to Libya Peter Bodde and AFRICOM Commander General Thomas Waldhauser visited Libya in May 2017, and GNA Prime Minister Fayez al Sarraj visited Washington, DC, in November 2017. The Trump Administration has not appointed a Special Envoy for Libya to replace Jonathan Winer, whose mandate ended with the Obama Administration. As noted above, the State Department suspended operations at the U.S. Embassy in Tripoli in July 2014. U.S. diplomats engage with Libyans and monitor U.S. programs in Libya via the Libya External Office (LEO) at the U.S. Embassy in Tunisia. U.S. Ambassador to Libya Peter Bodde retired in December 2017, and, as of May 2018, the Trump Administration had not nominated a new Ambassador-designate. Senior Foreign Service officer Stephanie Williams leads the LEO as Chargé d'Affaires. Since 2017, the Trump Administration has imposed conditional restrictions on the entry of Libyan nationals to the United States, with some exceptions. (see textbox below). U.S. officials engage in multidirectional diplomacy with parties in Libya and beyond in support of U.N.-facilitated reconciliation efforts. In a statement on December 14, 2017, the United States joined other members of the U.N. Security Council in stating that the 2015 LPA "remains the only viable framework to end the Libyan political crisis and that its implementation remains key to holding elections and finalizing the political transition." The Council emphasized the agreement's "continuity.... throughout Libya's transitional period" and rejected "incorrect deadlines that only serve to undermine the U.N.-facilitated political process," a reference to Khalifa Haftar's statements at the time asserting the agreement's lapse. Council members further stated that "any attempt, including by Libyan parties, to undermine the Libyan-led, U.N.-facilitated political process is unacceptable." In January 2018, U.S. Representative to the United Nations Ambassador Nikki Haley said in a Security Council meeting on Libya that The United States will oppose attempts to impose a military solution to this political crisis, which would further undermine Libya's stability. Those who pursue a military solution will wind up helping terrorist groups that thrive on instability. The only legitimate path to power is through free and fair elections. ...The House of Representatives must uphold its commitment to pass laws for a constitutional referendum and for elections this year, in consultation with the High State Council. As the Libyans prepare for elections, we support United Nations efforts to promote more effective and accountable governance for this transitional period. All Libyan parties should engage constructively with the United Nations to strengthen the Libyan Political Agreement. The United States and the European Union (EU) have placed financial and travel sanctions on some Libyan leaders for obstructing the implementation of the LPA and for illicitly smuggling oil from the country. In June 2017, the U.N. Security Council unanimously extended maritime arms embargo enforcement provisions for one year in Resolution 2357. The Security Council later adopted Resolution 2362—extending the mandate for maritime enforcement of oil shipment monitoring and reaffirming existing arms embargo, asset freeze, and travel ban measures. U.S. naval forces interdicted an unauthorized oil shipment in 2014, and the European Union's EUNAVFOR MED mission currently monitors shipments to and from Libya. U.S. officials have acknowledged the security risks posed by instability in post-Qadhafi Libya, and U.S. security agencies have acted to degrade the capabilities of terrorist organizations and assess the needs of nascent partner forces since 2011. In conjunction with military strikes, the U.S. government has worked with GNA officials and other Libyan security figures to determine the scope of their need for potential security assistance. Plans for U.S. assistance in the creation of a new General Purpose Force to secure government installations and critical infrastructure were shelved in 2014 as conflict broke out among Libyans. In early 2016, statements by U.S. officials began signaling that U.S. security concerns about the Islamic State presence in Libya had intensified, and that additional U.S. military action against IS targets might proceed even if political consensus among Libyans remained elusive. GNA and U.S. officials downplayed the likelihood of intervention in some public remarks, but U.S. military personnel were deployed in small numbers to Libya to liaise with potential partner forces. U.N. Security Council resolutions 2259, 2278, and 2362 urge Member States to assist the GNA in responding to threats to Libyan security and to provide support in its fight against the Islamic State and other extremist groups upon its request. In August 2016, GNA Prime Minister-designate Sarraj stated that he had requested U.S. military assistance in combatting the Islamic State organization in and around Sirte on behalf of GNA-aligned forces fighting there. U.S. strikes began on August 1, and, by December 2016, Islamic State forces were significantly degraded and evicted from the city by U.S.-backed Libyan forces. Some IS fighters appear to have regrouped in rural areas after fleeing Sirte in late 2016, and the group claimed a series of attacks on Libyan forces in 2017. In January 2018, a spokesperson for U.S. Africa Command (AFRICOM) projected that the Islamic State would "give priority to the restructuring of security forces and infrastructure, and to launch strikes, which may include targets in the Libyan oil crescent." In March 2018 congressional testimony, AFRICOM Commander General Waldhauser described IS forces in Libya as "dispersed and disorganized and likely capable of little more than localized attacks." General Waldhauser advised Congress in March 2018 that U.S. military support for anti-IS fighters is continuing, and he emphasized the importance of political reconciliation as a prerequisite for lasting security. In this regard, AFRICOM's 2017 posture statement judged that "stability in Libya" is likely to be "a long-term proposition requiring strategic patience." The statement also advised Congress that Libya's absorption capacity for international support remains "limited," as does the ability of outsiders, including the United States, "to influence political reconciliation between competing factions." In his March 2018 testimony, General Waldhauser warned that "the risk of a full-scale civil war remains real." At present, AFRICOM describes four objectives for its approach to Libya: degrading terrorist groups; averting civil war; supporting political reconciliation with the goal of achieving a unified central government; and, helping to curb the flow of illegal migrants into Europe via Libya. Periodic U.S. airstrikes have targeted senior terrorist leaders and groups from 2015 through 2018. AFRICOM announced that U.S. forces conducted airstrikes against Islamic State positions south of Sirte in September and November 2017, killing IS fighters and the destroying arms and vehicles. U.S. military statements said the Islamic State used the locations targeted in September as transit hubs and operational planning centers, including for external attacks. In October 2017, U.S. forces and Libyan partner forces seized a second suspect in the 2012 Benghazi attacks in Libya, Syrian national Mustafa al Imam, near Misrata (see Appendix C ). In March 2018, AFRICOM announced the death of AQIM senior figure Musa Abu Dawud and an associate in a U.S. airstrike near Ubari in southwest Libya. President Trump's December 2017 letter to Congress consistent with the War Powers Resolution acknowledged U.S. strikes against terrorist targets in Libya. Like the Obama Administration before it, the Trump Administration has described U.S. strikes against IS and AQIM targets in Libya as authorized by the 2001 Authorization for Use of Military Force (AUMF, P.L. 107-40 ) and has stated that the strikes are taken "at the request and with the consent of the GNA in the context of the ongoing armed conflict against ISIL and in furtherance of U.S. national self-defense." In April 2018, U.S. officials announced Libya would join the Trans-Sahara Counterterrorism Partnership (TSCTP) program and signed a series of agreements and memoranda of intent for border and airport security programs. AFRICOM has engaged with European partners in planning for security assistance to the GNA. U.S. defense officials have said that containing instability in Libya is one of the command's five broad lines of effort, and the Defense Department's FY2019 request includes requests for security assistance funding for programs in the AFRICOM area of responsibility that may benefit Libyan entities or address threats emanating from Libya through partnership with neighboring countries. Congress has authorized the provision of Department of Defense-funded border security assistance to Tunisia and Egypt through December 31, 2019. In parallel to counterterrorism and defense policy efforts, the United States is using U.S. foreign assistance funding to support a variety of stabilization and transition assistance programs at the local and national levels in Libya. Since the 2014 withdrawal of U.S. personnel, U.S. programs have been administered from outside the country. Despite related challenges, Administration officials remain committed to providing stabilization and transition support to Libyans and have notified Congress of planned aid obligations in 2017 and 2018. Since 2016, the executive branch has notified Congress of planned programs to continue to engage with Libyan civil society organizations, support multilateral bodies engaged in Libyan stabilization efforts, and build the capacity of municipal authorities, electoral administration entities, and the emerging GNA administration. These notifications include, but are not limited to $64.5 million to support the continuation of USAID's Office of Transition Initiatives and other USAID good governance and electoral support programs; $1.9 million in Middle East Partnerships Initiative (MEPI) civil society support programming; $4 million for the United Nations Development Program Stabilization Facility for Libya; $10 million for U.S. support to UNSMIL and governance programs in support of the GNA; $4 million for third-party monitoring of U.S. government Libya programs and for reconciliation, transitional justice, and accountability programming; and $10 million for training and advisory support to the GNA Ministry of Interior. Division B of the December 2016 continuing resolution ( P.L. 114-254 ) provided additional overseas contingency operations assistance and operations funding to the State Department and USAID, some of which is supporting post-IS stabilization efforts in Libya and may facilitate the eventual return of U.S. government personnel to the country. The Trump Administration has requested $34.5 million in foreign operations funding for Libya programming in FY2019 (see Table 3 ). The United States provided more than $90 million in immediate humanitarian assistance to Libya in 2011, and U.S. assistance for humanitarian operations in Libya has ebbed and flowed in the years since in response to fluctuating needs and conditions on the ground. U.S. humanitarian funding for Libya in FY2016 and FY2017 totaled $28.325 million, more than $18 million of which was provided in FY2017. This included U.S. contributions to the U.N. Office for the Coordination of Humanitarian Affairs (OCHA) Humanitarian Response Plans (HRP) for Libya and programs overseen by the State Department Bureau of Population, Refugees, and Migration (PRM) and USAID's Office of Foreign Disaster Assistance (OFDA). The 2018 U.N. HRP seeks $312.7 million in international contributions, of which 11.3% was funded as of May 2018. Libya is among the countries identified in Executive Order 13780 of March 2017, which restricts the entry of nationals of certain countries to the United States, with some exceptions. In September 2017, the Trump Administration issued further guidance on the entry restrictions, and suspended the entry to the United States of Libyan nationals as immigrants and non-immigrants in business (B-1), tourist (B-2), and business/tourist (B-1/B-2) visa classes. The Administration's fact sheet on the changes states: Although it is an important partner, especially in the area of counterterrorism, the government in Libya faces significant challenges in sharing several types of information, including public-safety and terrorism-related information; has significant inadequacies in its identity-management protocols; has been assessed to be not fully cooperative with respect to receiving its nationals subject to final orders of removal from the United States; and has a substantial terrorist presence within its territory. Accordingly, the entry into the United States of nationals of Libya, as immigrants, and as nonimmigrants on business (B-1), tourist (B-2), and business/tourist (B-1/B-2) visas, is suspended. The United States issued 1,445 such B-1, B-2, and B1/B-2 visas to Libyan nationals in FY2016, which was approximately 62% of the total number of U.S. visas issued for Libyans. From March through November 2017, the United States issued 1,170 nonimmigrant visas of all classes to Libyan nationals. In September 2017, authorities in eastern Libya announced they planned to institute a policy of "reciprocity," calling the U.S. decision a "dangerous escalation, which puts Libyan citizens in one basket with the terrorists the army fights." The 2012 attacks in Benghazi, the deaths of U.S. personnel, the emergence of terrorist threats on Libyan soil, and internecine conflict among Libyan militias have reshaped debates in Washington about U.S. policy toward Libya. Following intense congressional debate over the merits of U.S. and NATO military intervention in Libya in 2011, many Members of Congress welcomed the announcement of Libya's liberation, the formation of the interim Transitional National Council government, and the July 2012 national General National Congress election. Some Members also expressed concern about security in the country, the proliferation of weapons, and the prospects for a smooth political transition. The breakdown of the transition process in 2014 and the outbreak of conflict amplified these concerns, with the subsequent emergence and strengthening of Islamic State supporters in Libya compounding congressional apprehension about the implications of continued instability in the country. As of 2018, the executive branch and Congress appear to have reached a degree of consensus regarding limited security and transition support programs in Libya, some of which respond to specific U.S. security concerns about unsecured weapons, terrorist safe havens, and border security. Congress has conditionally appropriated funding for limited U.S. transition support and security assistance programs for FY2018, and is considering Trump Administration requests for additional foreign operations and defense funds to support Libya-related programs for FY2019. In recent years, Congress has enacted appropriations legislation requiring the Administration to certify Libyan cooperation with efforts to investigate the 2012 Benghazi attacks and to submit detailed spending and vetting plans in order to obligate appropriated funds. Congress also has prohibited the provision of U.S. assistance to Libya for infrastructure projects "except on a loan basis with terms favorable to the United States." The foreign operations appropriations act for FY2018 carries forward some past terms and conditions on FY2018 U.S. assistance to Libya (Section 7041(f) of Division K of H.R. 1625 / P.L. 115-141 ), and includes a requirement for notice to Congress in cases of aid diversion or destruction. The FY2017 and FY2018 acts did not require submission of a spending plan to congressional appropriators prior to obligations. Terrorist threats, Libyans' divisive political competition, and, since mid-2014, outright conflict between rival groups have prevented U.S. officials from developing robust partnerships and assistance programs in post-Qadhafi Libya. The shared desire of the U.S. government and some international actors to empower an inclusive government and rebuild Libyan state security forces has been confounded by the strength of armed non-state groups, weak institutions, and a fundamental lack of political consensus among Libya's interim leaders, especially regarding security issues. Control over national institutions, territory, and key energy infrastructure continues to define the balance of power in Libya. To the extent that these factors define the prospects for governance and economic viability, they are likely to remain objects of intense competition. Prior to the escalation of conflict in May 2014, some Libyans had questioned the then-interim government's decision to seek foreign support for security reform and transition guidance, while some U.S. observers had questioned Libya's need for U.S. foreign assistance given Libya's oil resources and relative wealth. During subsequent fighting, some Libyans have vigorously rejected others' calls for international support and assistance and traded accusations of disloyalty and treason in response to reports of partnership with foreign forces. These dynamics raise questions about the potential viability of the U.S. partnership approach, which has sought to build Libyan capacity, coordinate international action, and leverage Libyan financial resources to meet shared objectives and minimize the need for direct U.S. involvement. Some Libyan actors appear to view offers of external assistance and threats of external sanctions in zero-sum terms, despite assurances that third parties seek to support inclusive, consensus arrangements. In some cases where the U.S. government has sought Libyan government action on priority issues, especially in the counterterrorism sector, U.S. officials have weighed choices over whether U.S. assistance can build sufficient Libyan capacity quickly and cheaply enough. U.S. officials also have considered whether interim leaders are appropriate or reliable partners for the United States and how U.S. action or assistance might affect Libyan politics. In some cases, such as with the threat posed by the Islamic State, U.S. officials have debated when threats to U.S. interests require immediate, direct U.S. action. With Islamic State forces degraded and rivalries among Libyan factions persistent, these questions continue to apply to debates about the future of U.S. assistance plans. At present, U.S. officials remain engaged with Libyan counterparts in efforts to move forward with the U.N.-backed Action Plan. Next steps may include a constitutional referendum and national elections some time in 2018 or later, but the timing, legal framework, and sequencing of these proposed steps has not yet been determined. The potential success of U.N.-backed reconciliation could provide a new foundation for improving stability in Libya, and could create new opportunities for security and economic partnership between Libya and the United States. The potential failure of U.N.-promoted reconciliation efforts among Libyans may present U.S. decisionmakers with hard choices about how best to mitigate threats emanating from the country in the continuing absence of a viable, legitimate national government. Possible questions before the United States may include whether and when to return U.S. personnel to Libya on a permanent basis; what types and extent of assistance, if any, to provide for stabilization and transition support purposes; how to ensure that U.S. aid recipients and security partners have not been and are not now involved in gross violations of human rights; whether or how to use existing sanctions provisions or other coercive measures against parties seen as obstructing progress under the U.N.-sponsored Action Plan; whether or how to continue to intervene militarily against terrorist groups; whether or how to respond to the actions of other third parties, including Russia; whether or how to leverage or amend U.N. arms embargo provisions to allow for security assistance to parties in Libya; what degree of support, if any, to provide to emergent national security forces (particularly in the absence of an agreed political framework); and whether or how to respond in the event of any military clashes between rival Libyan factions that involve groups that have received U.S. assistance. Legislative debates over future appropriations and defense authorization measures provide potential means for Members to influence U.S. policy and engagement with Libyan actors. Congressional oversight prerogatives also provide opportunities to engage Administration officials to refine the scope and content of U.S. programs proposed to support the Government of National Accord and other Libyans; regarding U.S. contingency planning for the possibility that other third parties may intervene more forcefully in Libya; regarding plans for potentially expanding U.S. partnership with Libyans if U.N.-backed reconciliation measures succeed; and regarding the possibility that negotiations among Libyans and planned elections may not bring instability in Libya to a prompt close. Appendix A. Libyan History, Civil War, and Political Change The North African territory that now composes Libya has a long history as a center of Phoenician, Carthaginian, Greek, Roman, Berber, and Arab civilizations. Modern Libya is a union of three historically distinct regions—northwestern Tripolitania, northeastern Cyrenaica or Barqa, and the more remote southwestern desert region of Fezzan. In the 19 th century, the Ottoman Empire struggled to assert control over Libya's coastal cities and interior. Italy invaded Libya in 1911 on the pretext of liberating the region from Ottoman control. The Italians subsequently became mired in decades of colonial abuses against the Libyan people and faced a persistent anticolonial insurgency. Libya was an important battleground in the North Africa campaign of the Second World War and emerged from the fighting as a ward of the Allied powers and the United Nations. On December 24, 1951, the United Kingdom of Libya became one of Africa's first independent states. With U.N. supervision and assistance, a Libyan National Constituent Assembly drafted and agreed to a constitution establishing a federal system of government with central authority vested in King Idris Al Sanussi. Legislative authority was vested in a Prime Minister, a Council of Ministers, and a bicameral legislature. The first parliamentary election was held in February 1952, one month after independence. The king banned political parties shortly after independence, and Libya's first decade was characterized by continuous infighting over taxation, development, and constitutional powers. In 1963, King Idris replaced the federal system of government with a unitary monarchy that further centralized royal authority, in part to streamline the development of the country's newly discovered oil resources. Prior to the discovery of marketable oil in 1959, the Libyan government was largely dependent on economic aid and technical assistance it received from international institutions and through military basing agreements with the United States and United Kingdom. The U.S.-operated air base at Wheelus field outside of Tripoli served as an important Strategic Air Command base and center for military intelligence operations throughout the 1950s and 1960s. Oil wealth brought rapid economic growth and greater financial independence to Libya in the 1960s, but the weakness of national institutions and Libyan elites' growing identification with the pan-Arab socialist ideology of Egyptian leader Gamal Abdel Nasser contributed to the gradual marginalization of the monarchy. Popular criticism of U.S. and British basing agreements grew, becoming amplified in the wake of Israel's defeat of Arab forces in the 1967 Six Day War. King Idris left the country in mid-1969 for medical reasons, setting the stage for a military coup in September, led by a young, devoted Nasserite army captain named Muammar al Qadhafi. The United States did not actively oppose the coup, as Qadhafi and his co-conspirators initially presented an anti-Soviet and reformist platform. Qadhafi focused intensely on securing the immediate and full withdrawal of British and U.S. forces from military bases in Libya, which was complete by mid-1970. The new government also pressured U.S. and other foreign oil companies to renegotiate oil production contracts, and some British and U.S. oil operations eventually were nationalized. In the early 1970s, Qadhafi and his allies gradually reversed their stance on their initially icy relationship with the Soviet Union and extended Libyan support to revolutionary, anti-Western, and anti-Israeli movements across Africa, Europe, Asia, and the Middle East. These policies contributed to a rapid souring of U.S.-Libyan political relations that persisted for decades and was marked by multiple military confrontations, state-sponsored acts of Libyan terrorism against U.S. nationals, covert U.S. support for Libyan opposition groups, Qadhafi's pursuit of weapons of mass destruction, and U.S. and international sanctions. Qadhafi's policy reversals on WMD and terrorism led to the lifting of international sanctions in 2003 and 2004, followed by economic liberalization, oil sales, and foreign investment that brought new wealth to some Libyans. After U.S. sanctions were lifted, the U.S. business community gradually reengaged amid continuing U.S.-Libyan tension over terrorism concerns that were finally resolved in 2008. During this period of international reengagement, political change in Libya remained elusive. Government reconciliation with imprisoned Islamist militants and the return of some exiled opposition figures were welcomed by some observers as signs that suppression of political opposition had softened. The Qadhafi government released dozens of former members of the Al Qaeda-affiliated Libyan Islamist Fighting Group (LIFG) and the Muslim Brotherhood from prison in the years prior to the revolution as part of its political reconciliation program. The George W. Bush Administration praised Qadhafi's cooperation with U.S. counterterrorism efforts against Al Qaeda and the LIFG. Qadhafi's international rehabilitation coincided with new steps by some pragmatic government officials to maneuver within so-called "red lines" and propose minor reforms. However, the shifting course of those red lines increasingly entangled would-be reformers in the run-up to the outbreak of unrest in February 2011. Ultimately, inaction on the part of the government in response to calls for guarantees of basic political rights and for the drafting of a constitution suggested a lack of consensus, if not outright opposition to meaningful change among hardliners. This inaction set the political stage for the revolution that overturned Qadhafi's four decades of rule and led to his grisly demise in October 2011. Political change in neighboring Tunisia and Egypt helped bring long-simmering Libyan reform debates to the boiling point in January and early February 2011. The 2011 revolution was triggered in mid-February by a chain of events in Benghazi and other eastern cities that quickly spiraled out of Qadhafi's control. The government's loss of control in these cities became apparent, and broader unrest emerged in other regions. A number of military officers, their units, and civilian officials abandoned Qadhafi. Qadhafi and his supporters denounced their opponents as drug-fueled traitors, foreign agents, and Al Qaeda supporters. Until August 2011, Qadhafi and his forces maintained control over the capital, Tripoli, and other western cities. The cumulative effects of attrition by NATO airstrikes against military targets and a coordinated offensive by rebels in Tripoli and from across western Libya then turned the tide, sending Qadhafi and his supporters into retreat and exile. September and early October 2011 were marked by sporadic and often intense fighting in and around Qadhafi's birthplace, Sirte, and the town of Bani Walid and neighboring military districts. NATO air operations continued as rebel fighters engaged in battles of attrition with Qadhafi supporters. Qadhafi's death at the hands of rebel fighters in Sirte on October 20, 2011, brought the revolt to an abrupt close, with some observers expressing concern that a dark chapter in Libyan history ended violently, leaving an uncertain path ahead. The self-appointed interim Transitional National Council (TNC) and its cabinet took initial steps toward improving security and reforming national institutions. Voters elected an interim General National Congress (GNC) in July 2012. The GNC assumed power on August 8, 2012, but failed to demobilize militia groups, reconstitute national bureaucracies, or launch ambitious economic or political reforms. The unravelling of Libya's post-Qadhafi transition intensified in late 2013, as a campaign of unsolved assassinations targeting security officers swept the country's second-largest city, Benghazi; a militia force briefly kidnapped then-Prime Minister Ali Zeidan; militias killed protesting civilians in Tripoli and Benghazi; and rival coalitions within the General National Congress (elected July 2012) clashed over the future of Zeidan's government and the GNC's mandate and term of office. Zeidan survived numerous attempted no confidence votes during his tenure (November 2012 to March 2014), which was marked by a series of crises stemming from militia demands for the political isolation of Qadhafi-era officials, militias' seizure of oil infrastructure, and the strengthening of armed Islamists in the east and south. Long-expected elections for a Constitutional Drafting Assembly were delayed until February 2014, and were ultimately marred by relatively low turnout and violence that prevented voters in some areas from selecting delegates. In March 2014, a coalition of Islamist and independent forces in the GNC garnered enough votes to oust Zeidan amid a growing boycott by other GNC members that made it difficult for the body to operate with a politically viable quorum. Under increasing pressure to leave office, GNC members voted to replace the GNC with a new 200-member House of Representatives (HOR), to which legislative authority would be transferred. Public and intra-General National Congress tensions were driven in part by differences of opinion over the future roles and responsibilities of armed militias, the relative influence of powerful local communities over national affairs, and the terms governing the political exclusion of individuals who had formerly served in official positions during the Qadhafi era. Disagreements between Islamist politicians and relatively secular figures also contributed to the gradual collapse of consensus over the transition's direction. These groups differed over some domestic legal and social developments as well as Libya's security relationships with foreign governments. Gradually, an unspoken code under which Libyans sought to refrain from shedding other Libyans' blood in the wake of Qadhafi's ouster deteriorated under pressure from a series of violent confrontations between civilians and militias, clashes between rival ethnic groups, and the blatant targeting of security officers by an unidentified, but ruthless network in Benghazi. That code was rooted in shared respect for the sacrifices of anti-Qadhafi revolutionaries and in shared fears that the 2011 predictions of Muammar al Qadhafi and his supporters would come true: that Qadhafi's downfall would be followed by uncontainable civil strife and chaos. In May 2014, forces loyal to Qadhafi-era retired General Khalifah Haftar launched an armed campaign unauthorized by interim authorities dubbed "Operation Dignity" to evict Islamist militia groups from eastern Libya. Haftar capitalized on widely shared presumptions that certain armed Islamist groups were responsible for the assassination of security officers and were cooperating with foreign jihadists, including Al Qaeda, its regional affiliates, and Syria-based armed groups. More controversially, Haftar broadened his rhetoric and objectives to include pledges to cleanse Libya of Islamists, including supporters of the Muslim Brotherhood. In the months that followed, Libya was drawn deeper into a region-wide struggle between pro- and anti-Islamist forces, with the governments of Egypt and the United Arab Emirates offering Haftar support. Haftar's actions and those of his opponents have helped to push many of the country's latent tensions to the surface and contributed to Libya's polarization on ideological and community lines. This polarization was visible during a summer 2014 political struggle between supporters of Prime Minister Abdullah Al Thinni and the leading coalition of Islamists and independents within the GNC, which sought to replace Al Thinni prior to the June 2014 elections for the new HOR. Haftar's armed extremist military opponents and his relatively more moderate political adversaries responded vigorously to his challenges. Through late 2014, the Operation Dignity military campaign had suffered several setbacks on the battlefield at the hands of the U.S. designated Foreign Terrorist Organization Ansar al Sharia (AAS) and that group's allies in an emergent coalition known as the Benghazi Revolutionaries' Shura Council. Haftar's forces counterattacked, attempting to force their way back into Benghazi but failing to overcome determined resistance until making progress in early 2016. Large areas of the city have been damaged in the fighting and UNSMIL has reported mass displacement among the population of the city. Residents who have remained have reported shortages of supplies and critical service interruptions. In western Libya, fighting also erupted in mid-2014 along political, ideological, and community lines with two coalitions of forces battling for control of Tripoli's international airport, government facilities, other strategic infrastructure, and areas around the capital. Tensions between locally organized militia groups in the west predated the launch of Haftar's operations in the east. Over time, however, fighting and rhetoric in the two theaters became more interrelated and overlaid local rivalries, with some western-based forces endorsing and offering material support to Haftar's campaign and the HOR and others mobilizing to isolate Haftar's erstwhile allies and/or the HOR. Specifically, some armed groups from the city of Misrata and smaller Islamist militias formed a coalition known as Fajr Libya (Libya Dawn) and launched a multipronged offensive in July 2014 to take control of Tripoli's main international airport. Participants have included Libya's Central Shield Force, members of the Tripoli-based Libya Revolutionaries Operations Room (LROR), the Knights of Janzour Brigade, militias from Zawiya, and several Misrata-based militias, including the Mars a and Hatin Brigades. The international airport had long been held by a rival coalition of militias largely from Zintan—the Sawa'iq and Qaaqaa Brigades, and the Martyr Mohammed Madani Brigade—who opposed the GNC-leading Islamist-independent coalition during its final months in office. Libya Dawn operations after the fall of the airport included clashes with militias in Tripoli's Suq al Jumah neighborhood and militias affiliated with the Warshafanah tribe south and west of the city. Control over lucrative national infrastructure remained a subtext of fighting in the region, which became less intense during 2015 as localized cease-fire agreements were reached. The United Nations-facilitated dialogue process that led to the 2015 Government of National Accord agreement built in part on improvements in security conditions and trust that accompanied de-escalation in fighting between members of the Libya Dawn and Operation Dignity coalitions. Appendix B. U.S. Assistance to Libya FY2010-FY2014 From 2011 through 2014, U.S. engagement in Libya shifted from immediate conflict-related humanitarian assistance to focus on transition assistance and security sector support. More than $25 million in USAID-administered programs funded through the Office of Transition Initiatives, regional accounts, and reprogrammed funds were identified between 2011 and 2014 to support the activities of Libyan civil society groups and provide technical assistance to Libya's nascent electoral administration bodies. The security-related withdrawal of some U.S. personnel from Libya in the wake of the 2012 Benghazi attacks temporarily affected the implementation and oversight of U.S.-funded transition assistance programs. U.S. security assistance programs also were disrupted, but some assistance programs were reinstated by late 2013. Appendix C. Investigations into 2012 Attacks on U.S. Facilities and Personnel in Benghazi Appendix D. Select Political Actors and Armed Groups
|
Libya's political transition has been disrupted by armed non-state groups and threatened by the indecision and infighting of interim leaders. After an armed uprising ended the 40-plus-year rule of Muammar al Qadhafi in 2011, interim authorities proved unable to form a stable government, address pressing security issues, reshape the country's public finances, or create a viable framework for post-conflict justice and reconciliation. Qadhafi left state institutions weak and deprived Libyans of experience in self-government, compounding stabilization challenges. Elections for legislative bodies and a constitutional drafting assembly held in 2012 and 2014 were administered transparently, but were marred by declining rates of participation, threats to candidates and voters, and zero-sum political competition. Insecurity became prevalent in Libya following the 2011 conflict and deepened in 2014, driven by overlapping ideological, personal, financial, and transnational rivalries. Issues of dispute have included governance, military command, national finances, and control of oil infrastructure. At present, armed militia groups and locally organized political leaders remain the most powerful arbiters of public affairs. An atmosphere of persistent lawlessness has enabled militias, criminals, and Islamist terrorist groups to operate with impunity, further endangering civilians' rights and safety. U.S. Africa Command (AFRICOM) emphasizes the importance of a political solution for stability, and in March 2018, told Congress that, in light of prevailing turmoil, "the risk of a full-scale civil war remains real." U.S. officials and other international actors have worked since 2014 to convince Libyan factions and their various external supporters that inclusive, representative government and negotiation are preferable to competing attempts to achieve dominance through force of arms. The U.N. Security Council has authorized financial and travel sanctions on individuals and entities responsible for threatening "the peace, stability or security of Libya," obstructing or undermining "the successful completion of its political transition," or supporting others who do so. A U.N. arms embargo is in place, and U.S. executive orders provide for sanctions on figures that undermine the transition. In December 2015, some Libyan leaders endorsed a U.N.-brokered political agreement to create a Government of National Accord (GNA) to oversee the completion of the transition. GNA Prime Minister-designate Fayez al Sarraj and members of a GNA Presidency Council have attempted to implement the agreement and have competed for influence with political figures and armed forces based in eastern Libya, including Field Marshal Khalifa Haftar's "Libyan National Army" (LNA) movement. A U.N.-sponsored Action Plan launched in 2017 seeks to complete Libya's transition during the coming year, and Libyans and outsiders are debating terms for its implementation. Previous mediation efforts struggled to gain traction, and outsiders have at times pursued their own agendas through ties with Libyan factions. Such competition by proxy raises the stakes of Libya's internal rivalries and complicates negotiations. The State Department suspended operations at the U.S. Embassy in Tripoli in July 2014. U.S. diplomats engage with Libyans and monitor U.S. programs in Libya via the Libya External Office (LEO) at the U.S. Embassy in Tunisia. Periodic U.S. military strikes target IS members and other terrorists. U.S. officials judge that the threats posed by IS members and Al Qaeda have been degraded, but note that these groups remain dangerous and could resurge if conditions deteriorate. Congress has conditionally appropriated funding for limited U.S. transition support and security assistance programs for Libya since 2011 and is reviewing the Trump Administration's FY2019 requests for assistance funds. In 2017, the Administration imposed conditional restrictions on the entry of Libyan nationals to the United States, with some exceptions. Political consensus among Libyans remains elusive, and security conditions may create lasting challenges for the return to Libya of U.S. diplomats and the full development of bilateral relations.
|
Medicare is the nation's health insurance program for the aged, disabled, and persons with End Stage Renal Disease. Medicare part A, the Hospital Insurance program, covers hospital services, post-hospital services, and hospice services. Part B, the Supplementary Medical Insurance program, covers a broad range of complementary medical services, including physician, laboratory, outpatient hospital services, and durable medical equipment. Beneficiaries choosing traditional fee-for-service Medicare may receive covered benefits from any qualified provider who participates in the Medicare program. Alternatively, beneficiaries eligible for Medicare part A and enrolled in part B may choose to enroll in a Medicare private plan, under part C of Medicare (the Medicare Advantage program), and receive all required parts A and B benefits (except hospice services) through a private plan. Medicare part D provides prescription drug coverage available through either a stand-alone drug plan (PDP), or for most Medicare Advantage enrollees through their plan. Medicare has offered its beneficiaries enrollment in a private plan as an alternative to the traditional fee-for-service (FFS) program since the 1970s, not long after the establishment of Medicare. Over the years, Congress has continued to legislate an increasing number of private plan options for Medicare. In 1982, Congress created Medicare's risk contract program, allowing private entities, mostly health maintenance organizations (HMOs), to contract with Medicare. In 1997, Congress passed the Balanced Budget Act of 1997 (BBA, P.L. 105-33 ), creating the Medicare+Choice (M+C) program, offering new types of private plans, including private fee-for-service (PFFS) plans. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA, P.L. 108-173 ) changed the name of the program to Medicare Advantage (MA) and further expanded Medicare's private plan options with the addition of new regional preferred provider organizations (PPOs), among others. Further modifications to the MA program were made in the Deficit Reduction Act of 2005 ( P.L. 109-171 , DRA) and the Tax Relief and Health Care Act of 2006 ( P.L. 109-432 ). Recently, congressional attention has turned to the MA program, focusing in large part on PFFS plans. There are a number of reasons for this attention. First, enrollment in these plans has risen significantly—increasing from 22,344 beneficiaries in April of 2003 to almost 1.5 million four years later. Second, payments to PFFS plans are typically higher than payments to other MA plans and higher than expenditures in FFS Medicare. Recent analysis conducted by the Medicare Payment Advisory Commission (MEDPAC) demonstrated that in 2006, payments to PFFS plans averaged 119% of FFS expenditures. This is in contrast to payments to all MA plans, which averaged 112% of expected FFS expenditures, and payments to HMOs, which averaged 110%. Complaints have also been made related to allegedly aggressive and potentially misleading marketing practices of PFFS plans, leading some to question Medicare's oversight of these plans. Most recently, in an agreement with the Centers for Medicare and Medicaid Services (CMS), seven health care organizations representing 90% of the non-group PFFS market voluntarily agreed to suspend marketing of their PFFS products because of complaints and accusations of deceptive marketing practices. According to CMS, the suspension for a given plan will be lifted when the plan meets specified conditions. Finally, PFFS plans are subject to different statutory and administrative requirements than other Medicare private plans, specifically those related to access, quality, review of plan premiums, Medicare prescription drug benefits, and balance billing. Policy makers and beneficiary advocates are questioning whether beneficiaries fully understand these differences when they enroll in a PFFS plan and what their implications are for beneficiary spending, access to providers, and adequacy of benefits. This report focuses on PFFS plans and how they differ from two other widely available MA options, local HMOs and regional PPOs. Background information related to enrollment and the characteristics of these plans is presented, as well as a discussion surrounding current issues. Appendix provides a side-by-side comparison of the major statutory differences between these three types of plans. It does not include all provisions of the law, rather only those for which there are significant differences. Some regulatory differences are also included, when applicable. About 8.5 million of Medicare's 44.6 million beneficiaries (19%) are enrolled in a MA plan. Most MA enrollees choose a local HMO. Figure 1 shows enrollment as of April 2007 by plan type, with 5.7 million beneficiaries in local HMOs, 1.5 million beneficiaries in PFFS plans, 136,000 beneficiaries in regional PPOs, and the remaining 1.2 million beneficiaries divided among other types of plans. However, the proportion of beneficiaries enrolled in each plan type varies by state. Table 1 shows that in some states, the proportion of MA enrollees enrolled in PFFS plans may be as low as 0% or 1% or over 90%. Figure 2 shows PFFS enrollment over time. Interestingly, PFFS enrollment was only 22,344 in April, 2003, and 31,550 as of April 2004. By April 2007, enrollment jumped to 1.5 million, an increase of over 4,000% in three years. Comparatively, enrollment in all other MA plans was 5.3 million in December 2004 and 6.9 million in April 2007, an increase of about 30%. Local HMOs, regional PPOs, and PFFS plans, while sharing many characteristics, also have many differences that may be important in determining who enrolls, the average generosity of benefits, and payment and geographic differences. First, it is important to understand the basic structure of each of these types of plans: Local HMO —A local HMO is a public or private entity that meets all of the required solvency and other standards and has a contract with CMS to provide required and other health benefits. Members receive services mainly through the plan's network, although plans may allow out-of-network coverage. HMO's typically serve one county, but are allowed to expand their service area to more than one county if they wish. Each MA participating organization offering a local HMO is required to provide at least one MA plan with qualified Part D prescription drug coverage in its service area. Regional PPO —In addition to requirements for local plans, a regional PPO must provide for reimbursement for all covered benefits, regardless of whether the benefits are provided in or out of the network. At a minimum, a regional PPO must cover an entire region. It must also have a unified part A and B deductible and a catastrophic cap on out-of-pocket expenses. Like MA participating organizations that offer local HMOs, each regional PPO must offer a plan with qualified prescription drug coverage. PFFS plan —In addition to the solvency and other standard requirements for local plans, a PFFS plan (1) must reimburse hospitals, doctors, and other providers at a rate determined by the plan on a fee-for-service basis without placing the providers at financial risk; (2) can not vary rates based on utilization relating to the provider; and (3) can not restrict the selection of providers among those who are lawfully authorized to provide the covered services and agree to accept the terms and conditions of payment established by the plan. Enrollees in PFFS plans are generally not restricted to a network of providers, although PFFS plans have the option to form networks. In contrast to other MA participating organizations, PFFS plans are not required to offer qualified prescription drug coverage. In some aspects, PFFS plans are more closely related to traditional fee-for-service Medicare, than to other MA private plans. While almost all MA plans provide a full range of services to enrollees in exchange for a monthly capitated payment, local HMOs act as both the insurer and provider of health care services. To receive benefits, the enrollee must get medical care through a network of providers managed by the plan, with very few exceptions, such as emergency care. In contrast, PFFS plans cover enrollees through a private indemnity health insurance policy. The insurer reimburses hospitals, doctors, and other providers on a fee-for-service basis at a rate determined by the plan. The structure of PFFS plans allows enrollees greater flexibility in choosing a provider than in other MA plans. In HMOs, for example, beneficiaries typically have to visit their primary care physician and get a referral before seeing a specialist. In PFFS plans, beneficiaries can visit a specialist or any provider, who agrees to the terms and conditions of the plan, without prior authorization. Enrollees can also receive services from providers outside of their service area. Regional PPOs operate somewhere in between, in that members can choose in or out-of-network coverage. Members, however, save in out-of-pocket costs when selecting in-network providers. While regional plans have a low enrollment compared to other types of MA plans, they are included in this analysis because they are a new option with unique requirements under the statutes, and because they may also have exceptions to network requirements. Also, similar to PFFS plans, regional PPOs are providing access to Medicare managed care plans in areas that traditionally have not been served by managed care in the past. Appendix provides a detailed comparison of local HMOs, regional PPOs, and PFFS plans, following the sequence of the Social Security statues for Medicare Advantage, including information on residency requirements, information requirements, required benefits, beneficiary financial liability, access to services and networks, quality, payments to plans, premiums, and prescription drugs. These differences are important in determining the key issues surrounding these plans and their implications for beneficiaries. The most significant statutory differences are highlighted below. Enrollees in a PFFS plan may obtain covered services from any Medicare eligible provider who is willing to furnish services and accept the PFFS plan's terms and conditions of payment. Although a PFFS plan does not have to establish a provider network, it must meet certain access requirements and demonstrate to the Secretary that professionals and providers are willing to provide services under the terms of the plan. The plan may satisfy this requirement by (1) establishing payment rates that are not less than those under traditional fee-for-service Medicare, or (2) having signed (direct) contracts with a sufficient number and range of providers in a particular category that agree to the plan's fee schedule. Most PFFS plans are meeting access requirements by paying providers at the Medicare rates. Most PFFS plans deliver services through "deemed contracting" providers. A deemed provider is a provider who, before delivering a service, knows that a beneficiary is enrolled in the PFFS plan and has been given, or has reasonable access to, the PFFS plan's terms and conditions for participation. In general, if a PFFS enrollee notifies the provider that he or she is in a PFFS plan and the provider chooses to furnish services, the provider automatically becomes a deemed provider for that service. If the provider furnishes services to a PFFS enrollee but the deeming requirements are not met, generally because the provider does not know that the patient is a PFFS enrollee (i.e., an emergency situation), the provider becomes a "non-contracting" provider. A "non-contracting" provider is entitled to receive the same amount the provider would have received under traditional Medicare as payment in full for a given service. Local HMOs, in contrast, are required to form provider networks to meet access requirements. Each provider has a written contract or agreement to furnish services to enrollees in the plan's network. Care is generally not covered if received from a provider who is not in the HMO's network. Regional PPOs have less restrictive networks; enrollees can see a provider outside the plan's network but must pay a greater portion of the cost of their care for doing so. Further if the plans demonstrates that it can not set up a network in part of the region, it has the option, with CMS pre-approval, to use methods other than written agreements to establish that access requirements are met. All Medicare Advantage health plans, except PFFS plans and Medical Savings Accounts (MSAs), are required to have a quality improvement program. As part of the quality improvement program, plans must collect, analyze, and report data to measure health outcomes and other indices. Specific requirements include designing a chronic care improvement program, conducting quality improvement projects, and encouraging providers to participate in quality initiatives. Plans are required to annually assess the impact and effectiveness of their quality improvement programs and take timely action to correct any systemic problems that come to their attention. CMS requires that MA plans collect and report on a subset of performance measures from the National Committee for Quality Assurance's (NCQA) Health Plan Employer Data and Information Set (HEDIS), the Consumer Assessment of Health Plans Study (CAHPS), and the Medicare Health Outcomes Survey (HOS). Beginning in 2006, CMS began using this data to develop report cards to assist beneficiaries in choosing a health plan. Data is also used to support the plan's internal quality improvement programs and evaluate plan performance by CMS. CMS encourages, but does not require, PFFS plans to report the same HEDIS performance measures as other Medicare Advantage plans. Those that do not report performance measures will not be included on the report cards, which will be available to the public in November 2007. While PFFS plans must submit bids detailing the estimated costs of providing Medicare-covered benefits to enrollees, and describe the applicable premiums, coinsurances, copayments, and benefits, CMS does not have the authority to review these bids. A PFFS plan must demonstrate that the actuarial value of any deductibles, copayments, or coinsurances for Medicare-covered benefits does not exceed the actuarial value of cost-sharing under traditional Medicare. A PFFS plan is subject to the same requirements as other MA plans to provide additional benefits to enrollees if their bid for providing required parts A and B benefits is lower than the benchmark amount determined by CMS. However, unlike other MA plans, the Secretary does not review, approve, or disapprove the PFFS plan's basic or supplemental premiums. Thus PFFS plans could charge their enrollees any premium they choose. The limiting factor, in this case, would be that as the premium increases, enrollees may not see the plan as a good value and would not join a PFFS plan with a premium that seemed too high relative to the benefits. While MA participating organizations that offer local HMOs and regional PPOs must offer at least one plan in an area with qualified part D prescription drug coverage, PFFS plans are not subject to this requirement. According to CMS, approximately 60% of PFFS enrollees are in a plan that includes part D coverage. If a Medicare beneficiary enrolls in a PFFS plan that does not provide drug coverage, he or she may enroll in any available stand-alone Prescription Drug Plan (PDP). However, enrollees in other types of MA plans who want part D prescription drug coverage must choose a Medicare Advantage Prescription Drug (MA-PD) plan, which is an MA plan that provides all Medicare required parts A, B, and D benefits. If a Medicare beneficiary enrolls in a local HMO or regional PPO that does not offer drug coverage, he or she does not have the option to enroll in a stand-alone PDP plan. Under the Medicare statutes, providers participating in PFFS plans may bill enrollees up to 15% above the fee schedule the plan uses, subject to the terms and conditions of a particular plan. This is in addition to any cost sharing established by the plan and applies to all types of Medicare providers. PFFS plans are obligated to inform beneficiaries of these balance billing amounts. Additionally, hospitals are required to provide PFFS enrollees advance notice of any balance billing charges when these amounts may be substantial. In traditional Medicare, participating physicians are not allowed to balance bill beneficiaries. Payments to PFFS plans are typically higher than payments to other MA plans. According to the Medicare Payment Advisory Commission, payments to PFFS plans in 2006 averaged 119% of expected FFS expenditures. Payments to all MA plans averaged 112% of expected FFS spending. Payments to MA HMOs averaged 110% of expected FFS expenditures. One of the reasons for this differential is that PFFS plans have chosen to operate in areas with historically higher Medicare payments. These areas are often referred to as floor counties . Payments in floor counties, which are mainly rural and sparsely populated areas, are among the highest in the country. Local HMOs have typically chosen not to offer managed care plans in these areas because the costs of forming provider networks can be significant. Because PFFS plans are exempt from network requirements and they face little competition from other plan types, they have been able to offer and maintain coverage in these areas. As of July 2006, approximately 87% of PFFS plan enrollees resided in floor counties. Unlike local HMOs and regional PPOs, PFFS plans are not required to establish networks of providers to serve beneficiaries. This gives PFFS plans an advantage, particularly in rural areas, where forming networks is difficult because of the limited number of providers and small population of Medicare beneficiaries. This exception also makes PFFS plans attractive to beneficiaries because an enrollee can visit any provider willing to accept the plan's terms of payment and conditions. However, the lack of a written agreement between the plan and provider means that providers are not required to treat the enrollee. Recent anecdotal evidence suggests that this may be posing access barriers for beneficiaries in certain areas as providers are unwilling to accept the PFFS plans' terms of payment. PFFS plans are not required to establish networks through contracts with providers and typically pay providers the same rate they would receive from traditional Medicare. However, if the PFFS plan establishes an adequate network with a particular type of provider, the PFFS plan must pay all providers of that type the same amount (even those who do not have a contract), which may be less than or greater than traditional Medicare amounts. The only exception would be for providers who did not know that the patient was enrolled in a PFFS plan, such as an emergency room physician treating a patient who could not communicate; those providers receive the Medicare rate. PFFS plans offer beneficiaries, particularly those residing in areas with few Medicare private plans, the choice to opt out of traditional fee-for-service Medicare. In certain parts of the country, PFFS plans may be the only managed care option available to beneficiaries. Therefore, some of the recent growth in PFFS enrollment could be attributed to the extra value they may offer to beneficiaries who for the first time have the option to enroll in a private plan. Additionally, many MA plans offer extra benefits above and beyond what is offered in traditional Medicare or reduced cost sharing, making these plans attractive alternatives to fee-for-service. According to the CMS, in 2007, PFFS plan enrollees are receiving an average of $756 per year in additional benefits above what is being offered in traditional Medicare, compared with an average of $1,032 per year in additional benefits for all MA plans. The rapid increase in the number of PFFS plans available to beneficiaries, particularly in rural areas, may have contributed to a surge in marketing and sales of these plans across the country, thereby contributing to rising enrollment in these plans. The Tax Relief and Health Care Act of 2006 ( P.L. 109-432 ) added a provision for 2007 and 2008 granting beneficiaries currently enrolled in traditional Medicare the option to enroll in a PFFS plan or non-drug MA plan anytime during the year. Because local HMO and regional MA plans are statutorily required to offer a least one prescription drug plan in their service area (PFFS plans are exempt from this requirement), this may have provided PFFS plans with an incentive to market to beneficiaries all year round. This provision has since been repealed as of July 31, 2007. Additionally, some growth in PFFS may be due to questionable marketing practices. In response to marketing concerns, CMS announced in June that seven health insurance plans offering PFFS options have agreed to voluntarily suspend marketing of their plans until the plans meet criteria specified by CMS. In August, CMS lifted the suspension for three of the seven plans. A PFFS plan pays medical providers on a fee-for-service basis (i.e., separate payment for each service provided). PFFS plans pay providers either a negotiated amount established in a contract between the plan and provider or the equivalent of the current Medicare allowable charge. Because PFFS plans pay providers on a fee-for-service basis, the providers face no incentives to limit services to enrollees. In contrast, providers contracting with a local HMO or regional PPO plan can be placed at financial risk for providing all covered services for a capitated amount. Under capitation, providers receive one monthly payment for every enrollee, despite an enrollee's actual service use. These plans may offer bonuses or withhold certain payments in an attempt to promote efficient use of services. Providers have more flexibility under a PFFS plan than a coordinated care plan because they do not sign contracts requiring them to provide services to a select group of enrollees. Providers can choose to accept PFFS patients, on an enrollee-by-enrollee basis, and even on a service-by-service basis. PFFS plans operate under a different set of rules and requirements than other MA plans, which could be unfamiliar and confusing to providers. When an enrollee visits a provider, it is up to the provider to educate himself/herself on the plan's terms and conditions of payment, which in some cases may be different than those under traditional Medicare. This must be done prior to treating the patient. Once services have been provided, the physician is required to comply with the plan's terms and conditions as a "deemed contracting" provider. These terms and conditions may include different balance billing or cost sharing requirements than traditional Medicare and different administrative or documentation requirements. In the months to come, these disadvantages may emerge, disappear, or become less problematic as the operations and structure of these plans become more understood. PFFS plans have advantages for beneficiaries over traditional fee-for-service Medicare and other private plans. Beneficiaries enrolled in a PFFS plan may choose any lawfully authorized provider who accepts the plan's terms and conditions of participation. Provider choice is very important to some beneficiaries and may be a benefit over local HMOs and regional PPOs that require enrollees to receive services from network providers. To demonstrate that providers are willing to serve PFFS plan enrollees, as required by statute, the plans pay providers an amount that is not less than what they would receive under traditional Medicare or an amount negotiated in a contract between the plan and provider. If the disadvantages to providers of serving PFFS plan enrollees, as discussed above, do not deter providers from participating, then the monetary compensation and flexibility of participation, both comparable to traditional Medicare, suggest that PFFS plan enrollees would have a choice of providers comparable to their choice under traditional Medicare. Enrollees in PFFS may receive greater benefits than individuals in traditional fee-for-service Medicare, such as a "catastrophic cap" on out-of-pocket spending, emergency care overseas, and lower cost-sharing for at least some services. Depending on an individual's needs and preferences, a particular set of benefits included in a PFFS plan may be more attractive than traditional fee-for-service. Also, enrollees in PFFS plans do not have to receive prior authorization from a primary care physician to see a specialist. For some beneficiaries, having this freedom to choose is attractive. PFFS plans also have disadvantages over other MA options and traditional fee-for-service Medicare. From an enrollee's perspective, if providers choose not to serve PFFS enrollees, then their choice of providers is limited, much as it would be limited by network membership under a coordinated care plan, or by providers choosing not to serve Medicare beneficiaries. PFFS providers can choose to participate on a service-by-service basis. This means that enrollees are not guaranteed that a provider who saw them previously for a particular service will agree to see them for the same service in the future. The onus is on the enrollee to determine which providers are willing to serve them. With local HMOs and Regional PPOs, providers are required to participate for the duration of their contract with the plan, guaranteeing access to the same providers at least for the duration of the provider's contract with the plan. Enrollees in coordinated care plans can check to see whether a provider is in the plan's network before seeking services. Enrollees in PFFS may find themselves in a situation where a provider may decline to provide services, even if they previously served another plan enrollee or that enrollee. Enrollment in Medicare Advantage PFFS plans is still relatively low—approximately 18% of all MA beneficiaries and only 3% of the total Medicare population. Because payments to PFFS plans are higher than payments to other MA plans, increases in enrollment could raise Medicare costs over the next 5 to 10 years. A recent CBO analysis showed that if Medicare were to reduce payments to PFFS plans to 100% of local FFS costs, Medicare would save $54B between 2009 and 2012 and as much as $149B between 2009 and 2017. On the other hand, reducing payments would likely have an impact on the availability of these plans to serve beneficiaries. Since PFFS plans serve some beneficiaries who do not have access to alternative private plan options, reductions in payment could result in certain PFFS plans leaving the MA program. As a result, some Medicare beneficiaries could loose access to any MA plan. According to CMS, in some states, such as Alaska, Utah, Maine, Idaho, and New Hampshire, PPFS plans are the only MA option in some, if not all counties. One of the reasons Congress established PFFS plans in the BBA was to provide Medicare beneficiaries with the option to enroll in a health insurance plan that would not restrict or limit choice of providers. Specifically, the law states that PFFS enrollees can see any Medicare-eligible provider that is willing to treat the enrollee and accept the plan's payment terms and conditions. However, providers are not required to accept PFFS beneficiaries. Recent press reports and advocates report that at least in some areas beneficiaries are having trouble finding a provider who is willing to accept the plan's payment terms and conditions and provide care to the enrollee. Some of the reasons cited for providers unwillingness to participate in these plans are confusion surrounding payment rates, receiving lower payment rates than traditional Medicare, having difficulty accessing plans terms and conditions, and other administrative hassles related to reimbursement. Although PFFS plans have been around for a decade, enrollment was low enough that most providers were not exposed to these products. With enrollment on the rise, providers are just now becoming familiar with the rules governing these plans. The benefit structure and cost sharing features of some PFFS plans and the proportion of enrollees subject to those features are shown in Table 2 . Many PFFS enrollees are enrolled in plans that have benefit structures or cost sharing that appear more generous than traditional Medicare. For example, 60% of PFFS enrollees are enrolled in a plan with a catastrophic cap on out-of-pocket spending that is between $1,001 and $5,000, whereas traditional Medicare does not have a catastrophic cap. In another example, 68% of PFFS enrollees are enrolled in a plan that covers a 90-day hospital stay for $1,000 or less out-of-pocket. This is considerably less than the $8,432 out-of-pocket cost for a 90-day hospital stay under traditional Medicare. However, PFFS plans are not always more generous than traditional Medicare. Statutorily, the actuarial value of cost sharing for Medicare benefits in MA plans cannot exceed the actuarial value of cost sharing in traditional Medicare. Cost sharing for some services in PFFS plans may be higher than the amounts in traditional Medicare or lower than the amounts in traditional Medicare depending on the service and plan. While HMOs may also have different cost sharing than traditional Medicare, more individuals are familiar with HMOs than with PFFS plans. PFFS plans may be more confusing because beneficiaries expect them to be more similar to traditional Medicare. For example, unlike traditional Medicare, some plans charge an additional co-payment if the beneficiary fails to inform the plan of a scheduled hospital admission. For another example, under some plans, a beneficiary could pay $2,000 more for a hospital admission than they would have paid under traditional Medicare, depending on the length of the admission. Such unexpected variations in cost sharing can be confusing and surprising to beneficiaries. Furthermore, these differences make it unclear whether or not participating in PFFS plans actually save beneficiaries money. It is likely that for some enrollees, total costs would be lower than those they would have incurred had they been participating in traditional Medicare. However, for others, costs may be higher. Additionally, Medicare statutes allow providers participating in PFFS plans, including hospitals, to balance bill enrollees up to 15% above the reimbursement rate set by the plan, subject to the plan's terms and conditions. This is in addition to the plan's co-payments and coinsurance amounts. Despite having the option, PFFS plans do not currently allow physicians to balance bill beneficiaries. In traditional Medicare, most physicians agree not to balance bill. Questionable marketing conduct on the part of PFFS plans has raised concerns among policy makers. Advocates and state health commissioners report receiving complaints related to allegedly deceptive and aggressive sales practices by PFFS plans that have resulted in beneficiaries either being unintentionally enrolled in a PFFS plan or enrolling in a PFFS plan without fully understanding the plan's coverage policies. Between December 2006 and April 2007, CMS reported received approximately 2,700 complaints related to Medicare Advantage plan marketing. On June 15, CMS announced that in response to marketing concerns, seven health insurance plans offering PFFS options agreed to voluntarily suspend their marketing of these plans. These seven plans represent 90% of PFFS enrollment. Before they can resume marketing to beneficiaries, plans must demonstrate their compliance with a series of provisions. CMS has since lifted the suspension for three of these plans allowing them to resume their marketing practices to beneficiaries. Among these provisions are applying CMS-developed disclaimer language on all enrollment and marketing materials, requiring that all sales agents pass a written test to demonstrate product knowledge, conducting verification calls to beneficiaries to ensure they understand the plan and implementing a provider outreach and education program to ensure that providers have reasonable access to the plan's terms and conditions. Violations of these provisions can result in sanctions such as enrollment suspensions and civil monetary penalties. Although state health insurance departments may receive complaints from beneficiaries related to marketing misconduct, CMS maintains sole authority for sanctioning and disciplining plans. By forming networks of providers, local HMOs and Regional PPOs may be better able to manage the utilization and delivery of care furnished by their providers. Plans do this by developing care coordination, disease management, preventive care, and other quality-related programs. Without networks and contracts, PFFS plans have less control over the numbers and types of services provided by their providers, as well as the quality of those services. The same holds for traditional Medicare, which also pays providers on a fee-for-service basis and does not form provider networks. Furthermore, PFFS plans are exempt from having to establish and monitor a quality improvement program, which provides for the collection and ongoing analysis of quality measures related to health outcomes. Although the evidence that managed care plans produce better health outcomes or deliver more cost-effective care is mixed, without consistent quality reporting across all types of health plans, discerning whether higher payments to PFFS plans result in improved quality will be difficult to assess. Significant growth in enrollment in PFFS plans raises concerns among policy makers because payments to PFFS plans are higher than payments to other MA plans and costs in the traditional Medicare program. With enrollment in these plans projected to double over the next 10 years, payments to these plans will increase Medicare spending. Furthermore, differences between PFFS plans and other MA plans have important implications for beneficiaries, the impact of which are not yet fully understood. In the coming months, policy makers will want to assess whether the intended benefits associated with participation in these plans outweigh their added costs. Eligibility and Enrollment (§1851) Residency and service area requirements (§1851(b)) Information requirements (§1851(d)) Benefits and Beneficiary Protections (§1852) Required benefits (§1852(a)) Beneficiary financial liability (including balance billing) (§1852(a) and (k)) Supplemental benefits (§1852(a)) Access to services and networks (§1852(d)) Quality improvement program/quality measurement reporting (§1852(e)) Payments to Medicare Advantage Organizations (§1853, §1854 and §1858) Process for determining monthly payments for part A and B services (§1853 and §1858) Bids (§1853(a-c) and (§1854(a)) Calculation of the benchmark (§1853(a-c) and (§1858(f))) Adjustments to monthly payments (§1853(a-c)) Other payment provisions (§1853(d)) Risk corridors (§1858(c)) Stabilization fund (§1858(e)) Essential hospitals (§1858(h)) Premiums (§1854) Monthly premium for required part A and B services (§1854(b)) Rebates (§1854(b)) Organization and Financial Requirements (§1855) State laws (§1855(a) Part D Prescription Drug Benefits for Medicare Advantage Plans (1860D) Access to MA prescription drug plans (1860D-1) Payment for the prescription drug component of the MA plan (1860D-15) Premiums for the prescription drug component of the MA plan (1860D-13) Part D enrollment for MA plan enrollees (§1860D-1)
|
The Balanced Budget Act of 1997 (BBA, P.L. 105-33) established the Medicare+Choice program (now called Medicare Advantage), creating new options for the delivery of required benefits under Medicare. One of these options is a Private Fee-For-Service plan (PFFS), statutorily defined as a plan that (1) reimburses hospitals, physicians, and other providers on a fee-for-service basis without placing the provider at financial risk; (2) does not vary rates for a provider based on utilization relating to that provider; and (3) does not restrict the selection of providers from among those who are lawfully authorized to provide services and agree to accept the terms and conditions of payment established by the plan. Recently enrollment in PFFS plans has increased dramatically. In April 2003, there were 22,344 Medicare beneficiaries enrolled in one of the three available PFFS plans and one PFFS demonstration program. In April 2004, CMS had contracts with six PFFS organizations, with total enrollment of 31,550. By April 2007, CMS had 47 PFFS contracts and enrollment had jumped to 1.5 million, an increase of over 4,000% in three years. Approximately 18% of all Medicare Advantage beneficiaries are enrolled in a PFFS plan, and CBO projects this number to grow to approximately one-third of all MA enrollment by 2017. Plans operate in nearly all United States counties, giving every Medicare beneficiary access to at least one PFFS plan. The majority of PFFS enrollees reside in urban areas. However, close to half of all rural beneficiaries participating in Medicare Advantage plans are enrolled in a PFFS plan. Unlike coordinated care plans, which tend to serve more densely populated areas, PFFS plans also choose to serve rural areas. PFFS plans may choose their service areas because (1) Medicare private plan payments are higher than the average cost of traditional Medicare in many of the counties a PFFS plan chooses to serve, and (2) PFFS plans are not required to form networks. Establishing and maintaining networks of providers can be costly, particularly in rural areas. Congressional attention to these plans has increased this past year for a number of reasons. First, enrollment in these plans has risen significantly. Second, payments to PFFS plans are typically higher than payments to other managed care plans and higher than expenditures in FFS Medicare. Third, the marketing and sales tactics of PFFS plans has raised concerns related to beneficiary protection. Lastly, PFFS plans are subject to different statutory requirements than other Medicare private plans. This report examines the differences between PFFS plans and other Medicare private plans, specifically local health maintenance organizations (HMOs) and regional preferred provider plans (PPOs). Some of the reasons for growth in PFFS plans are also discussed, as well as advantages and disadvantages of these plans. The report concludes with a brief discussion surrounding current issues.
|
On September 5, Department of Transportation (DOT) Secretary Mary Peters announced that the Highway Trust Fund faced a shortfall as soon as October 2008, due to lower than expected revenues in 2008, and called on Congress to immediately pass legislation transferring general fund revenues to the Trust Fund, a step that the Administration had previously opposed. On July 10, the Senate Committee on Appropriations approved S. 3261 , the FY2009 THUD appropriations bill, and ordered it to be reported. The committee recommended $109.4 billion in funding, $6.6 billion more than the amount requested by the Administration. On June 20, 2008, the House Committee on Appropriations, Subcommittee on Transportation HUD (THUD) marked up an unnumbered draft FY2009 THUD appropriations bill. The date of a full committee markup is unknown, and no bill has yet been reported. According to the subcommittee's press release, the bill would increase funding for a number of housing and transportation programs over the President's request, including the Community Development Block Grant (CDBG) program, housing for the elderly and disabled, public housing (including HOPE VI), Amtrak, the Federal Transit Administration, and grants to airports. On February 5, 2008, the Administration submitted its budget request for FY2009 to Congress. The budget request for both DOT and HUD represented a reduction in funding compared to the non-emergency funding enacted for those agencies in FY2008. Congress faces a difficult challenge in the FY2009 appropriations process. The nation is facing a variety of economic challenges—including a general slowdown in the economy, record high oil prices, and a decline in housing values. The budget deficit for FY2008 is expected to be around $400 billion. The President presented a constrained budget to Congress—the THUD request represented no net increase over the FY2008 level (excluding FY2008 emergency appropriations)—and threatened to veto any appropriations bills that exceed the requested level of funding. Citing last year's appropriations experience, when some in Congress contended that the President refused to negotiate with Congress over the final level of FY2008 appropriations, congressional leaders have been cited in press reports indicating that Congress may not pass many—if any—regular appropriations bills before the end of the 2008 calendar year. Instead, reports indicate that Congress will pass one or more continuing resolutions to keep the government operating after the end of FY2008, and complete the FY2009 appropriations process in calendar year 2009, when it will be dealing with a new Administration. The President's net FY2009 request for the programs covered by this appropriations bill is $102.5 billion (after scorekeeping adjustments). This is $36 million (less than 1%) below the comparable total enacted for FY2008. The DOT request was $63.5 billion, $1.2 billion (2%) below the amount provided for FY2008. It provided a 7% increase for transit funding ($644 million), though that is less than the authorized funding level. The President's FY2009 Budget requests $39.1 billion, a less than 4% increase in total, regular (non-emergency) budget authority for HUD. Following recent trends, the requested increase in budget authority is largely driven by declines in the amount available for rescission (88% decline from FY2008) and projected to be available in offsetting receipts (23% decline from FY2008). The FY2009 request for regular (non-emergency) appropriations—which is the amount available for HUD's programs and activities—represents a slight decline (1.4%) from FY2008. The Administration's FY2009 budget request included funding reductions that had also been proposed by the Administration in previous budget requests, without success. Among the programs proposed for reductions or elimination were DOT highway funding (-$1.8 billion), airport grants (-$764 million), Amtrak (-$525 million), and subsidies for air service to small communities (-$60 million) programs; HUD's Community Development Fund (-$866 million), Housing for the Elderly (-$195 million), and Housing for the Disabled (-$77 million) programs; and HUD's HOPE VI, Rural Housing and Economic Development, Brownfields Redevelopment, and Section 108 Loan Guarantees programs, for which no funding was requested (-$132 million total). Table 1 notes the status of the FY2009 THUD appropriations bill. Table 2 lists the total funding provided for each of the titles in the bill for FY2008 and the amount requested for that title for FY2009. Since 2003, the House and Senate Committees on Appropriations have reorganized their subcommittee structure three times. In 2003, a new subcommittee (Homeland Security) was added; in order to maintain the existing number of subcommittees at 13, the Transportation appropriations subcommittees were combined with the Treasury, Postal Service, and General Government appropriations subcommittees, becoming the Subcommittees on Transportation, Treasury, and Independent Agencies. In early 2005, the House and Senate Committees on Appropriations again reorganized their subcommittee structures. The House Committee on Appropriations reduced its number of subcommittees from 13 to 10. This change included combining the Transportation, Treasury, and Independent Agencies subcommittee with the District of Columbia subcommittee; to the resulting subcommittee, in addition, jurisdiction over appropriations for the Department of Housing and Urban Development and the Judiciary, as well as several additional independent agencies, was added. The subcommittee was then known as the Subcommittee on Transportation, Treasury, Housing and Urban Development, The Judiciary, District of Columbia, and Independent Agencies (or TTHUD). The Senate Committee on Appropriations reduced its number of subcommittees to 12. The Senate also added jurisdiction over appropriations for the Departments of Housing and Urban Development and the Judiciary to the Transportation, Treasury, and Independent Agencies subcommittee. The Senate retained a separate District of Columbia Appropriations subcommittee. As a result, the areas of coverage of the House and Senate subcommittees with jurisdiction over this appropriations bill were almost, but not quite, identical; the major difference being that in the Senate the appropriations for the District of Columbia originate in a separate bill. At the beginning of the 110 th Congress in 2007, the House and Senate Committees on Appropriations again reorganized their subcommittee structures. The House and Senate committees divided the responsibilities of the TTHUD subcommittees between two subcommittees: Transportation, Housing and Urban Development, and Related Agencies (THUD); and Financial Services and General Government, whose jurisdiction included the Treasury Department, the Judiciary, the Executive Office of the President, the District of Columbia, and many of the independent agencies formerly under the jurisdiction of the TTHUD subcommittees. These changes make year-to-year comparisons of Transportation and Housing and Urban Development appropriation bills complex, as their appropriations appear in different bills in combination with various other agencies. Other factors, such as supplemental appropriations for response to disasters (such as the damage caused by the Gulf Coast hurricanes in the fall of 2005) and changes in the makeup of the Department of Transportation (portions of which were transferred to the Department of Homeland Security in 2004), also complicate comparisons of year-to-year funding. Table 3 shows funding trends over the five-year period FY2004-FY2008, and the amounts requested for FY2009, for the Departments of Transportation and Housing and Urban Development. The purpose of Table 3 is to indicate trends in the funding for these agencies. Emergency supplemental appropriations are not included in the figures. The economic and political context within which the FY2009 transportation appropriations process is taking place is tumultuous. The significant rise in the price of fuel for cars, trucks, and commercial jets is having a major impact on components of the transportation industry. The commercial passenger aviation industry is projecting a loss of several billion dollars, and is cutting the number of flights offered and even eliminating some routes, reducing and in some cases eliminating air connections to some communities. Legislation reauthorizing the FAA's programs and activities continues to be debated in Congress. The authorization of the taxes and fees that support the airport and airway trust fund—the primary source of funding for federal aviation programs—was scheduled to lapse at the end of FY2007; these taxes and fees have been kept in force through a series of short-term authorization extensions. At the same time, there is widespread concern about the condition of the nation's infrastructure, a significant component of which is transportation infrastructure. The collapse of an Interstate Highway bridge in Minnesota in August 2007 created concern over the conditions of the nation's bridges. Portions of the Interstate Highway system are reaching the end of their projected 50-year lifespan. These factors, combined with concern over growing levels of traffic congestion, have led to calls for significant increases in spending on transportation infrastructure. The National Surface Transportation Policy and Revenue Study Commission has recommended that the federal surface transportation program be extensively restructured, and that surface transportation investment from all sources be more than doubled from its present level to $225 billion annually. While some in Congress are calling for greater levels of federal spending on transportation infrastructure, the primary source of federal highway funding, the Highway Account of the Highway Trust Fund, is projected to run short of money before the end of FY2009. This was foreseen in SAFETEA-LU, which called for a multi-billion dollar rescission of contract authority at the end of September 2009 to balance the account. But rising gas prices have led consumers to reduce their consumption of fuel, which is reducing the revenues coming in to the Highway Account. Congress is considering legislation that would provide money from the general fund to the Highway Account in order to forestall the Highway Account deficit in FY2009. The President's FY2009 budget requested a total of $64.5 billion for the Department of Transportation (DOT). That was $1.2 billion (-2%) below the level provided for FY2008. The major funding changes requested from the FY2008 enacted levels were an increase of $644 million (7%) for transit; a decrease of $1.8 billion (-4%) in highway funding; a decrease of $525 million (-40%) in Amtrak funding (similar to requested decreases in FY2007 and FY2008 that were rejected by Congress); a decrease of $765 million (-22%) in the Federal Aviation Administration's Airport Improvement Program (similar to requested decreases in FY2007 and FY2008 that were rejected by Congress); and a decrease of $60 million (-54%) in funding for the Essential Air Service Program (similar to requested decreases in FY2007 and FY2008 that were rejected by Congress). The Administration request also proposed restructuring the FAA budget, reflecting the Administration's reauthorization proposal for the FAA. The Administration's request, including as it does over $3 billion in cuts that have been repeatedly requested and repeatedly rejected by Congress, creates a difficulty for appropriators. If the appropriators restore the funding for those programs, even to just the level provided in FY2008, the resulting bill will likely exceed the President's request. Meanwhile, the President has threatened to veto FY2009 appropriations bills that provide more than the requested level of spending. The Highway Trust Fund is the funding source for most federal surface transportation programs. The Fund receives around $38 billion annually, about 90% of which comes from federal taxes on gasoline and diesel fuel. The Fund has two accounts: the Highway Account and the Mass Transit Account. The Highway Account receives about 87% of the revenues to the Fund. The Highway Account provides funds for federal highway programs; the Mass Transit Account provides funds for federal transit programs. The Highway Account was expected to run short on money before the end of FY2009. Nor was this a temporary dip; the Highway Account deficit is projected to increase in subsequent years. This was foreseen in 2005, at the passage of SAFETEA-LU, which authorized more highway funding during the authorization period than projected revenues could support. SAFETEA-LU provided for a rescission of highway funding at the end of FY2009 to prevent the Highway Account from going into the red. However, on September 5, 2008, DOT Secretary Mary Peters announced that the Highway Account was expected to run short of funding as early as October 2008. Since passage of SAFETEA-LU in 2005, expenditures from the Highway Account have exceeded the levels initially authorized, and the revenues to the Account have not kept pace with the revenues forecast, with a sharp drop in revenues during 2008 as record-high gas prices have led motorists to reduce their amount of driving. These events have exacerbated the extent of the deficit projected in 2005. The Highway Account will still be receiving revenues in 2009, but the expenditures from the account will exceed the level of revenues received. The Administration has announced that beginning in September it will slow the rate at which highway funds are transferred to the states to a level that the Highway Account can sustain. On July 14, 2008, the Senate Committee on Appropriations reported out an FY2009 THUD appropriations bill, which included a recommendation that $8 billion be transferred from the general fund of the Treasury to the Highway Trust Fund to cover the shortfall. The House passed separate legislation ( H.R. 6532 ) on July 23, 2008, to do the same. The Administration threatened to veto the House bill on the grounds that it unnecessarily increases the federal deficit, alters the "user-fee" principle of the Highway Trust Fund, and jeopardizes any hope of constraining future federal highway spending. However, in the face of the immediate shortfall in funding, the Administration has now called on Congress to pass legislation transferring funds to the Highway Account as soon as possible. The FAA budget provides both capital and operating funding for the nation's air traffic control system, and also provides federal grants to airports for airport planning, development, and expansion of the capacity of the nation's air traffic infrastructure. The President's budget requests $14.6 billion in new funding for FY2009. This is $152 million (-1%) less than the amount of new funding provided in FY2008. The Senate Committee on Appropriations recommended $15.4 billion for FY2009, an increase of $788 million over the amount requested. Most of that increase is for the Airport Improvement grant program. It is difficult to compare the requested funding level for operations (the largest FAA account) and facilities & equipment with the previous year's funding, because the budget request categorizes the FAA funding differently than the FY2008 appropriation, reflecting the Administration's FAA reauthorization proposal. The Administration request does include a cut to the Airport Improvement grant program. The President's budget proposed a cut of $764 million to AIP funding, from $3.51 billion in FY2008 to $2.75 billion for FY2008. A similar cut was proposed by the Administration for FY2007 and for FY2008; neither cut was supported by Congress. AIP funds are used to provide grants for airport planning and development, and for projects to increase airport capacity (such as construction of new runways) and other facility improvements. The Senate Committee on Appropriations rejected the proposed cut, recommending $3.5 billion, the same amount as provided in FY2008. The President's budget requested $50 million for the Essential Air Service program, a $60 million (54%) reduction from the $110 million provided for FY2008. A similar decrease was proposed by the Administration for FY2007 and FY2008; both were rejected by Congress. The Senate Committee on Appropriations recommended $110 million, the same amount provided for FY2008. This program seeks to preserve air service to small airports in rural communities by subsidizing the cost of that service. Supporters of the Essential Air Service program contend that preserving airline service to rural communities was part of the deal Congress made in exchange for deregulating airline service in 1978, which was expected to reduce air service to rural areas. Some Members of Congress have expressed concern that the proposed cut in funding for the Essential Air Service program could lead to a reduction in the transportation connections of rural communities. Previous budget requests from the current Administration, as well as budget requests from previous Administrations, have proposed reducing funding to this program. The President's budget requested $40.1 billion in new funding for federal highway programs for FY2009, a cut of $1.8 billion (-4%) below the comparable level of $42.0 billion provided in FY2008. This is also $800 million below the $41.2 billion authorized funding level for FY2009 that is "guaranteed" by SAFETEA-LU ( P.L. 109-59 ). The $1.8 billion proposed reduction is made up of two components. First, SAFETEA-LU provides a mechanism, known as RABA ('Revenue Aligned Budget Authority'), for adjusting the authorized highway funding level up or down to reflect the level of income received by the Highway Trust Account. In FY2008, the authorized level was increased by $631 million as a result of the RABA adjustment. The Administration estimates that RABA calls for a $1.0 billion reduction in the authorized level for FY2009, reflecting declining receipts to the Account. Second, based on the FHWA Administrator's overview, it appears that $800 million of the difference was FHWA's share of a $1 billion reduction to adjust for the extra $1 billion in Highway Bridge Program obligations provided by appropriators in FY2008. The overview argues that without the reduction, the total obligation level provided over the full life of SAFETEA-LU would have exceeded the $286.4 billion grand total of guaranteed funding provided for in the act and agreed to by the Administration. The Senate Committee on Appropriations rejected both the $1.0 billion called for by the RABA mechanism in SAFETEA and the $800 million cut requested by the Administration, recommending $42.1 billion for FY2009. The committee also rejected the Administration proposal to cover the projected FY2009 Highway Account deficit by transferring funds from the Mass Transit Account; instead, the committee recommended $8 billion from the general fund to the Highway Account. The Administration requested the authorized level of funding for FMCSA, $541 million. This is $11 million (2%) over the amount provided for FY2008. $307 million of the request is for grants to states to enforce commercial truck and bus safety regulations. The Senate Committee on Appropriations recommended the same level. The FY2008 THUD appropriations act included a provision (Section 136) that prohibited any funds in the act from being used to "establish" a cross-border trucking demonstration program allowing Mexican trucking companies to operate beyond the commercial zone (a zone extending 20 miles into the United States from the U.S.-Mexico border). The DOT had implemented such a program on September 7, 2007, shortly before the beginning of the 2008 fiscal year. DOT continued to operate the program after passage of the FY2008 act, contending that FY2008 funding used for the program would not be used to establish the program, but to continue its operation. The Sierra Club and the Teamsters Union have sued to stop the pilot program; the case is under consideration. Congress has reiterated its opposition to the program; the Senate Committee on Appropriations recommended language that would terminate funding for the program. The DOT has announced that so far Mexican trucks and drivers participating in the program have safety compliance rates equal to or better than U.S. commercial truckers, and that it intends to continue the program for two more years, as allowed under law. The DOT notes that participation in the program has been less than expected, due to the reluctance of trucking companies to make the necessary investments in the face of uncertainty about the pilot program's length, and expects that the extension will encourage more companies to participate. The Administration requested $851 million for NHTSA, the amount authorized for FY2009. This is an increase of $13 million (2%) over the amount provided for FY2008. $600 million of this amount is for grants to states for highway safety programs to reduce deaths and injuries from motor vehicle crashes. The Senate Committee on Appropriations recommended $855 million, adding $4 million to the Administration request for the operations and research account. NHTSA's primary mission is to improve highway safety. Highway fatalities are the leading cause of death for Americans between the ages of 3 and 34. There were 42,642 highway fatalities in 2006, but since the number of drivers and the number of miles driven increases almost every year, the standard measure for highway safety is the fatality rate—the number of fatalities per 100 million vehicle miles traveled (VMT). The committee noted that NHTSA does not appear to be on track to achieve its goal of reducing the rate of highway fatalities to 1.0 fatality per 100 million VMT by 2011. The rate has gone down, from 1.51 fatalities per 100 million VMT in 2001 to 1.41 in 2006, but remains above NHTSA's target for each year. One category of highway fatality—motorcycle fatalities—has been increasing, rather than decreasing, since 2001. The most effective motorcycle safety policy is requiring that all motorcyclists wear helmets meeting safety standards. Some motorcyclists are strongly opposed to being required to wear helmets. At times Congress has penalized states that did not have mandatory helmet laws by withholding or restricting the use of some of their federal highway funding, which resulted in near-universal adoption of mandatory helmet laws by states. Congress repealed such a provision in 1995; now about twenty states have universal mandatory helmet laws. In 1998 Congress also forbade DOT from lobbying states to adopt traffic safety laws. The Senate Committee on Appropriations recommended that an exception be made to this prohibition for the purpose of reducing motorcycle fatalities (Section 104). The Administration requested $1.091 billion for FRA for FY2009. This is a cut of $471 million (-30%) from the $1.561 billion provided for FY2008. The Senate Committee on Appropriations recommended $1.816 billion. The largest portion of FRA's budget goes to support Amtrak. Amtrak funding was also the source of almost all the variance in the Administration's proposal and the Senate committee's recommendation. The Administration requested $800 million for Amtrak, a cut of 40% ($525 million) from FY2008. The Senate committee recommended $1.5 billion for Amtrak, plus another $100 million for an incentive grant program to encourage states to make investments in improving passenger rail service (Congress provided $30 million for this program in FY2008, its first year of funding; the Administration did not request any funding for this program for FY2009). Congress is also considering reauthorization of Amtrak; reauthorization legislation has been passed by both the House and the Senate. Both bills would authorize considerably more funding for Amtrak and intercity passenger rail activities than Congress has provided in recent years—between $2 and $3 billion annually, compared to $1.3 billion. Authorizing funding is not the same as appropriating the money, however, and it is not clear that additional funding on that scale would be available. Most DOT funding comes from the aviation and highway trust funds; within the THUD bill, Amtrak has to compete with a few other transportation programs and with the HUD programs for general funds, and these programs are also seeking increased funding. The next largest portion of FRA's budget is for safety programs intended to reduce railroad accidents. The Administration requested $157 million, $7 million (4%) more than provided for in FY2008; the Senate committee recommended $159 million. The other component of the FRA budget is research and development of rail safety improvements. The Administration requested $34 million for this, $2 million (6%) less than the $36 million provided for in FY2008; the Senate committee also recommended $34 million. In FY2008 Congress also provided $20 million for a rail line relocation and improvement program established in SAFETEA-LU that had not previously been funded. The Administration did not request any money for this program in FY2008 or in FY2009. The Senate committee recommended $25 million for FY2009. The Administration requested $10.135 billion for FTA for FY2009. This is an increase of $644 million (7%) over the amount provided for FY2008, but is $203 million below the authorized FY2009 funding level of $10.338 billion. The Senate Committee on Appropriations recommended $10.226 billion. Virtually all of FTA's funding goes to state and local transportation authorities to support bus, commuter rail, subway, and light rail transit services; most of this goes out through formula grant programs. The Senate committee recommended $100 million less than the requested level for the formula grant programs and the bus grant program (the largest transit discretionary grant program), and $188 million more than requested for the New Starts program, which funds new fixed-guideway transit systems and extensions to existing systems. The Administration requested $313 million for MARAD for FY2009, $7 million (2%) above the $307 million enacted for FY2008. The Senate Committee on Appropriations recommended $345 million. The primary change from the requested level was the Senate committee's recommendation of $20 million for assistance to small shipyards; Congress provided $10 million for this in FY2008—its first year of funding, after being authorized in 2006—and the Administration did not request any funding for this program for FY2009. The program provides grants and loans to small shipyards for capital improvements. MARAD supports the maritime transportation sector. The largest components of its budget are the Maritime Security Program and Operations and Training. The Administration requested $174 million for the Maritime Security Program, an $18 million (12%) increase over FY2008. This program provides payments of roughly $2.6 million per ship to retain a fleet of 60 active, militarily useful, privately owned vessels to be available to the federal government in the event they are needed for security purposes. A total of $118 million was requested for Operations and Training, $4 million (-3%) less than provided for FY2008. This program funds the U.S. Merchant Marine Academy, State Maritime Schools, and MARAD's operations. Most of the funding for the activities of the Department of Housing and Urban Development (HUD) comes from discretionary appropriations provided each year in the annual appropriations acts enacted by Congress. 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 the poor, elderly, and/or disabled. Three rental assistance programs—Public Housing, Section 8 Vouchers, and Section 8 project-based rental assistance—account for the majority of the Department's non-emergency funding (more than 75% in FY2008). Two flexible block grant programs, HOME and Community Development Block Grants, help communities finance a variety of housing and community development activities designed to serve low-income families. Other, more specialized, block grants help communities meet the needs of homeless persons, including those with AIDS. In recent years, HUD has also focused more attention on efforts to increase the homeownership rates for lower-income and minority households, with programs providing funding for downpayment assistance and housing counseling. HUD's Federal Housing Administration (FHA) insures mortgages made by lenders to lower-income home buyers, many with below-average credit records, and to developers of multifamily rental buildings containing relatively affordable units. FHA collects fees from insured borrowers, which are used to sustain the insurance fund and offset its administrative costs. Surplus FHA fees have been used to offset the cost of the HUD budget. HUD's budget is comprised of several types of funding. Regular, annual appropriations fund the activities of the Department. Offsetting collections and receipts (such as those from FHA) and rescissions of unobligated balances from prior years' funding offset the cost to Congress of the appropriations. In some years, Congress also provides emergency appropriations (such as in response to disasters) through HUD. The total of appropriations, offsetting receipts and collections, rescissions, and emergency appropriations determine HUD's net budget authority. This section of the report provides an overview of FY2009 funding for HUD. It is largely summarized from a more detailed report, CRS Report RL34504, The Department of Housing and Urban Development: FY2009 Appropriations . Readers seeking an expanded discussion of HUD funding issues, including an overview of recent trends, should see CRS Report RL34504. Table 5 presents the President's FY2009 budget request for HUD compared to the prior year's enacted budget authority and the Senate Appropriations Committee-reported funding levels. (Housing Appropriations Subcommittee-passed figures are not currently publicly available and are therefore not included in Table 5 .) Four totals are given in Table 5 : "budget authority provided" and "available budget authority," both including and excluding emergency appropriations. Total budget authority provided includes current year appropriations, plus advance appropriations provided in the current fiscal year for use in the next fiscal year; total available budget authority includes current year appropriations, plus advance appropriations provided in the prior fiscal year for use in the current fiscal year. Congress is scored by the Congressional Budget Office (CBO) for the amount of available budget authority in an appropriations bill; however, the Appropriations Committees' documents often discuss budget authority provided . The President's FY2009 Budget requested $39,075 million, a less than 4% increase in total, regular (non-emergency) budget authority for HUD. Following recent trends, the requested increase in budget authority is largely driven by declines in the amount available for rescission (88% decline from FY2008) and projected to be available in offsetting receipts (23% decline from FY2008). The FY2009 request for regular (non-emergency) appropriations—which is the amount available for HUD's programs and activities—represents a slight decline (1.4%) from FY2008. The following section of the report provides a summary of key issues in HUD's FY2009 budget. For a more detailed examination, readers should see CRS Report RL34504, The Department of Housing and Urban Development: FY2009 Appropriations . The tenant-based rental assistance account funds the Section 8 Housing Choice Voucher program. The Section 8 voucher program funds rental assistance for low-income families that they can use to reduce their housing costs in the private market. The program is funded by HUD, but administered at the local level by quasi-governmental local public housing authorities (PHAs). This account funds the annual renewal of the roughly 2 million vouchers authorized by Congress, as well as their associated administrative costs, and, in some years, new vouchers. (For more information on the Section 8 voucher program, see CRS Report RL32284, An Overview of the Section 8 Housing Programs and CRS Report RL34002, Section 8 Housing Choice Voucher Program: Issues and Reform Proposals in the 110 th Congress , by [author name scrubbed].) The tenant-based rental assistance account is the largest in HUD's budget. In recent years, it has also been the source of the most contention in HUD's budget. Primarily, attention has been focused on whether the amount of funding provided for voucher renewals is sufficient to fund all of the vouchers authorized by Congress and/or in use by families, and how that renewal funding is to be allocated to PHAs. (While there is a statutory formula for allocating voucher funds to PHAs, it has been overridden in recent years by formulas adopted by Congress in the appropriations acts.) The amount available for voucher renewals each year is made up of two parts: current year appropriations, and advance appropriations provided in the prior year that become available in the current year. For FY2009, the President requested $11,881 million in current year funding for voucher renewals as well as $4,000 million in advance appropriations for use in FY2010. This request represents a decrease from the $12,233 million in current year funding provided in FY2008 and a decrease from the $4,158 million in advance appropriations provided in FY2008 for use in FY2009. Combined, the President's request would result in $16,039 million in available budget authority for FY2009 (current year funding plus prior year advance) and $15,881 million in budget authority provided for FY2009 (current year funding plus advance for subsequent year). This represents an increase from the $15,703 million available in FY2008, but a decrease from the $16,391 million provided in FY2008. HUD's FY2009 budget documents estimate that the amount of funding requested would be sufficient to renew all of the vouchers in use. (For a more detailed discussion, see CRS Report RL34504, The Department of Housing and Urban Development: FY2009 Appropriations .) The President's FY2009 budget also requested that Congress change the way that it provides renewal funding to PHAs. Specifically, it requested that PHAs be provided funding based on the amount of funding they received in the previous year. This would be a change from the FY2008 funding formula, which funded PHAs based on their costs and voucher usage (referred to as utilization) over the prior year. This debate—over whether to fund PHAs based on the budget they received in the prior year or based on their expenses—has gone back and forth since FY2003. For a detailed discussion of this issue, see CRS Report RL33929, Recent Changes to the Section 8 Voucher Renewal Funding Formula . Finally, the President's budget requested $39 million to fund new incremental vouchers for elderly and disabled families who were displaced by the 2005 hurricanes and whose FEMA-funded rental assistance will be ending in March 2009. The budget also requested $75 million for new incremental vouchers for homeless veterans. The combined total for new vouchers ($114 million) would be less than the amount provided in FY2008 ($125 million). S. 3261 , as reported by the Senate Appropriations Committee, would provide $12,503 million in current year funding for the tenant-based rental assistance account and $4,200 million in advance appropriations for use in FY2010. S. 3261 would also rescind $800 million from the advance appropriation provided in FY2008 for use in FY2009. Combined, the Senate bill would result in $15,861 million in available budget authority for FY2009 (current year funding plus prior year advance, less rescission) and $16,703 million in budget authority provided for FY2009 (current year funding plus advance for subsequent year). This represents an increase from the $15,703 million available in FY2008 and an increase from the $16,391 million provided in FY2008. It represents a decrease from the $16,309 million in available budget authority requested by the President for FY2009, but an increase from the $15,881 billion in budget authority that would be provided by the President's FY2009 budget request. S. 3261 would allocate renewal funding using a formula similar to the one in place in FY2008, rather than the formula requested by the President. It also includes $134 million in funding for new incremental vouchers, more than requested by the President and provided in FY2008. The project-based rental assistance account provides funding to renew, amend, and cover administrative expenses for the more than one million rental assistance contracts between private property owners and HUD. These contracts allow low-income tenants that live in the assisted properties to pay reduced rents. The program under which these contracts are authorized is commonly referred to as project-based Section 8. In July 2007, HUD stopped making payments to property owners with project-based contracts. Due to a change in interpretation regarding how HUD was to provide renewal funding, HUD determined it did not have sufficient funding to meet its contractual obligations. A negotiation with the Office of Management and Budget, and revisions to the contract language between HUD and property owners, allowed HUD to resume payments (including retroactive payments). However, this "shortfall" raised concerns among some Members of Congress—several committees held hearings on the topic—and industry groups representing property owners. For FY2009, the President's budget requested $7,000 million for the project-based rental assistance account, an increase from the $6,382 million provided in FY2008. Further, the budget requested $400 million in advance appropriations to be provided in FY2009 for use in FY2010. If approved, it would be the first time an advance appropriation was to be used in this account. HUD's budget documents indicate that the Department believes that its request ($7,400 million) would be sufficient to meet the Department's contractual obligations; industry groups contend that in order to "fully fund" its contractual obligations, HUD would need another roughly $2,000 million in FY2009. S. 3261 , as reported by the Senate Appropriations Committee, included $6,700 million in current year appropriations for the project-based rental assistance account (less than the President's request; more than FY2008) and $1,750 million in advance appropriations to become available in FY2010 (more than four times the amount requested by the President). The Senate committee report ( S.Rept. 110-415 ) noted that the increased funding would not be sufficient to fund all contracts for 12 months, but would "restore some stability to the program by allowing the Department to enter into longer-term contracts with owners." For an expanded discussion of this issue, see CRS Report RL34504, The Department of Housing and Urban Development: FY2009 Appropriations . Each year since FY2003, the President has requested no new funding for the HOPE VI public housing revitalization program. In response, each year, Congress has continued to fund the program. Up until FY2003, the program was generally funded at just under $600 million, although in recent years its funding level has generally been around $100 million. HUD's Congressional Budget Justifications criticize the program for a slow expenditure of grant funds and also note that PHAs are able to use their capital fund grants to leverage resources in much the same way HOPE VI grants are used to leverage additional resources, making HOPE VI less necessary. Proponents of HOPE VI cite the program's transformative effects on severely distressed communities. S. 3261 , as reported by the Senate Appropriations Committee, rejects the President's proposal to eliminate funding and would provide $100 million for HOPE VI in FY2009. The bill would also extend the statutory authorization for the program through the end of FY2009; it is currently slated to sunset at the end of FY2008. (For additional information, see CRS Report RL32236, HOPE VI Public Housing Revitalization Program: Background, Funding, and Issues .) The Community Development Fund (CDF) account funds the Community Development Block Grant (CDBG) program, a formula grant to states and localities that funds community development activities. In addition, the CDF has funded other community development-related programs in past years, including the Economic Development Initiatives and Neighborhood Initiative demonstrations. The President's FY2009 budget recommendation of $2,927 million for the formula portion of CDBG is $659 million (18.4%) less than the $3,586 million appropriated for distribution to communities and states in FY2008. In addition, the President's FY2009 budget request stated that the Administration would seek to reform the CDBG program during the 110 th Congress by again offering Congress a proposal that was first unveiled during the 109 th Congress, namely, the Community Development Block Grant Reform Act. S. 3261 , as reported by the Senate Appropriations Committee, would provide $3,586 million for CDBG formula grants, more than the President's request and the same as the FY2008 funding level. In addition to requesting reduced funding for CDBG formula grants, the Administration's FY2009 budget proposed eliminating funding for several other community development related programs, including Rural Housing and Economic Development Grants, Community Development Block Grant Section 108 loan guarantees, and Brownfields Economic Development Initiatives. The budget characterized these programs as duplicative of the activities funded by the CDBG formula grant program. The President's budget also requested no new funding for the Economic Development Initiatives (EDIs) and Neighborhood Initiatives (NIs) demonstration programs—which Congress has used to fund congressionally-directed projects in recent years—and asked that Congress rescind the funding provided to these projects in FY2008. S. 3261 , as reported by the Senate Appropriations Committee, would reject most of the President's proposals to eliminate funding for community and economic development programs. It would fund Rural Housing and Economic Development Grants, Section 108 loan guarantees, and EDI and NI earmarks. However, S. 3261 would not provide any new funding for the Brownfields Economic Development Initiatives program. The HOME Investment Partnerships Program provides formula-based block grant funding to states, units of local government, Indian tribes, and insular areas to fund affordable housing initiatives. The President's FY2009 budget requested a $275 million increase in funding for HOME formula grants. HUD's Congressional Budget Justifications identify the HOME program as key to the President's goal of increasing homeownership opportunities, especially for minorities. They also cite the program's relatively strong rating from the Office of Management and Budget's (OMB) Program Assessment and Rating Tool evaluation. According to HUD's Congressional Budget Justifications, OMB found that the program "has a clear purpose, strong management, and can demonstrate results." S. 3261 , as reported by the Senate Appropriations Committee, would provide $34 million more for HOME formula grants than the President's request. Formerly known together as Housing for Special Populations, the Section 202 Housing for the Elderly program and the Section 811 Housing for Persons with Disabilities program provide capital grants and ongoing project rental assistance contracts (PRAC) to developers of new subsidized housing for these populations. In FY2009, the Administration's budget recommended reducing the overall funding level for the programs that provide housing and services for elderly households (defined by HUD as those with a head of household or spouse age 62 or older). The President's request would cut funding for these programs by nearly $200 million, from $735 million in FY2008, to $540 million in FY2009. The President's budget also proposed to reduce funding for the Section 811 Housing for Persons with Disabilities program in FY2009 to $160 million, down from $237 million in FY2008. S. 3261 , as reported by the Senate Appropriations Committee, rejected the President's proposed funding cuts and would provide $765 million for Section 202 and $250 million for Section 811. The FHA administers a variety of mortgage insurance programs that insure lenders against loss from loan defaults by borrowers. Through FHA insurance, lenders make loans that otherwise may not be available, and enable borrowers to obtain loans for home purchase and home improvement, as well as for the purchase, repair, or construction of apartments, hospitals, and nursing homes. The programs are administered through two program accounts: the Mutual Mortgage Insurance/Cooperative Management Housing Insurance fund account (MMI/CMHI) and the General Insurance/Special Risk Insurance fund account (GI/SRI). The MMI/CMHI fund provides insurance for home mortgages. The GI/SRI fund provides insurance for more risky home mortgages, for multifamily rental housing, and for an assortment of special-purpose loans such as hospitals and nursing homes. (For more information, see CRS Report RS20530, FHA-Insured Home Loans: An Overview .) In past years, receipts to the MMI fund have exceeded expenses, so the MMI fund did not need appropriations for a credit subsidy, and had excess receipts that were used to offset the cost of the HUD budget. The FY2009 Budget estimates that, if no programmatic changes are made, the MMI fund would need either a credit subsidy or increases in insurance premiums to continue operation. The Budget proposes to permit FHA to set insurance premiums based on the risk that the borrowers pose to the insurance fund, and it proposes to set the rate at a level that would avoid the need for subsidy appropriations. Barring the authority to establish risk-based premiums, the President's budget proposed that FHA would use its existing authority to increase the insurance premiums charged to borrowers. The budget assumes that the increased premiums coupled with legislative and programmatic changes would avoid the need for credit subsidy appropriations. (For an expanded discussion, see CRS Report RL34504, The Department of Housing and Urban Development: FY2009 Appropriations .)
|
The FY2009 Transportation, Housing and Urban Development, and Related Agencies appropriations bill (THUD) provides funding for the Department of Transportation (DOT), the Department of Housing and Urban Development (HUD), and five independent agencies related to those two departments. The Bush Administration requested net budgetary authority of $102.5 billion (after scorekeeping adjustments) for FY2009, a cut of $36 million (less than 1%) from the comparable FY2008 level. DOT would receive a net total of $63.5 billion, a cut of $1 billion from the comparable FY2008 level. HUD would receive $39.1 billion, an increase of 4% ($1.4 billion) over the comparable FY2008 level. However, the requested increase in net budget authority for HUD is largely attributable to a decline in the amount available to offset new funding in the HUD budget. The President's budget request would actually result in an overall decline in non-emergency appropriations for HUD's programs and activities of just over 1% from the FY2008 level. The House Committee on Appropriations Subcommittee on THUD reportedly marked up a draft FY2009 THUD appropriations bill on June 20, 2008. The details of that draft have not been made public. The full committee has not yet marked up the bill, and it is not clear that it will do so. The Senate Committee on Appropriations marked up an FY2009 THUD bill, S. 3261, on July 10, 2008. The Senate committee recommended $109.4 billion, $6.6 billion more than the Administration requested. Congressional leaders have been quoted in press reports indicating that they will not try to enact most of the FY2009 appropriations bills, including the THUD bill, until sometime after the next Administration has taken office in 2009. In the meantime, they reportedly intend to provide FY2009 funding for most federal agencies, including those in the THUD bill, through one or more continuing resolutions. Among the THUD appropriation issues facing Congress is the impending deficit in the Highway Trust Fund. The portion of the Fund that provides money for federal highway programs has long been projected to have a $3 billion deficit by the end of FY2009; the portion that provides money for transit projects is projected to run a deficit in FY2011. The House passed separate legislation (H.R. 6532) to transfer $8 billion from the general fund to the Highway Trust Fund to prevent the FY2009 shortfall. This legislation was opposed by the Administration. However, on September 5, 2008, the Administration announced that revenues to the Fund had declined more than expected in recent months, resulting in the Fund facing a shortfall as early as October 2008. The Administration is now urging Congress to immediately pass the legislation transferring money to the Highway Trust Fund. This report will be updated.
|
The fluoridation of drinking water often generates both strong support and opposition within communities. The practice is recommended by the U.S. Department of Health and Human Services (HHS) to prevent tooth decay. The decision to fluoridate a public water supply is made by the state or local municipality and is not mandated by any federal agency. Opponents have expressed concern regarding potential adverse health effects of exposure to fluoride, and some view the practice as an undemocratic infringement on individual freedom. The medical and public health communities generally have supported water fluoridation, citing it as a safe, effective, and equitable way to provide dental health protection community-wide. With the increased use of products containing fluoride, such as toothpaste and rinses, questions have emerged as to whether current fluoridation practices and levels are necessary and offer the most appropriate way to provide the beneficial effects of fluoride while avoiding adverse effects (such as tooth mottling or dental fluorosis) that can result from exposure to too much fluoride. Moreover, research gaps regarding the potential health effects of exposure to increased amounts of fluoride and among different age groups continue to add controversy to decisions regarding water fluoridation. Although many communities add fluoride to drinking water to strengthen teeth, others must treat their water to remove excess amounts of fluoride, which often is present naturally in water. The Environmental Protection Agency (EPA) regulates the maximum amount of fluoride that may be present in public drinking water supplies to protect against certain adverse health effects. In 1986, EPA issued a drinking water regulation for fluoride that includes an enforceable standard (a maximum contaminant level, or MCL) and a non-enforceable health-based maximum contaminant level goal (MCLG) of 4 milligrams per liter (mg/L) to protect against adverse effects on bone structure. EPA acknowledged that the standard did not protect infants and young children against dental fluorosis, which EPA considered a cosmetic effect rather than a health effect. To address concerns, EPA included in the regulation a secondary (advisory) standard of 2 mg/L to protect children against dental fluorosis and adverse health effects. As part of its ongoing review of the fluoride regulation, EPA asked the National Research Council (NRC) of the National Academy of Sciences to review the health risk data for fluoride and to assess the adequacy of EPA's standards. On March 22, 2006, NRC released its study and concluded that EPA's 4 mg/L MCLG should be lowered. This report discusses the potential benefits and adverse effects associated with the fluoridation of drinking water supplies. It also discusses the regulation of fluoride in drinking water to protect against adverse health effects from exposure to higher levels of fluoride, and it reviews the status of federal efforts to update the health risk assessment for fluoride and the primary drinking water standard for fluoride. The following review of issues related to fluoride in drinking water presents information from research published in peer-reviewed scientific journals, reports, and statements of federal agencies—including EPA and the Centers for Disease Control and Prevention (CDC) and the U.S. Public Health Service (PHS) within the Department of Health and Human Services (HHS)—and the World Health Organization, studies by the National Research Council, and other sources. Fluoride is a naturally occurring substance and is present in virtually all water, usually at very low levels. Higher concentrations of naturally occurring fluoride often are associated with well water, where fluoride has dissolved from the rock formations into the groundwater. Community water fluoridation began in 1945, after scientists discovered that higher natural levels of fluoride in a community water supply were associated with fewer dental caries (cavities) among the residents. In 2010, CDC reported that more than 204.2 million (73.9%) of the people in the United States who received their water from public water systems received fluoridated water. Of the total U.S. population, 66.2% received fluoridated water. In 2004, more than 170 million (67%) people served by public water systems received fluoridated water. Many public health agencies and professional health organizations have advocated the addition of a small amount of fluoride to drinking water to help strengthen teeth and prevent dental caries. Although this practice has been controversial in various communities, CDC, the American Medical Association, the American Dental Association (ADA), the American Academy of Pediatric Dentistry, and others have recommended fluoridation of public water supplies as an effective way to protect dental health. This approach has been advocated for its ability to provide community-wide benefits, particularly in poorer communities where children may be less likely to receive adequate dental care. CDC considers the reduction in tooth decay from fluoridation one of the top public health achievements of the 20 th Century. In 2002, CDC reported that "During the second half of the 20 th century, a major decline in the prevalence and severity of dental caries resulted from the identification of fluoride as an effective method of preventing caries. Fluoridation of the public water supply is the most equitable, cost-effective, and cost-saving method of delivering fluoride to the community." One of CDC's national health goals is to increase the proportion of the U.S. population served by community water systems with "optimally" fluoridated drinking water to 79.6% by 2020. The optimal fluoridation level that has long been recommended by PHS for decay prevention is in the range of 0.7 to 1.2 milligrams per liter (mg/L). The World Health Organization (WHO) has identified dental caries (cavities) as a worldwide epidemic and recommends adding fluoride to drinking water where naturally occurring levels of fluoride are below optimal levels. The WHO states that the goal of community-based public health programs "should be to implement the most appropriate means of maintaining a constant low level of fluoride in as many mouths as possible." According to the WHO, [w]ater fluoridation in low fluoride-containing water supplies helps to maintain optimal dental tissue development and dental enamel resistance against caries attack during the entire life span.... People of all ages, including the elderly, benefit from community water fluoridation. For example, the prevalence of caries on root surfaces of teeth is inversely related to fluoride levels in the drinking water: in other words, within the non-toxic range for fluoride, the higher the level of fluoride in water, the lower the level of dental decay. This finding is important because with increasing tooth retention and an aging population, the prevalence of dental root caries would be expected to be higher in the absence of fluoridation. The recommended beneficial amount of fluoride can be obtained from a variety of sources other than water (e.g., fluoride toothpastes, rinses, and supplements). However, health officials historically have recommended fluoridation of community water supplies, citing socioeconomic reasons that may vary among countries and communities. The WHO explains this preference as follows: The consensus among dental experts is that fluoridation is the single most important intervention to reduce dental caries, not least because water is an essential part of the diet for everyone in the community, regardless of their motivation to maintain oral hygiene or their willingness to attend or pay for dental treatment. In some developed countries, the health and economic benefits of fluoridation may be small, but particularly important in deprived areas, where water fluoridation may be a key factor in reducing inequalities in dental health. Despite such recommendations, fluoridation remains far from universally practiced. Worldwide, an estimated 370 million people receive artificially fluoridated water, and another 50 million drink water that is naturally fluoridated at or near the optimal level. Overall, some 30 countries practice water fluoridation, and the percentage of populations receiving artificially fluoridated water varies greatly. Countries where fluoridation is practiced (and the percentage of their populations receiving fluoridated water) include Argentina (21%), Australia (61%), Brazil (41%), Canada (43%), Chile (40%), Colombia (80%), Israel (75%), Malaysia (70%), New Zealand (61%), and Singapore (100%). Of the Western European countries, the Republic of Ireland (73%), Spain (10%), and the United Kingdom (10%) fluoridate drinking water. Most other Western European countries have ceased, or never practiced, water fluoridation for various reasons, including the availability of other sources of fluoride (especially toothpaste), the availability of free school-based dental care programs in some countries, broader public skepticism about the safety and efficacy of fluoridation, and greater political opposition. In several Latin American countries, where centralized water supplies are often lacking, fluoridated salt is the chosen method of providing dental protection across disparate communities. Fluoridated salt also is available in some European countries, including Austria, France, Germany, Hungary, and Switzerland. Water fluoridation has generated less opposition in the United States than in Europe. However, notwithstanding recommendations from many governmental and professional health organizations, this practice continues to generate controversy in some U.S. communities. Research gaps regarding the effects of long-term exposure to increased levels of fluoride fuel this debate, and decades into this practice, the safety and efficacy of water fluoridation continues to be questioned, debated, and studied. Some oppose water fluoridation because of a concern that even recommended "optimal" levels of fluoridation may cause some dental fluorosis in children. Dental fluorosis is caused by excessive fluoride intake while teeth are developing, and it is during this period before teeth erupt that dental tissues are very sensitive to fluoride (typically during a child's first eight years). Mild dental fluorosis is characterized by opaque white or stained patches in the dental enamel. More severe fluorosis is characterized by pitting of tooth enamel. In the 1960s, when PHS recommended an "optimal" fluoride concentration in water of 0.7 to 1.2 mg/L, this level was intended to "maximize prevention of caries while limiting the prevalence of dental fluorosis to about 10% of the population, virtually all of it mild to very mild." Because of the increased use of fluoridated dental products and the tendency for young children to swallow these products, concern over dental fluorosis and other potential effects of fluoride ingestion has increased. Questions have arisen as to whether current fluoridation practices and levels offer the most appropriate ways to provide the expected beneficial effects of fluoride while avoiding adverse effects that can result from ingesting too much fluoride. As noted by NRC in 1997, "In addition to fluoride in drinking water, people also can ingest fluoride in toothpaste, mouth rinse, and dietary fluoride supplements or in beverages and foods prepared with fluoridated water. As a result, many Americans might ingest more 'incidental' fluoride than was anticipated by the PHS and by EPA in recommending standards for drinking water." According to a 2002 study, fluorosis prevalence among schoolchildren in the 1980s ranged from 18% to 26%, depending on the analytical index used. The authors further estimated that approximately 2% of U.S. schoolchildren may experience "perceived esthetic problems" that could be attributable to currently recommended levels of fluoride in drinking water combined with fluoride toothpaste consumption. However, the authors noted that data were not available for other potential fluoride exposures resulting from the ingestion of fluoridated toothpaste and diluted infant formula consumption, and that consequently, the risk of fluorosis attributable to fluoridation of public water supplies may be overestimated if fluoride consumption was higher in fluoridated areas. The researchers concluded that in determining the optimal fluoridation policy, the prevalence of dental fluorosis should be weighed against fluoridation's lifetime benefits and the feasibility and associated costs of alternative solutions such as educating parents of preschoolers about appropriate toothpaste use and lowering the current fluoride content of children's toothpaste. Given that fluorosis results from fluoride exposure during a narrow age range and that the benefits accrue over the entire life span, educating parents as to the appropriate use of fluoride toothpaste or reducing the fluoride content of children's toothpaste as some have suggested may be more efficient than altering current fluoridation policy. In its 1993 fluoride health effects report, NRC agreed with this conclusion in principle, but determined that this approach may not be feasible in practice: The most effective approach to stabilizing the prevalence and severity of dental fluorosis, without jeopardizing the benefits to oral health, is likely to come from more judicious control of fluoride in foods, processed beverages, and dental products, rather than a reduction in the recommended concentrations of fluoride in drinking water. But applying such a policy would be formidable; reduction of fluoride concentrations in drinking water would be easier to administer, monitor, and evaluate. Although mild to moderate dental fluorosis had been considered by agencies to be a cosmetic effect, not a health effect, it may be objectionable to many and, if severe enough, may adversely affect tooth health. Therefore, this issue has factored in the fluoridation debate. In response to the widespread use of bottled waters and availability of a variety of fluoride-containing products, CDC issued new recommendations for fluoride use in 2001. The recommendations are intended to guide health-care providers and the public on the appropriate use of fluoride from various sources (such as tooth paste and baby formula made with fluoridated water). The recommendations specifically address fluoride intake among children aged younger than six years to decrease the risk for enamel fluorosis. CDC also suggested areas for further research. In 2006, the American Dental Association issued interim guidance on infant formula and fluoride. While affirming its support for fluoridation, the ADA recommended that infant formulas be mixed with water that is fluoride free or has very low levels of fluoride to decrease the risk of dental fluorosis. In 2011, responding to a 2006 NRC review of fluoride science and EPA's subsequent fluoride risk and exposure assessments (discussed below), HHS proposed a revised recommended level for community water fluoridation. Specifically, HHS proposed that community water systems use a fluoridation level of 0.7 milligrams per liter, which is the lower end of the current recommended range of 0.7 mg/L to 1.2 mg/L. Researchers continue to study the potential health effects associated with exposure to fluoride in drinking water. Many of the studies have focused on ingestion of higher, naturally occurring levels of fluoride rather than on artificial fluoridation levels. The studies generally have shown that fluoride ingestion at elevated levels primarily produces effects on skeletal tissues (skeletal fluorosis) and that these effects are more severe as exposure to fluoride increases above a threshold. Very mild, skeletal fluorosis is characterized by slight increases in bone mass. The most severe form of this condition, "crippling skeletal fluorosis," involves bone deformities, calcification of ligaments, pain, and immobility. In 1993, NRC reported that few cases of this condition had been reported in the United States and that it was not considered a public health concern. A related question that has been the subject of scientific research concerns whether artificial water fluoridation increases the risk of bone fracture in older women. A number of community-level studies conducted in the 1980s and 1990s compared rates of fracture, specific for age and gender, between fluoridated and nonfluoridated communities. Several of these studies indicated that exposure to fluoridated water increased the risk of fracture; a few studies indicated that water fluoridation reduced the risk of fracture; and several studies found no effect. However, a weakness of these studies was that they were based on community-level data and lacked data on individuals. To improve understanding of this issue, a 2000 study looked at the consumption of fluoridated water and fractures in individual women. The results of this study suggested that water fluoridation may reduce the risk of fractures of the hip and vertebrae in older white women (the subjects of the study). A possible link asserted in the 1970s between water fluoridation and increased cancer mortality raised health concerns and heightened controversy over the practice of fluoridation. Some researchers had reported that cancer mortality was higher in areas with fluoridated drinking water than in nonfluoridated areas. These findings were refuted subsequently by other investigators who identified problems with the study's research methodology. However, because of the importance of this question, researchers have continued to examine the possibility of an association between artificially fluoridated water and cancer in humans. Independent expert panels conducted reviews of the available scientific studies in 1982 and 1985. The panels concluded that the studies provided "no credible evidence for an association between fluoride in drinking water and risk of cancer." However, according to the 1993 NRC fluoride review, all but one of these studies were ecological studies; that is, they were either geographic correlation or time-line studies that looked at exposures at the community level rather than individual exposures. Consequently, the interpretation of the data was limited by an inability to measure individual fluoride exposures over long periods of time, or to measure exposure to other known risk factors such as smoking or other cancer-causing substances. In another examination of this issue, scientists at the National Cancer Institute (NCI) evaluated the relationship between drinking water fluoridation and the number of cancer deaths in the United States by county. After examining more than 2.2 million cancer death records, NCI researchers concluded that "there was no indication of increased cancer risk associated with fluoridated drinking water." NRC concluded in 1993 that "[t]he large number of epidemiological studies [more than 50] combined with their lack of positive finding implies that if any link exists, it must be very weak." In 1990, the National Toxicology Program (NTP) published the results of studies on the potential carcinogenicity of fluoride in rats and mice. The studies found no evidence of carcinogenic activity in female rats or mice at very high concentrations (100-175 mg/L) but found "equivocal evidence" of carcinogenicity in male rats. Osteosarcomas (bone cancers) were observed in 1 of 50 male rats receiving 100 mg/L sodium fluoride and 3 of 50 rats receiving 175 mg/L. From this study, NTP researchers concluded that levels of sodium fluoride below 175 mg/L in drinking water over a two-year period would not be expected to cause any bone cancers in rats or mice. The result of the NTP study (i.e., equivocal evidence of carcinogenicity) was not confirmed in a 1992 study of rats using higher fluoride doses; however, rare, nonmalignant tumors were found in this study. According to the Agency for Toxic Substances and Disease Registry, both studies had problems that limited their usefulness in showing whether fluoride can cause cancer in humans. In response to the concerns raised by the NTP 1990 study, EPA requested that NRC review the available toxicological and exposure data on fluoride to determine whether the current drinking water standard of 4 mg/L was sufficient to protect public health. In 1993, NRC completed an extensive literature review concerning the association between fluoridated drinking water and increased cancer risk. Although NRC concluded that the data did not demonstrate an association between fluoridated drinking water and cancer, it did suggest that more research should be undertaken (especially research that examined individual, rather than population, exposures). Toward this end, a 1995 case-control analysis of bone cancer in Wisconsin controlled for several factors, including age at diagnosis. The researchers did not observe an association between fluoridation at the time of diagnosis and bone cancer. Although the study specifically examined young age groups (which some studies suggest may be more sensitive to fluoride exposure), exposure assignments were made without taking individual residence histories of the participants. Therefore, the researchers did not account for duration or timing of exposure. In 2002, EPA noted that additional studies regarding the effects of fluoride on bone had been published since the fluoride standard was promulgated in 1986, and that a new analysis of the data was warranted. EPA again requested NRC to review the toxicological and epidemiological data on fluoride, to update the fluoride risk assessment, and to evaluate the scientific basis and adequacy of EPA's drinking water standards for fluoride. In March 2006, NRC released Fluoride in Drinking Water: A Scientific Review of EPA's Standards . Because the NRC committee's charge was to evaluate the adequacy of EPA drinking water standards, NRC did not address questions regarding the benefits or risks of artificial fluoridation. However, after reviewing the available studies, the NRC committee concluded that "the evidence on the potential of fluoride to initiate or promote cancers, particularly of the bone, is tentative and mixed and that, overall, the literature does not clearly indicate that fluoride either is or is not carcinogenic in humans." (The findings and recommendations of the NRC review are discussed further in the "Carcinogenicity" section below.) The extent of the benefits of water fluoridation to oral health also has received some scrutiny and continues to do so. An overall reduction in caries has been observed in both fluoridated and nonfluoridated communities in the United States and Canada, and some more recent studies have suggested that water fluoridation has become less important and effective in preventing caries when compared with the findings of earlier studies. Some of this research has attributed the smaller differences in caries prevalence between fluoridated and nonfluoridated communities to the widespread use of fluoride toothpaste and other preventive dental care, and to better nutrition, including higher intake of vitamin D. Several other studies have suggested that the traditional measure of the benefits of water fluoridation may understate its effectiveness. The authors of a 2001 study determined that the benefit of caries reduction from fluoridation is diffused to adjacent nonfluoridated communities through the export of bottled beverages and processed foods to those communities. When this effect was accounted for, the authors found a beneficial effect from water fluoridation that was closer to the findings of studies conducted in the 1970s and earlier. The results of a 1979-1980 survey found a 33% difference in the prevalence of dental caries among children in fluoridated and nonfluoridated regions in the United States, whereas a 1986-1987 national survey identified an 18% difference in caries prevalence. The National Institutes of Health (NIH) analyzed the 1986-1987 results and determined that when the effect of topical fluoride was controlled, the difference between fluoridated and nonfluoridated areas increased to 25%. According to the NIH researchers, the results suggested that fluoridation continued to play a major role in the decline in caries. In 2000, British researchers published the results of their systematic review of 214 studies on the safety and efficacy of water fluoridation. The researchers found that water fluoridation was associated with an increased proportion of children without caries and a reduction in the number of teeth with caries, but the overall reductions were smaller than had been reported in earlier studies. The review also concluded that at a fluoride level of 1 mg/L, an estimated 12.5% of exposed individuals would have fluorosis that could be considered aesthetically concerning. In reviewing the 214 studies, the authors found no other adverse effects associated with the fluoridation of drinking water. However, they noted that, overall, the studies were of low to moderate quality and recommended better research. Aside from questions of safety and efficacy, social and political concerns may influence decisions about water fluoridation. A central issue for some who oppose fluoridation of the public water supply is lack of choice. Consumers who prefer not to drink fluoridated water generally are unable to exercise that choice without treating their tap water or buying bottled water. Some view a state or community fluoridation requirement as intrusive and object to receiving water that is not free of additives, other than those needed to make water safe. (In contrast, disinfectants, such as chlorine, generally have been accepted as necessary to protect public health by eliminating pathogens). In this view, decisions regarding dental health-care practices should be made by individuals and families and not imposed by government. To the extent that research gaps exist regarding potential adverse effects of increased exposures to fluoride because of its presence in multiple sources (e.g., water, beverages, toothpaste and rinses), the conflict between individual choice and public policy is likely to continue. Fluoride poses challenges to regulators because many communities intentionally add it to their water supplies for a beneficial effect at low levels, whereas it has toxic effects and is regulated as a drinking water contaminant when it occurs in public water supplies at higher concentrations. Moreover, the range between the amounts that are considered beneficial and excessive is narrower for fluoride than for many trace minerals. This section discusses the federal regulation of fluoride in drinking water to protect against the potential adverse health effects associated with exposure to higher, typically naturally occurring fluoride levels (compared with levels recommended for artificial fluoridation to protect dental health). It reviews the current federal standards for fluoride in drinking water, EPA's steps to review and potentially revise the standards, and is followed by a review of NRC's updated assessment of the scientific basis and adequacy of EPA's standards, and the subsequent actions taken by the agency in response to the NRC findings and recommendations. The Safe Drinking Water Act (SDWA) requires EPA to promulgate national primary drinking water regulations for contaminants that may pose health risks and that are likely to be present in public water supplies. For each contaminant that EPA determines requires regulation, EPA sets a non-enforceable maximum contaminant level goal (MCLG) at a level at which no known or anticipated adverse health effects occur and that allows an adequate margin of safety. Amendments in 1996 ( P.L. 104-182 ) added a requirement that EPA also must consider the exposure risks to sensitive subpopulations (e.g., children). Because MCLGs are based only on health effects and not on the availability or cost of monitoring and treatment technologies, they may be set at levels that are not feasible for water systems to meet. For example, EPA typically sets MCLGs for carcinogens at zero. EPA also considers the relative contribution that drinking water is expected to make to total human exposure to a contaminant. Under current policy, EPA assumes that 80% of exposure comes from other sources, such as the diet, and EPA sets a stricter MCLG to account for other sources of exposure. Using the MCLG as a starting point, EPA then sets an enforceable standard, the maximum contaminant level (MCL). The MCL generally must be set as close to the MCLG as is "feasible" using the best technology or other means available, taking costs into consideration. The MCL is the legal limit of the amount of a substance that may be present in water provided by public water systems. EPA also may issue secondary MCLs (SMCLs) that establish nonmandatory water quality standards for substances. These secondary standards are established as guidelines to help public water systems manage drinking water for aesthetic (e.g., taste and odor), cosmetic (e.g., tooth discoloration), and technical (e.g., corrosivity) effects. EPA issued the current national primary drinking water regulation for fluoride in 1986. This regulation included an MCLG and an enforceable drinking water standard MCL of 4 mg/L, which is intended to protect against fluoride's effects on the bone (specifically, crippling skeletal fluorosis). The promulgation of the 4 mg/L standard was controversial, as it replaced a stricter, interim standard of 1.4 to 2.4 mg/L that was established in 1975 to protect against objectionable (moderate) dental fluorosis, which EPA previously had considered an adverse health effect. (By comparison, the World Health Organization guideline for fluoride in drinking water is 1.5 mg/L.) When promulgating the new regulation, EPA estimated that, nationwide, 282 public water systems serving roughly 184,000 people had fluoride levels that exceeded the new standard of 4 mg/L. More recently, EPA has estimated that 220,000 people receive water from public water systems with fluoride levels that equal or exceed 4 mg/L. When setting the fluoride MCL, EPA acknowledged that it would not protect infants and young children against moderate dental fluorosis, which EPA considered a cosmetic effect rather than an adverse health effect. Consequently, EPA established a secondary standard for fluoride at a level of 2 mg/L to protect children against dental fluorosis, as well as adverse health effects. (EPA standards for fluoride in drinking water are outlined in Table 1 .) CDC has estimated that 850,000 people are served by water systems that contain more than 2 mg/L fluoride. Because of concerns regarding dental fluorosis, EPA does not recommend that infants consume water containing 4 mg/L fluoride. The fluoride regulation requires public water systems with water containing more than 2 mg/L fluoride to notify their customers and inform them that alternate sources of water should be used for infants and children (40 C.F.R. 143.5). However, EPA allows water systems one year to notify customers when the secondary standard is exceeded. This notification lag has been criticized because infants and children can have sustained exposure to elevated fluoride levels during a critical period of tooth development. The Safe Drinking Water Act requires EPA to review and revise, as appropriate, each drinking water regulation at least every six years. Any revision must maintain or provide for greater protection of human health (SDWA §1412(b)(9)). EPA has initiated a review of the fluoride MCLG, MCL and SMCL to determine whether they are adequately protective of public health, based on the currently available scientific research. Following increased concern regarding the potential carcinogenicity of fluoride related to the results of the 1990 NTP animal study, EPA asked NRC to review the available toxicological and exposure data on fluoride, and to assess the sufficiency of the current drinking water standard. NRC had concluded in 1993 that the national primary drinking water standard for fluoride (4 mg/L) was "appropriate as an interim standard" to protect public health. However, NRC noted that since EPA had promulgated the drinking water regulation for fluoride in 1986, the use of fluoride in dental products had increased and, as a result, many Americans might ingest more "incidental" fluoride than was anticipated by PHS and by EPA when recommending standards for drinking water. Moreover, NRC found inconsistencies in the fluoride toxicity data base and gaps in knowledge, and it recommended further research in the areas of fluoride intake, dental fluorosis, bone strength, and carcinogenicity. NRC further recommended that EPA's fluoride standard should be reviewed and, if necessary, revised when results of new research become available. Toward that end, in 1998, EPA commissioned an evaluation of the exposure data for fluoride, including data on amounts in water, foods, and dental products. Moreover, in 2002, EPA published the results of its statutorily required review of existing drinking water standards and noted that new studies on fluoride's effects on bone had been published since the fluoride standard was established in 1986. EPA's literature search had identified various reports on the clinical, toxicological, and epidemiological data on fluoride and the skeletal system, and EPA concluded that a review of the new data was justified as part of the regulatory review process. Consequently, EPA asked NRC to conduct a review of the data, to update the fluoride health risk assessment, and to review EPA's relative source contribution assumptions for fluoride. As discussed below, NRC agreed to evaluate the scientific basis for EPA's MCLG and secondary fluoride standard, and to advise EPA on the adequacy of its secondary standard to protect children and others from adverse effects. In response to EPA's request for a new data review, the National Research Council convened the Committee on Fluoride in Drinking Water to evaluate toxicologic, epidemiologic, and clinical data on fluoride, with emphasis on data that had become available since NRC's 1993 report. EPA also asked the committee to evaluate the scientific basis and adequacy of EPA's maximum contaminant level goal (MCLG) and secondary standard for fluoride. In March 2006, the NRC committee issued Fluoride in Drinking Water: A Scientific Review of EPA's Standards . The study concluded that EPA's MCLG of 4 mg/L should be lowered, and that information gaps regarding fluoride "prevented the committee from making some judgments about the safety or the risks of fluoride at concentrations of 2 to 4 mg/L." (Because NRC's charge was to evaluate the scientific basis and adequacy of EPA's drinking water standards for fluoride, the committee did not address questions concerning the risks or benefits of artificial fluoridation .) The NRC committee's major findings are reviewed below. When EPA promulgated the fluoride regulation in 1986, it did not differentiate between mild and severe dental fluorosis, and broadly considered fluorosis of the dental enamel to be a cosmetic effect. In contrast, 10 of the 12 NRC committee members concluded that severe enamel fluorosis is an adverse health effect , not simply a cosmetic effect. The committee members explained that severe enamel fluorosis involves enamel loss, and that loss compromises the function of tooth enamel, the purpose of which is to protect the tooth against decay and infection. Because severe enamel fluorosis occurs in roughly 10% of children in communities with water fluoride concentrations at or near the current standard of 4 mg/L, the committee unanimously agreed that the MCLG should be set to protect against this condition, and that EPA's standard of 4 mg/L is not adequately protective. As noted, EPA set the fluoride MCLG and MCL to protect against the adverse health effect of crippling skeletal fluorosis ( stage III skeletal fluorosis). In this latest review, the NRC committee concluded that stage II skeletal fluorosis, the symptoms of which include sporadic pain, joint stiffness, and abnormal thickening (osteosclerosis) of the pelvis and spine, also constitutes an adverse health effect. Based on comparison of bone ash concentrations of fluoride and related evidence of skeletal fluorosis, the committee further found the data to suggest that Fluoride at 2 or 4 mg/L might not protect all individuals from the adverse stages of the condition. However, this comparison alone is not sufficient evidence to conclude that individuals exposed to fluoride at those concentrations are at risk of stage II skeletal fluorosis. There is little information in the epidemiologic literature on the occurrence of stage II skeletal fluorosis in U.S. residents, and stage III skeletal fluorosis appears to be a rare condition in the United States. Therefore, more research is needed to clarify the relationship between fluoride ingestion, fluoride concentrations in bone, and stage of skeletal fluorosis before any firm conclusions can be drawn. The committee also reviewed the few studies available for evaluating bone fracture risks from exposure to fluoride at 2 to 4 mg/L or more. NRC reported that clinical studies indicated an increased risk of nonvertebral bone fracture and a slightly decreased risk of vertebral fractures in populations exposed to fluoride at 4 mg/L. The consensus of the committee was that, under certain conditions, fluoride can weaken bone and increase the risk of fractures. Moreover, The majority of the committee concluded that lifetime exposure to fluoride at drinking water concentrations of 4 mg/L or higher is likely to increase fracture rates in the population, compared with exposure at 1 mg/L, particularly in some susceptible demographic groups that are more prone to accumulate fluoride in their bones. However, three of the 12 members judged that the evidence only supported a conclusion that the MCLG might not be protective against bone fracture.... [T]he committee finds that the available epidemiologic data for assessing bone fracture risk in relation to fluoride exposure around 2 mg/L are inadequate for drawing firm conclusions about the risk or safety of exposures at that concentration. In the 2006 report, NRC noted that the question of whether fluoride might be associated with bone cancer continues to be debated and analyzed, and that further research should be conducted. Most committee members held the view that the 1992 cancer bioassay that found no increase in osteosarcoma (a rare bone cancer) in male rats lacked sufficient power to counter the overall evidence of a positive dose-response trend found in the 1990 rat study. After reviewing the studies available to date, the NRC committee concluded that "the evidence on the potential of fluoride to initiate or promote cancers, particularly of the bone, is tentative and mixed," and that, overall, the literature does not clearly indicate that fluoride either is or is not carcinogenic in humans. NRC noted that the Harvard School of Public Health was expected to publish a large, hospital-based case-control study of osteosarcoma and fluoride exposure in 2006, and that the results of that study might help to identify research needs. The NRC review did include an assessment of pre-publication data from an "exploratory analysis" of a subset of the Harvard data that found an association between exposure to fluoride in drinking water and the incidence of osteosarcoma in young males. The authors of this research noted several limitations with the analysis (e.g., relying on estimated fluoride exposure from drinking water) and concluded that further research was needed to confirm or refute the results. The subsequent study evaluated whether bone fluoride levels were higher in individuals with osteosarcoma. In this study, reported in 2011, researchers detected no significant association between bone fluoride levels and osteosarcoma risk. The authors noted that "the major advantage of this study is the use of bone fluoride concentrations as the measure of fluoride exposure, rather than estimated fluoride exposure in drinking water." The NRC committee evaluated available scientific studies that assessed a range of other possible health effects related to fluoride exposure. This evaluation included a review of studies on fluoride's potential neurotoxicity and neurobehavioral effects, endocrine effects, and effects on the gastrointestinal system, kidneys, liver, and immune system. Although various studies in these areas suggested an association between fluoride exposure and adverse effects, the committee generally concluded that the research on these topics was insufficient to assess their significance. Overall, the committee noted that more research was needed to determine what risks fluoride exposure at 4 mg/L might pose in these areas. Noting that research gaps prevented the NRC committee from making certain judgments regarding the safety or risk of fluoride, the committee made specific recommendations for further studies that the committee felt would help fill data gaps and facilitate EPA's revision of the fluoride standards. The recommendations covered a wide range of topics, including exposure assessment, pharmacokinetic studies, studies of enamel fluorosis, studies of stage II and stage III skeletal fluorosis, bone fracture studies, and studies on other health effects (e.g., endocrine effects and brain function). Regarding the maximum contaminant level goal, NRC concluded that the MCLG of 4 mg/L should be lowered. The review committee specifically recommended that To develop an MCLG that is protective of severe enamel fluorosis, clinical stage II skeletal fluorosis, and bone fractures, EPA should update the risk assessment of fluoride to include new data on health risks and better estimates of total exposure (relative source contribution) in individuals and to use current approaches to quantifying risk, considering susceptible subpopulations, and characterizing uncertainties and variability. For the cosmetic effects-based secondary maximum contaminant level, the committee noted that the current SMCL does not completely prevent the occurrence of moderate enamel fluorosis. In 1986, EPA set the standard to keep the occurrence of moderate enamel fluorosis to 15% or less of the exposed population. The committee noted that, although this goal is being met, the degree to which moderate enamel fluorosis might create an adverse psychological effect or an adverse effect on social functioning is not known. The committee recommended additional research on the prevalence and severity of enamel fluorosis in U.S. communities with fluoride concentrations greater than 1 mg/L. Specifically, "The studies should focus on moderate and severe enamel fluorosis in relation to caries and in relation to psychological, behavioral, and social effects among affected children, among their parents, and among affected children after they become adults." As noted, the Safe Drinking Water Act requires that, every six years, EPA must review and, if appropriate, revise each drinking water regulation. (See discussion under " Current Fluoride Standards .") In March 2010, EPA announced the results of its review of drinking water regulations for 71 contaminants, including fluoride. The agency concluded that because of ongoing assessments recommended by NRC, a revision to the fluoride regulation was not appropriate at that time. Specifically, the agency's Office of Water was in the process of conducting a dose-response assessment of the noncancer impacts of fluoride on severe dental fluorosis and skeletal systems. The agency was also updating its evaluation of the relative contribution of drinking water to total fluoride exposure, considering contributions from dental products, foods, pesticide residues, and other potential sources. In December 2010, EPA published an analysis of exposure and relative source contribution for fluoride. Responding to the NRC recommendation, EPA collected data to estimate the total fluoride exposure for children during the most sensitive period for severe dental fluorosis (ages six months to 14 years). EPA also collected data to develop exposure estimates for adults. To develop estimates, EPA looked at concentrations of fluoride in foods and beverages, and estimated dietary exposures, concentrations in drinking water, and estimated fluoride intakes from toothpaste and pesticides, including sulfuryl fluoride. (When setting the current standard for fluoride, EPA assumed that 100% of the exposure to fluoride came from drinking water.) Based on the exposure and relative source analysis, EPA reported the following conclusions: - Some young children are being exposed to fluoride up to about age 7 at levels that increase the risk for severe dental fluorosis. - The contribution of residential tap water to total ingested fluoride is lower than it was in the past. - Use of fluoridated water for commercial beverage production has likely resulted in increased dietary fluoride in purchased beverages, adding to the risk for over-exposure. - The increase of fluoride in solid foods because of fluoridated commercial process water is more variable than that for beverages. - Incidental tooth paste ingestion is an important source of fluoride exposure in children up to about 4 years of age. However, use of fluoridated toothpaste is not recommended for children under age 2 according to FDA [Food and Drug Administration] guidance and package labeling ... - Ambient air, soils, and sulfuryl fluoride residues in foods are minor contributions to total fluoride exposure. EPA further concluded that "it is likely that most children, even those that live in fluoridated communities, can be over-exposed to fluoride at least occasionally." Also in December 2010, the agency completed a dose-response assessment for severe dental fluorosis. This assessment provides a reference dose (RfD) based on the critical health effect of concern: pitting of the enamel in severe dental fluorosis. The estimated RfD for fluoride, 0.08 mg fluoride per kilogram per day (F/kg/day), is intended to protect children from enamel pitting during the critical period of enamel formation (between six months and 14 years of age). By protecting this sensitive subpopulation, EPA notes that the RfD would be protective for other potential risks as well. The dose-response assessment and resulting reference dose are needed to support the development of a maximum contaminant level goal, and ultimately a drinking water standard (the maximum contaminant level). EPA is reviewing the new fluoride risk assessment and relative source assessment documents to determine whether revisions to the MCLG, MCL, and/or SMCL would be appropriate. To make a determination to revise the standard, EPA must not only review scientific information, but also must evaluate analytical methods for testing for fluoride at lower levels, treatment feasibility (including cost), occurrence, and exposure. Such analyses supporting regulatory efforts under the Safe Drinking Water Act can take EPA several years to complete. Although NRC's new review of fluoride in drinking water did not address questions of artificial fluoridation, NRC did determine that EPA's maximum contaminant level goal for fluoride should be lowered. Assuming that a lower MCLG would lead to a lower enforceable MCL, NRC concluded that this would prevent children from developing severe enamel fluorosis and reduce the lifetime accumulation of fluoride in bone, which most committee members agreed "is likely to put individuals at greater risk of bone fracture and possibly skeletal fluorosis." Even if NRC had confirmed EPA's previous assessment of fluoride's health effects, the agency still might revise the health-based primary standard and the esthetics-based secondary standard. One reason for potential revisions is that when EPA developed the current standards, the agency considered drinking water to be the only source of exposure for fluoride. Since then, sources of potential fluoride exposure have increased, and now, when reviewing its standards, EPA would consider fluoride intake from sources other than drinking water. This consideration alone may lead to a lowering of the primary and secondary standards for fluoride. A second reason that EPA might revise the standard is that the 1996 SDWA amendments ( P.L. 104-182 ) directed EPA to evaluate the effects of contaminants on groups within the general population, such as children, that might be at greater risk than the general population of adverse health effects due to exposure to contaminants in drinking water. Another possible revision to the fluoride regulation involves the public notification requirements for the secondary standard. Dental fluorosis occurs while tooth enamel is developing, and EPA has acknowledged that "waiting 12 months to provide public notification may result in young children being exposed to high levels of fluoride during the time at which they are most vulnerable." EPA has considered revising the public notification requirements, but has not yet done so. The NRC committee conducted an extensive review of the available science, and EPA has used this significant foundation to support an update of its risk assessment for fluoride. EPA has also updated its exposure and relative source contribution analysis. These analyses potentially could become the basis for a new, more protective fluoride standard. However, in addition to health effects, EPA is required to consider compliance cost, risk reduction benefits, contaminant occurrence, technical feasibility, and other factors when setting standards. Consequently, it remains to be seen exactly how these factors, when taken together, might influence a new fluoride standard. Although the purpose of the NRC study and subsequent analyses is to advise EPA on the adequacy of the fluoride drinking water standards, the evaluation of the available science and exposure led HHS to propose to change recommended levels for community water fluoridation. In 2011, HHS proposed that community water systems use a fluoridation level of 0.7 milligrams per liter, which is the lower end of the current recommended range of 0.7 mg/L to 1.2 mg/L. The new analyses may also be useful to states and communities that are assessing whether or not to fluoridate their public water supplies. Opposition to water fluoridation often has been driven by concerns about the potential health risks of exposure to fluoride in drinking water; however, social and political concerns also influence decisions about water fluoridation. A central issue for some fluoridation opponents is lack of choice, and they oppose the addition of any chemicals to the water supply other than those needed to make water safe (e.g., chlorine). In contrast, many public health professionals and government officials have held the view that water fluoridation offers the most equitable and cost-effective way to protect dental health across socially and economically diverse communities. The conflict between individual liberty and social policy is one that is unlikely to be fully resolved by more research. Additional scientific evidence can help inform the decision to fluoridate a community's water, but such choices often are not made purely on the basis of science. Because artificial fluoridation decisions have been made at the state and local levels, Congress has not been at the forefront of the water fluoridation debate. Nonetheless, Congress has expressed interest in water fluoridation issues in the past, particularly as questions have arisen regarding the benefits and risks of this practice. Since first enacted in 1974, the Safe Drinking Water Act ( P.L. 93-523 ) has stated that "[n]o national primary drinking water regulation may require the addition of any substance for preventive health care purposes unrelated to contamination of drinking water." NRC's finding that EPA's drinking water standard for fluoride should be lowered to protect against adverse health effects (primarily dental fluorosis) may generate congressional oversight and legislative attention. Issues that might attract particular interest might include the health effects research gaps identified by NRC, subsequent research, and the status of EPA's review and potential revision of the fluoride regulation under the Safe Drinking Water Act.
|
According to the Centers for Disease Control and Prevention (CDC), in 2010, 73.9% of the people in the United States who receive their water from a public water system received fluoridated water (roughly 204.3 million people). One of CDC's national health goals is to increase the proportion of the U.S. population served by community water systems with "optimally" fluoridated drinking water to 79.6% by 2020. The decision to add fluoride to a water supply is made by local or state governments. The Department of Health and Human Services (HHS) had long recommended an optimal fluoridation level in the range of 0.7 to 1.2 milligrams per liter (mg/L) to prevent tooth decay. The fluoridation of drinking water often generates both strong support and opposition within communities. This practice is controversial because fluoride has been found to have beneficial effects at low levels and is intentionally added to many public water supplies; however, at higher concentrations, it is known to have toxic effects. The Environmental Protection Agency (EPA) regulates the amount of fluoride that may be present in public water supplies to protect against fluoride's adverse health effects. Fluoridation opponents have expressed concern regarding potential adverse health effects of fluoride ingestion, and some view the practice as an unjustified infringement on individual freedom. The medical and public health communities generally have recommended water fluoridation, citing it as a safe, effective, and equitable way to provide dental health protection community-wide. Because the use of fluoridated dental products and the consumption of food and beverages made with fluoridated water have increased since HHS recommended optimal levels for fluoridation, many people now may be exposed to more fluoride than had been anticipated. Consequently, questions have emerged as to whether current water fluoridation practices and levels offer the most appropriate ways to provide the expected beneficial effects of fluoride while avoiding adverse effects (most commonly, tooth mottling or pitting—dental fluorosis) that may result from ingestion of too much fluoride when teeth are developing. Also, scientific uncertainty regarding the health effects of exposure to higher levels of fluoride adds controversy to decisions regarding water fluoridation. In 2011, HHS proposed to reduce the recommended level to 0.7 mg/L. Although fluoride is added to water to strengthen teeth, some communities must treat their water to remove excess amounts of fluoride that is present either naturally or from pollution. In 1986, EPA issued a drinking water regulation for fluoride that includes an enforceable standard—a maximum contaminant level (MCL)—and an MCL goal (MCLG) of 4 mg/L to protect against adverse effects on bone structure. EPA acknowledged that the standard did not protect infants and young children against dental fluorosis, which EPA considered a cosmetic effect rather than a health effect. To address this concern, EPA included in the regulation a secondary (advisory) standard of 2 mg/L to protect children against dental fluorosis and adverse health effects. As part of its current review of the fluoride regulation, EPA asked the National Research Council (NRC) to review the health risk data for fluoride and to assess the adequacy of EPA's standards. In March 2006, NRC released its study and concluded that EPA's 4 mg/L MCLG should be lowered. In 2011, EPA released new risk and exposure assessments for fluoride. The agency announced its intent to use this science and additional research to review the primary and secondary drinking water standards for fluoride and to determine whether to revise them. To make a regulatory determination, EPA also must consider analytical methods for testing for fluoride at lower concentrations, treatment feasibility (including cost), occurrence, and exposure.
|
The Temporary Assistance for Needy Families (TANF) block grant provides federal grants for a wide range of benefits and activities. It is best known as the major source of funding for cash welfare for needy families with children. However, federal law allows TANF funds to be used for other benefits and services that provide economic help to low-income families with children and to support the goals of reducing out-of-wedlock pregnancies and promoting two-parent families. The TANF block grant was created in the 1996 welfare reform law ( P.L. 104-193 ). At the federal level, TANF is administered by the Department of Health and Human Services (HHS). TANF programs operate in all 50 states, the District of Columbia, Puerto Rico, Guam, and the Virgin Islands. American Samoa is eligible to operate a TANF program, but has not opted to do so. The Social Security Act designates all these jurisdictions as "states," and thus that term will be used for them in this report. Federally recognized Indian tribes may also operate TANF programs. Tribal TANF programs are funded through allocations made from the TANF basic block grant to the state in which the tribe offers TANF benefits and services. It is the states and the tribes that provide TANF benefits and services to families and individuals. This report provides an overview of TANF financing and rules for state programs, describing federal TANF grants and state funds under a "maintenance-of-effort" (MOE) requirement; how federal TANF and state MOE funds may be used to help achieve the purpose and goals of the TANF block grant; rules that apply when TANF or MOE funds are used to provide "assistance" to needy families with children; rules that apply when TANF or MOE funds are used for benefits and services o t her than assistance; certain accountability requirements, including requirements that states submit plans and report data to the federal government; and provisions of TANF law not directly related to grants to states, such as competitive grants for promoting healthy marriage and responsible fatherhood, and tribal TANF provisions. For data and statistics on the TANF block grant, see CRS Report RL32760, The Temporary Assistance for Needy Families (TANF) Block Grant: Responses to Frequently Asked Questions . For the legislative history of TANF, see CRS Report R44668, The Temporary Assistance for Needy Families (TANF) Block Grant: A Legislative History . Under TANF, there are three federal grants : the basic block, contingency (recession-related) funds, and competitively awarded healthy marriage and responsible fatherhood grants. States are also required to spend a certain amount of their own funds on specified TANF-related activities for needy families with children. This is known as the maintenance-of-effort or MOE requirement. Federal TANF funds are considered "mandatory spending" in the federal budget. The grants are entitlements to the states and tribes—the law entitles them to a specified amount of funding. The law specifically says that TANF does not entitle individuals to benefits and services. The basic block grant to the states is based on peak expenditures for pre-TANF programs during the FY1992-to-FY1995 period. The mid-1990s were a period when the cash welfare rolls were at their all-time high; the block grant amount is based on federal expenditures on the cash welfare, emergency aid, and job training programs for cash welfare families that existed in that period. Each state's allocation is based on those expenditures. Tribes operating their own programs within a state are given a portion of the state allocation based on FY1994 expenditures for tribal members in the area to be served by the tribal program. Thus, tribal allocations reduce the amount of the basic block grant payable to the state. Federal law provides an appropriation for the TANF basic block grant (formally, the State Family Assistance Grant) of $16.567 billion. Beginning with FY2017, 0.33% of that amount is set aside to fund TANF research; that set-aside reduces the amount available for grants to states and tribes to $16.512 billion. Table 1 shows how that amount is distributed to the states and tribes. As of October 2017, the states received $16.317 billion and tribes received $195 million for FY2018. The fixed basic grant under TANF led to concerns that funding might be inadequate during economic downturns. The 1996 welfare reform law established a $2 billion TANF contingency fund. To draw upon contingency funds, a state must both (1) meet a test of economic "need" and (2) spend from its own funds more than what the state spent in FY1994 on cash, emergency assistance, and job training in TANF's predecessor programs. Contingency funds are only available to the 50 states and District of Columbia. Tribes and the territories are ineligible for contingency fund grants. For purposes of the TANF contingency fund, a state meets the "economic need" test if its seasonally adjusted unemployment rate averaged over the most recent three-month period is at least 6.5% and at least 10% higher than its rate in the corresponding three-month period in either of the previous two years; or its Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) caseload over the most recent three-month period is at least 10% higher than the adjusted caseload in the corresponding three-month period in FY1994 or FY1995. For this purpose, FY1994 and FY1995 caseloads are adjusted by subtracting out an estimate of participants who would have been made ineligible for food stamps (as the program was then named) under the 1996 welfare law had it been in effect in those years. The major group made ineligible was noncitizens. Monthly payments from the contingency fund are limited to one-twelfth of 20% of a state's basic block grant, and states may receive these monthly payments on an advance basis. However, the actual amount of contingency funds a state is entitled to for the year depends on (1) how much it spends in advance contingency funds and state funds over the FY1994 threshold, (2) its Medicaid matching rate, and (3) the number of months the state was eligible for contingency funds. A state's annual entitlement to contingency funds is calculated as the Medicaid matching rate times the state's extra spending (above FY1994 amounts) during the fiscal year, prorated by the number of months the state was eligible for contingency funds during the fiscal year. A state that receives more in monthly advances from the contingency fund than it is entitled to for the year must remit overpayments to the federal treasury. A state may not receive more in contingency funds for the year than the total of its monthly advance payments, under an annual cap on contingency funds of 20% of the state's basic block grant. The original $2 billion in this fund was depleted in early FY2010. Since FY2010, Congress has provided appropriations that continue to fund the TANF contingency fund. The FY2017 and FY2018 appropriation for the contingency fund was $608 million for each of the years. TANF consolidated and replaced programs that provided matching grants to the states. Under the pre-TANF cash welfare program, federal funding was generally provided at the Medicaid matching rate (between 50% and 83%) to reimburse states for a share of their expenditures in the program. This meant that there were considerable state dollars contributing to the pre-TANF programs. It also meant that the federal and state shares financing these programs varied by state, as the Medicaid matching rate is higher in states with lower per-capita incomes than higher per-capita incomes. TANF requires states to spend from their own funds on TANF or TANF-related activities. (There is no requirement that tribes spend their own funds in tribal TANF programs.) For FY2018, states are required in the aggregate to spend at least $10.3 billion on specified activities for needy families with children. The $10.3 billion, called the "maintenance-of-effort" (MOE) level, represents 75% of what was spent from state funds in FY1994 in TANF's predecessor programs of cash, emergency assistance, job training, and welfare-related child care spending. States are required to maintain their own spending of at least that level, and the MOE requirement increases to 80% of FY1994 spending for states that fail to meet TANF work participation requirements (discussed below). State expenditures under this requirement are often referred to as state MOE funds. Failure to meet the MOE requirement results in a penalty. The penalty is a reduction in the state's subsequent year's block grant by $1 for each $1 shortfall from the required spending level. Table 2 shows both federal TANF and state MOE funds. The MOE is shown at both the 75% and 80% rates for each state. Also shown is the percent of total federal and state funds in the TANF financial "system" that is accounted for by federal funds. This percentage varies because the Medicaid matching rate used in the pre-TANF programs varied by state. Mirroring the differences in federal shares under the pre-1996 programs, federal funds account for a greater share of total TANF funding in states with low per-capita income compared to those with higher per-capita income. Congress decided that TANF was to be named a "block grant" program. A block grant is a grant-in-aid given to states and local governments to address "broad purposes" and typically gives governmental entities discretion in both defining problems and expending funds to address them. In a general sense, TANF meets this definition of a block grant, but it does attach some "strings" to a state's use of TANF funds (discussed below). Federal TANF grants may be used for a wide range of benefits and services for families with children. Grants may be used within a state or tribal TANF program or a portion may be transferred to either the Child Care and Development Block Grant (CCDBG) or the Social Services Block Grant (SSBG). Unused TANF funds can also be reserved (saved), without fiscal year limit. TANF allows its basic block grant and contingency funds to be spent "in any manner that is reasonably calculated" to achieve its statutory purpose within its state TANF program. TANF's purpose is to increase state flexibility to meet specified goals. Its four statutory goals are to 1. provide assistance to needy families so that children can be cared for in their own homes or in the homes of relatives; 2. end dependence of needy parents on government benefits through work, job preparation, and marriage; 3. reduce the incidence of out-of-wedlock pregnancies; and 4. promote the formation and maintenance of two-parent families. The four goals of TANF encompass what is usually thought of as traditional cash welfare for needy families with children and work activities for adult recipients in these families. However, the goals also provide authority for funds to be used to provide a wide variety of benefits and services for welfare families and other low-income families with children. TANF funds are used to help support work for low-income families through providing child care or transportation aid. The authority to provide assistance to care for children in the homes of relatives has been used to provide benefits and services to children and families of children who have been, or are at risk of, neglect or abuse and are placed in the care of a relative (e.g., grandparent, aunt, uncle). Further, TANF funds have been used for programs and services aimed at accomplishing the "family formation" goals of TANF (goals three and four listed above, and ending dependence through marriage, which is a component of goal two). In addition to using funds to promote the purpose and goals of TANF, federal law allows states to use TANF funds to carry out any program or activity that a state had conducted under its pre-1996 programs. This provision permits states to continue activities they undertook under the pre-1996 Emergency Assistance (EA) program to provide help for foster care, adoption assistance, and juvenile justice programs. Federal law allows up to 30% of federal TANF grants (except contingency funds) to be transferred to the CCDBG and SSBG combined, with a separate limit of 10% of TANF grants (except contingency funds) that may be transferred to SSBG. Funds transferred to these other block grants become subject to the rules of the receiving block grant (CCDBG or SSBG), and are not subject to TANF rules. However, TANF funds transferred to SSBG must be used for families with incomes below 200% of the poverty line. Job access programs are designed to provide transportation assistance for those who need to commute from inner city to suburban areas for their jobs. These programs are targeted to TANF assistance recipients and other low-income individuals. Federal law also allows federal TANF funds to be used as a state match for reverse commuter grants. If federal TANF funds are used for this purpose, it is counted against the state's 30% limit for transfers to CCDBG and SSBG; that is, it reduces the amount of federal TANF funds that could be transferred to those other block grants. Most, but not all, benefits, services, and activities that may be funded from federal TANF funds may also be financed by MOE funds. States may count toward the MOE any expenditures made for TANF-eligible families for any program that provides cash assistance, administration, child care, education, and training (though not educational activities for the general population), and other activities to further a TANF purpose. States may also count toward the MOE any expenditures made for the general population on healthy marriage and responsible fatherhood activities. The major restrictions that apply to MOE (but not federal TANF) funds are for benefits, services, and activities that were not a part of the pre-1996 welfare law programs, expenditures count only to the extent that they exceed the FY1995 level of expenditure in the program; and expenditures on activities that were part of the pre-1996 welfare law programs that are not aimed to achieve a TANF goal ("grandfathered" activities) are not countable toward the MOE. There are also certain families that can be provided assistance with MOE funds that cannot be assisted with federal TANF funds. For example, states can provide MOE-funded assistance to families with an adult who received federally funded benefits for more than five years (the TANF time limit). Additionally, states can provide MOE-funded assistance to noncitizens who were made ineligible for federal benefits by the 1996 welfare reform law. Table 3 provides a brief summary of the types of benefits, services, and activities that may be funded by federal TANF funds and with state MOE funds. As discussed above, TANF provides states with broad authority to spend federal and MOE funds on a wide range of benefits and services. Though TANF is a block grant, there are some strings attached to states' use of funds, particularly with regard to families receiving "assistance." As discussed below, TANF funds used for benefits and services that are not considered assistance are generally free of most requirements. Federal law specified that most TANF requirements apply only with respect to families receiving assistance . Federal TANF law does not define "assistance." However, HHS defines assistance in regulation as payment to families to meet "ongoing basic needs" such as food, clothing, shelter, utilities, household goods, personal care items, and other personal expenses. Generally, such payments correspond to what most call cash welfare. Some states use MOE funds to supplement nutrition assistance benefits provided by the Supplemental Nutrition Assistance Program (SNAP). Some provide MOE-funded nutrition assistance as an earnings supplement for working parents in the SNAP program. Some provide MOE-funded SNAP benefits for noncitizens made ineligible for federally funded SNAP by the 1996 welfare reform law. If provided on an ongoing basis, these nutrition benefits also constitute "assistance." Further, the regulations define TANF assistance to include child care and transportation aid for nonworking persons. Child care and transportation for working parents are explicitly excluded from the definition of assistance. As discussed above, states may count toward meeting the MOE requirement their expenditures in any program providing specified benefits and services to TANF-eligible families. Programs other than TANF that contribute toward the MOE are known as "separate state programs." Table 4 summarizes the application of TANF requirements for assistance recipients based on whether a benefit was financed from federal funds, state funds within the "TANF program," or separate state programs. Before FY2007, the major distinction in the rules for using state MOE funds under TANF and separate state programs was that the TANF work participation standards and child support requirements did not apply to families in separate state programs. Beginning in FY2007, work participation standards do apply to families in a separate state program. This leaves the major distinction that child support requirements do not apply to states for families in separate state programs. TANF requires that a family have a minor child to be eligible for assistance, including ongoing cash welfare. TANF law defines a minor child as a person under the age of 18 or age 18 and still in school. Childless individuals and couples are not eligible for TANF assistance, except that assistance can be provided to a family with a pregnant woman. Additionally, a family receiving assistance must be needy —that is, have income below a specified level, though the level is determined by the state. Federal law also prohibits states from using federal TANF funds to provide assistance to the following persons and families: families with an adult who has received federally funded aid for 60 months (see " The TANF Time Limit "); unwed teen parents, unless living in an adult-supervised setting; teens who have not completed high school, unless they are making satisfactory progress toward achieving a high school or equivalent credential or in an alternative training program; noncitizens who arrived in the United States after August 22, 1996, for the first five years after arrival; fugitive felons and parole violators; and persons convicted of a drug-related felony, unless the state affirmatively opts out of this provision. States that misuse federal TANF funds and assist such persons or families are penalized through a reduction in their block grant. However, states may provide assistance to these persons and families using MOE funds. Aside from the requirement that TANF assistance be restricted to needy families with children and the listed statutory prohibitions on the use of federal funds, states have broad leeway to define eligibility for TANF cash assistance. States determine actual income eligibility standards (to determine whether a family is needy) and can determine other conditions and criteria for eligibility. States also determine benefit amounts paid to families. In certain cases, the parent or caretaker relative is ineligible for assistance, but the children in their care are eligible. In these cases, benefits are paid on behalf of the children only; there is technically no adult recipient. These are known as "child-only" families receiving TANF assistance. The most common forms of "child-only" families are those where the parent is a recipient of Supplemental Security Income (SSI), the parent is a noncitizen ineligible for TANF assistance, or the child is being cared for by a nonparent caretaker relative (e.g., grandparent, aunt, or uncle). With respect to families receiving assistance, TANF requires states to assess each adult recipient's or teen parent's skills, work experience, and employability. The assessment is required to be made within 90 days of determination of the recipient's eligibility for assistance. engage each parent or caretaker adult in "work," as defined by the state, within 24 months of his or her coming on the rolls. For this requirement, the state is free to determine what constitutes being engaged in work. sanction a family with a member who refuses to comply with its work requirements without "good cause." States are free to determine the sanction amount, and whether to reduce benefits or terminate benefits for families that fail to comply with work requirements (a full-family sanction). States also determine what constitutes "good cause" for not complying with work requirements. States are prohibited from sanctioning a family with a single parent with a child under the age of six if he or she refuses to comply with work requirements because he or she cannot find affordable child care. meet numerical work participation standards. TANF sets minimum work participation standards that a state must meet. The standards are performance measures computed in the aggregate for each state, which require that a specified percentage of families be considered engaged in specified activities for a minimum number of hours. States are also required to have systems in place to verify work participation of individual recipients. The work participation standards apply to states, not individual recipients. Work requirements applicable to individuals, and the financial sanctions on families with individuals who fail to comply with them, are determined by the states. States have considerable latitude in designing work requirements that apply to individuals, as long as the state meets its numerical participation standard. To comply with TANF requirements, a state must meet two standards each year—the "all-family" and the "two-parent" family participation standards. The standards are that (1) 50% of all families and (2) 90% of two-parent families must meet participation standards. These statutory standards are reduced by "credits" that vary by state and by year. States receive credits for caseload reduction and for spending state funds in excess of what is required under the MOE. TANF statute includes a caseload reduction credit. The caseload reduction credit reduces the 50% and 90% standards for a state by one percentage point for each percent decline in the cash assistance caseload from FY2005 levels. A state is not given a credit for caseload reduction attributable to more restrictive policy changes made since FY2005. Under HHS regulations promulgated in 1999, a state may also receive credits for spending in excess of what it is required to spend under the MOE requirement. A state may consider families assisted by excess MOE as "caseload reduction," and hence receive extra caseload reduction credits for such families. For example, if a state receives a 25 percentage point credit for caseload reduction and excess MOE spending, the statutory all-family standard of 50% is reduced by 25 percentage points—from 50% to 25%. In this example, a state's "effective standard" is 25%. If a state receives a credit of 50 percentage points for caseload reduction and excess MOE spending, its all-family standard is reduced by 50 percentage points—from 50% to 0%. To determine compliance with TANF federal work standards, a "work participation rate" is computed and then compared to a state's effective participation standard (i.e., statutory standard reduced by credits). The TANF work participation rate represents the percent of non-excluded families receiving assistance who are considered "engaged in work" during a fiscal year. Only families with a "work-eligible" individual are included in the calculation of the TANF work participation rate. Under TANF, work-eligible persons are either adults or teen heads of households who are recipients of assistance, or certain non-recipient parents of children receiving assistance who are expected to work. The following adults in TANF or MOE-funded households are not considered work-eligible: adult non-recipients who are non-parent caretakers (e.g., grandparent, aunt, uncle); ineligible noncitizen parents; at state option, parents receiving Supplemental Security Income (SSI); parents who are needed in the home to care for disabled family members; at state option, parents who are Social Security Disability Insurance (SSDI) recipients; and at state option, a parent who became eligible for SSI during the fiscal year. Additionally, states may exclude from the calculation of the work participation rate (1) families consisting of a single parent caring for an infant, though this exclusion is limited to 12 months in a recipient's lifetime; (2) families being sanctioned, though this exclusion is limited to 3 months in a 12-month period; and (3) families participating in tribal TANF programs. Work-eligible individuals must participate in specific activities during a month for a state to count them as "engaged in work" and have the activities count toward the work participation standard. Work-eligible individuals must also participate in activities for a minimum number of hours per week in a month to be considered "engaged in work." In general, single parents with a pre-school aged child (under the age of six) must participate for at least 20 hours per week in a month; other single parents must participate at least 30 hours per week in a month. Two-parent families must participate for more hours to be counted as engaged in work. Most welfare-to-work activities are on the list of 12 activities that count toward the participation standards, including educational and rehabilitative activities. The statute lists the 12 activities; the Deficit Reduction Act of 2005 ( P.L. 109-171 ) required HHS to define each of the 12 activities. Table 5 shows the 12 TANF work activities and their regulatory definitions. There are limits on the ability of states to count participation in pre-employment activities such as education, rehabilitative activities, and job search toward the work standards: For work-eligible individuals age 20 and older, participation in a GED program counts only if the recipient also participates in activities more closely related to work for at least 20 hours per week. Vocational educational training may be counted only for 12 months in a recipient's lifetime. The combination of job search and rehabilitative activities (e.g., rehabilitation from a disability, substance abuse treatment) is limited to a maximum of 12 weeks in a 12-month period. Teen parents (under the age of 20) may be deemed "engaged in work" through completing high school or obtaining a General Educational Development (GED) diploma. A state that fails to meet the TANF work participation standard is at risk of being penalized by a reduction in its block grant. The penalty is a 5% reduction in the block grant for the first year's failure to meet the standard, and increased by 2 percentage points each year (that is, a total reduction of 7% in the second year and 9% in the third year, etc.), up to a maximum penalty of 21%. The law also requires that this penalty be based "on the degree of noncompliance." Thus, actual penalties may be lower than the amounts based on the percentages set in statute. A state may reduce or avoid penalties for failure to meet their work participation standard through either claiming "reasonable cause" for the failure, or entering into a corrective compliance plan. States in a corrective compliance plan can avoid the penalty if they come into compliance (meet TANF participation standards) within the time frame of the plan. Further, penalties may be reduced if a state is in recession (based on the contingency fund's indicators of an economically needy state; see " Contingency Fund ") or if the noncompliance was due to "extraordinary circumstances, such as a natural disaster or regional recession." Additionally, penalty relief is granted to a state that has failed to comply with participation standards because of waivers of program requirements provided to victims of domestic violence (see " Special Provisions for Victims of Domestic Violence "). States are required to have procedures to verify recipients' work participation: identifying who is subject to or excluded from work standards; how a recipient's activities represent countable TANF work activities; and how to count and verify reported hours of work. HHS regulations require that descriptions of these procedures be included in a state work verification plan. States that fail to comply with these work verification requirements are subject to a penalty of between 1% and 5% of the state's block grant. States may not use federal TANF funds to provide assistance to a family containing an adult who has received five years (60 months) of assistance. The federal TANF time limit does not apply to families without an adult recipient, the "child-only" cases. The federal five-year time limit is a prohibition on states' use of federal TANF funds, not a direct limitation on how long a particular family may receive welfare. How time limits affect families is determined by states, which have wide latitude in implementing them. Federal law provides a hardship exception to the time limit, allowing federal funds to be used in cases of hardship for up to 20% of the caseload beyond the five-year limit. Further, federal law explicitly allows a state to use state MOE funds to aid a family beyond the time limit. TANF penalizes states that have more than 20% of their caseload on the rolls for more than five years. The penalty is a 5% reduction in the block grant. Many states have adopted the five-year limit as their own; others have shorter time limits. A few states effectively do not limit the amount of time a family may receive assistance, either providing aid to families beyond five years using state funds (e.g., New York) or eliminating assistance paid on behalf of the family's adults after a time limit and continuing benefits indefinitely only on behalf of the children (e.g., California). Families receiving cash assistance are often headed by a single mother. In most of these families, there is a noncustodial parent who is also likely to be financially responsible for the children's economic well-being. TANF has requirements that assistance recipients cooperate with child support enforcement and assign their child support to the state as a condition of receiving assistance within the TANF program. As discussed in " Assistance Provided in the TANF Program or in Separate State Programs ," these requirements do not apply if assistance is provided through a "separate state program." Families receiving TANF assistance must cooperate with the state in establishing the paternity of a child and in establishing, modifying, or enforcing orders that the noncustodial parent pay child support. Federal law requires states to penalize families who do not cooperate with child support enforcement requirements by cutting their benefits at least 25%. States could penalize families by more, and even end assistance for failure to cooperate with child support enforcement requirements. Families receiving TANF assistance must assign (legally turn over) any child support they receive from noncustodial parents to their state as a reimbursement for welfare costs. The federal government and the states split the receipts from assigned child support. A state has the option of passing through assigned child support to TANF families. The federal government shares in the cost of passing through child support paid to TANF families as long as the child support is also disregarded in determining TANF eligibility and benefit amounts. State expenditures from the pass-through of child support, if disregarded in determining a welfare family's benefit, are countable toward the TANF MOE. Federal law provides for an optional certification that a state has procedures in place to screen for and identify victims of domestic violence, refer such victims to supportive services, and waive certain program requirements. The program requirements that may be waived include work requirements, the time limit, and cooperation with child support enforcement rules. Though the state may waive certain program requirements for victims of domestic violence, federal law does not exclude them from the TANF work participation rate standard calculation or from the 20% limit on hardship cases that exceed the five-year time limit. However, HHS regulations allow a state to provide victims of domestic violence a federally recognized good cause domestic violence waiver, and provide that a state would have "good cause" for failing the requirements if that failure was due to providing such waivers. A federally recognized domestic violence waiver must identify program requirements that are being waived; be granted based on an individualized assessment; and be accompanied by a services plan. These waivers must be reassessed at least every six months. States generally pay benefits by placing funds on Electronic Benefit Transaction (EBT) cards to be used by recipients making withdrawals from Automated Teller Machines (ATMs) or making purchases at point-of-sale terminals. Federal law requires states to maintain policies and practices to prevent TANF assistance funds from being used in an EBT transaction in liquor stores, casinos or gaming establishments, and strip clubs. States must prevent TANF cash withdrawals at ATMs in such establishments, and prevent purchases using TANF assistance on EBT cards at point-of-sale terminals in such establishments. States had two years after the enactment of P.L. 112-96 (enacted February 22, 2012) to implement these policies. Additionally, TANF state plans are required to ensure that recipients (1) would have adequate access to their benefits; (2) would have access to their benefits at minimal fees or charges, including free access; and (3) are provided information on applicable fees and charges. As previously discussed, most TANF federal requirements relate to "assistance." However, TANF gives states permission to spend federal funds and count state spending toward the MOE on a wide range of benefits and services other than assistance. Essentially, TANF and MOE funds may be spent on benefits, services, or activities aimed to achieve any of the goals of TANF. Examples of such benefits and services include short-term, non-recurring aid, child care for families with working members, transportation aid for families with working members, refundable tax credits for working families with children, funding of Individual Development Accounts (IDAs), education and training for low-income parents, youth employment programs, and activities that seek to achieve the family formation goals (goals three and four) of TANF. Such benefits and services may be provided to families receiving assistance, but also might be provided to other families who have no connection to the cash welfare rolls. Federal law gives states broad flexibility in designing and implementing state programs operated with TANF and MOE funds. It also requires states to develop plans that outline their intended use of funds and report data on families receiving assistance. States are required to submit state plans every three years as a condition of receiving TANF block grant funds. The bulk of these plans is an "outline" of the program the state "intends" to operate. The Secretary of HHS cannot disapprove a state plan based on its content. Rather, the role of the Secretary is to determine whether the state has included information on all required elements of the plan. State plans have no set format, and vary greatly in their content and detail. State plans are not required to have—and often do not have—information on basic financial and nonfinancial eligibility rules for TANF assistance. For example, a state is not required to provide information on income eligibility rules, treatment of earnings, or information on its time limit in the state plan. Some eligibility information is collected for programs funded with MOE dollars in annual program reports, but it is not of the detail necessary to describe, for example, the maximum amount of earnings a family may have and still remain eligible for TANF assistance. TANF law and regulations require states to provide information on families receiving assistance. States must provide both caseload counts and family- and recipient-level information on families receiving assistance. Family- and individual-level information that states must report includes basic demographic information, the work activities hours of adults, and the financial circumstances of families and individual recipients receiving assistance. Neither caseload counts nor characteristic information is required to be reported for families receiving TANF-funded benefits and services that are not considered assistance. P.L. 112-96 requires the Secretary of HHS to issue a rule to create standards for data required to be reported under TANF to better facilitate its exchange with other data systems. TANF also provides funding for healthy marriage promotion, demonstration projects to test the effectiveness of Indian tribal governments in coordination of child welfare services, and responsible fatherhood initiatives. Total annual funding of $150 million has been provided for healthy marriage and responsible fatherhood initiatives. Since FY2011, the $150 million appropriation has been divided by $75 million for responsible fatherhood initiatives and $75 million for healthy marriage initiatives. Any funds allocated for tribal child welfare coordination demonstrations would equally reduce the $75 million allotted for healthy marriage and responsible fatherhood initiatives. The healthy marriage promotion initiative funds (1) awards by HHS to public or private entities to conduct research and demonstration projects; and (2) technical assistance to states, Indian tribes and tribal organizations, and other entities. The activities supported by these initiatives include programs to promote marriage in the general population, such as public advertising campaigns on the value of marriage and education in high schools on the value of marriage; education in "social skills" (e.g., marriage education, marriage skills, conflict resolution, and relationship skills); and programs that reduce the financial disincentives to marry, if combined with educational or other marriage promotion activities. Applicants for marriage promotion grants must ensure that participation in such activities is voluntary and that domestic violence concerns are addressed (e.g., through consultations with experts on domestic violence). Allowable activities under responsible fatherhood initiatives include those to promote marriage; teach parenting skills through counseling; mentoring, mediation, and dissemination of information; employment and job training services; media campaigns; and development of a national clearinghouse focused on responsible fatherhood. Federally recognized Indian tribes and certain Alaskan Native organizations have the option to operate their own TANF programs for needy families with children. Tribes are entitled to receive a grant equal to the amount of FY1994 federal expenditures in pre-TANF programs attributable to Indian families residing in the area to be served by the tribal program. This is financed by a reduction in the state's block grant amount. States may, but are not required to, provide tribes with MOE funds. Tribes seeking to operate TANF programs must submit plans to the Secretary of HHS for approval. The Secretary of HHS—with the participation of the tribes—establishes work requirements and time limits for each tribe operating its own TANF program. Additionally, tribes that operated pre-TANF work and education programs are provided grants to operate tribal work programs that total $7.6 million per year. The amount of each grant equals what the tribe received in FY1994 under pre-TANF programs.
|
The Temporary Assistance for Needy Families (TANF) block grant provides federal grants to the 50 states, the District of Columbia, the territories, and American Indian tribes for a wide range of benefits, services, and activities. It is best known for helping states pay for cash welfare for needy families with children, but it funds a wide array of additional activities. TANF was created in the 1996 welfare reform law (P.L. 104-193). At the federal level, TANF is administered by the Department of Health and Human Services (HHS). TANF provides a basic block grant that totals $16.5 billion. It also requires states to contribute in the aggregate from their own funds at least $10.3 billion for benefits and services to needy families with children—this is known as the maintenance-of-effort (MOE) requirement. TANF and MOE funds may be used in any manner "reasonably calculated" to achieve TANF's statutory purpose. This purpose is to increase state flexibility to achieve four goals: (1) provide assistance to needy families with children so that they can live in their own homes or the homes of relatives; (2) end dependence of needy parents on government benefits through work, job preparation, and marriage; (3) reduce out-of-wedlock pregnancies; and (4) promote the formation and maintenance of two-parent families. Though TANF is a block grant, there are some strings attached to the use of its funds. Most TANF requirements apply to families receiving assistance. Assistance is often, but not exclusively, in the form of a cash benefit. Families must be financially needy and have a minor child to qualify for assistance; however, individual states and tribes determine the exact financial eligibility rules and benefit amounts for their programs. Some families have eligible children but the adults who care for their children are ineligible for aid. These are termed "child-only" families because benefits are paid only on behalf of the children. States and tribes must meet TANF work participation standards or risk a reduction in their block grant. For the states, the law sets standards stipulating that at least 50% of all families and 90% of two-parent families be "engaged in work." Some families receiving TANF assistance are excluded from the calculation. Additionally, these statutory standards are reduced by credits for caseload reduction and state spending in excess of what is required under the TANF MOE. These credits and the effective (after credit) participation targets vary by state and year. Activities countable toward a family being "engaged in work" are focused on employment or working off the cash benefit, or are intended to rapidly attach welfare recipients to the workforce; education and training is countable, but limited. Work requirements for tribal programs are set by negotiation between the tribes operating the program and HHS. Federal TANF funds may not be used for a family with an adult who has received assistance for 60 months. This is the five-year time limit on welfare receipt. However, up to 20% of the caseload may be extended beyond the five years for reason of "hardship." Each state may have its own definition of hardship. Additionally, funds spent to meet the TANF MOE requirement may be used to provide assistance to families beyond five years. TANF work participation rules and time limits do not apply to families receiving benefits and services not considered "assistance." Such benefits and services include child care and transportation aid for families with earnings, state earned income tax credits for working families, activities to reduce out-of-wedlock pregnancies, activities to promote marriage and two-parent families, and activities to help families that have experienced or are "at risk" of child abuse and neglect.
|
The American Recovery and Reinvestment Act (ARRA, P.L. 111-5 ) provided $7.2 billion primarily for broadband grant and loan programs to be administered by two separate agencies: the National Telecommunications and Information Administration (NTIA) of the Department of Commerce (DOC) and the Rural Utilities Service (RUS) of the U.S. Department of Agriculture (USDA). The ARRA directed broadband grant and loan funding in the following way: $4.35 billion to NTIA/DOC for a competitive broadband grant program including broadband infrastructure grants, competitive grants for expanding public computer capacity, and grants to encourage sustainable adoption of broadband service. The NTIA grant program is called the Broadband Technology Opportunity Program (BTOP). $2.5 billion to RUS/USDA for broadband grants, loans, and loan/grant combinations. The law states that 75% of the area to be served by an eligible project must be a rural area. A rural area is defined as any area not located within a city, town, or incorporated area that has a population of greater than 20,000 inhabitants; or not located within an urbanized area contiguous and adjacent to a city or town that has a population of greater than 50,000 inhabitants. The RUS broadband grant and loan program is called the Broadband Initiatives Program (BIP). Subsequently, P.L. 111-226 (the education jobs and Medicaid funding bill), signed into law on August 10, 2010, rescinded $302 million of unobligated BTOP money from NTIA. There were two rounds of ARRA broadband funding. The first funding round was announced with the release of a Notice of Funds Availability (NOFA) on July 1, 2009. The second funding round NOFAs were released on January 15, 2010. The ARRA mandated that all funding be obligated and awarded by September 30, 2010. As of October 1, 2010, all ARRA broadband funds have been awarded. This report focuses on the distribution of ARRA broadband funding. The following presents a breakdown of applications and awards data as of October 1, 2010. The first funding round was announced with the release of a Notice of Funds Availability (NOFA) on July 1, 2009. Broadband grants and loans fell into several first round project categories. For BTOP, projects could be: last mile , defined as any broadband infrastructure project the predominant purpose of which is to provide broadband service to end users; middle mile , defined as a broadband infrastructure project that does not predominantly provide broadband service to end users and may include interoffice transport, backhaul, Internet connectivity, or special access (up to $1.2 billion in grants available for infrastructure consisting of last mile and middle mile projects); public computer centers , which provide broadband access to the general public or a specific vulnerable population (up to $50 million in grants available); or sustainable broadband adoption , which demonstrate a sustainable increase in demand for and subscribership to broadband services (up to $150 million in grants available). For BIP, projects could be: last mile remote area , where "remote area" is a rural unserved area at least 50 miles from a nonrural area (up to $400 million in grants available); last mile nonremote area (up to $800 million in loans and loan/grant combinations available); or middle mile (up to $800 million in loans and loan/grant combinations available). On September 9, 2009, NTIA and RUS released data on applications received during the first round application period. In total, over 2,200 applications requested nearly $28 billion in funding for proposed projects reaching all 50 states, five territories, and the District of Columbia. The total amount of federal funding requested was seven times the amount available in the first funding round. Table 1 provides a breakdown of first round applications data with respect to program and project category. On January 15, 2010, NTIA and RUS released NOFAs announcing the second and final round of ARRA broadband funding. A total of $4.8 billion was made available, consisting of $2.6 billion for BTOP and $2.2 billion for BIP. Based on the agencies' experiences with the first round, and drawing on public comments collected from a November 16, 2009, Joint Request for Information (RFI), both NTIA and RUS streamlined the application process and made significant changes to how the second round of BTOP and BIP would be structured and conducted. Highlights included the following: Unlike the first round, each agency had its own separate NOFA, and applicants had the option of applying to either BTOP or BIP, but not to both. NTIA/BTOP primarily focused on middle mile broadband infrastructure projects, while RUS/BIP focused primarily on last mile projects. BTOP reoriented its infrastructure program towards Comprehensive Community Infrastructure (CCI) grants, which support middle mile projects serving anchor institutions such as community colleges, libraries, hospitals, universities, and public safety institutions. BIP eliminated the "Remote Last Mile" project category, and offered a standard grant/loan combination (75% grant/25% loan) for all last mile and middle mile projects (unless waivers were sought). The first round requirement that eligible infrastructure projects must cover "unserved" or "underserved" areas was eliminated. In the second round, BIP projects were required to cover an area that is at least 75% rural and that does not have High Speed Access broadband service at the rate of 5 Mbps (upstream and downstream combined) in at least 50% of its area. Eligible BTOP projects required only an applicant that is an eligible entity, a fully completed application, and a nonfederal match of 20% or more. However, during the application evaluation, factors such as unserved and underserved areas, remoteness, and delivered speed were considered. BIP added three new grant programs: Satellite Projects, Rural Library Broadband, and Technical Assistance. RUS published a separate Request for Proposals for each of these programs. On April 7, 2010, NTIA announced it had received 867 applications for second round funding, totaling $11 billion in requested federal funding. The applications broke down as follows: 355 applications requesting a total of $8.4 billion for Comprehensive Community Infrastructure, 251 applications requesting $1.7 billion for Sustainable Broadband Adoption, and 261 applications requesting $0.922 billion for Public Computer Centers. On April 16, 2010, RUS announced it had received a total of 776 applications requesting nearly $11.2 billion in federal funds. Of that total, RUS received 30 middle mile applications requesting a total of $845.88 million. Combined, NTIA and RUS received 1643 applications in the second round, requesting a total of $22.2 billion in federal funds. This is 26% less than the number of applications received by both agencies in the first round, and 21% less than the amount of federal funding requested in the first round. Additionally, on August 30, 2010, RUS announced it received 27 applications for Satellite Projects, 51 applications for Technical Assistance, and 2 applications for Rural Library Broadband. As of October 1, 2010, all BTOP and BIP award announcements were complete. In total, NTIA and RUS announced awards for 553 projects, constituting $7.5 billion in federal funding. This included 233 BTOP projects (totaling $3.9 billion) and 320 BIP projects (totaling $3.6 billion). Of the $7.5 billion total announced, $6.2 billion was grant funding, and $1.3 billion was loan funding. The following is a breakdown of awards data by project category and program, broadband technology deployed, and state-by-state distribution of funding. Awards data are derived from NTIA and RUS press releases, BTOP project information, the BIP Round Two Application Directory, BIP awards reporting publications, and the Broadband USA applications database. Table 2 and Table 3 provide breakdowns of awards data by project category and program. Of all broadband infrastructure funding, about half (51%) was awarded to middle mile projects (includes Comprehensive Community Initiative and public safety grants), and 49% was awarded to last mile projects (includes satellite grants). Middle mile projects are predominantly (but not exclusively) BTOP, while last mile projects are predominantly BIP. Given that only BIP offered loan funding, it is not surprising that the vast majority of loan funding (93%) was awarded to last mile projects. Deployment of broadband infrastructure can encompass a number of different types of technologies, including fiber, wireless, cable modem, DSL, satellite, and others. Table 4 shows that of all infrastructure projects funded, 56% are fiber projects. Additionally, given that most of the projects involving multiple technologies involve a deployment of both fiber and wireless technologies, it would be accurate to state that projects involving fiber account for about two-thirds of all infrastructure projects. Of last mile project technologies, 47% are fiber, 23% are DSL, 17% are wireless, 6% are multiple, 3% are cable modem, 1% are satellite, and the rest were unable to be determined from the public information that was released. Table A-1 in the Appendix shows a state-by-state breakdown of BTOP and BIP funding, while Table A-2 shows per capita funding by state. Funding is associated with a state based on the service area covered by the project. For BTOP grants, amounts shown may include the NTIA-estimated per-State share of any awards that impact multiple states. Table A-3 lists both NTIA and RUS multistate awards. With the broadband awards process concluded, NTIA and RUS move towards monitoring and overseeing the progression of the funded projects. Projects must be substantially completed within two years and fully completed within three years. In its FY2011 budget proposal, the Administration requested $23.7 million for NTIA to continue operating its grant management office. The Continuing Appropriations and Surface Transportation Extension Act, 2011 ( P.L. 111-322 ), which funds the federal government through March 4, 2011, includes a $20 million addition to the Salaries and Expenses account which can be used for BTOP oversight. Meanwhile, NTIA has awarded a $5 million, four-year contract to Potomac, MD-based ASR Analytics to measure the impact of BTOP grants on broadband availability, adoption, and on economic and social conditions in areas served by grantees. Funding for the award was obtained through the Department of Interior's National Business Center. The 112 th Congress is likely to provide oversight on NTIA and RUS efforts to monitor the funded projects. In the longer term, the FCC's National Broadband Plan has recommended an expansion of federal funding for broadband deployment in unserved areas. To the extent that Congress may consider whether broadband grant and loan programs should be continued, modified, reduced, expanded, or eliminated, the funding patterns and trends that emerged during rounds one and two, as well as the ultimate successes and failures of funded BTOP and BIP projects, could provide insights into whether and how such programs might be addressed, and how these or similar programs might be fashioned within the context of a national broadband policy.
|
The American Recovery and Reinvestment Act (ARRA, P.L. 111-5) provided $7.2 billion primarily for broadband grant and loan programs to be administered by two separate agencies: the National Telecommunications and Information Administration (NTIA) of the Department of Commerce (DOC) and the Rural Utilities Service (RUS) of the U.S. Department of Agriculture (USDA). The NTIA grant program is called the Broadband Technology Opportunity Program (BTOP). The RUS broadband grant and loan program is called the Broadband Initiatives Program (BIP). As of October 1, 2010, all BTOP and BIP award announcements were complete. In total, NTIA and RUS announced awards for 553 projects, constituting $7.5 billion in federal funding. This included 233 BTOP projects (totaling $3.9 billion) and 320 BIP projects (totaling $3.6 billion). Of the $7.5 billion total announced, $6.2 billion was grant funding, and $1.3 billion was loan funding. This report focuses on the distribution of ARRA broadband funding with respect to project category, broadband infrastructure technology deployed, and state-by-state distribution. Of all broadband infrastructure funding, about half was awarded to middle mile projects and half was awarded to last mile projects. Deployment of broadband infrastructure can encompass a number of different types of technologies, including fiber, wireless, cable modem, DSL, satellite, and others. Projects involving fiber accounted for about two-thirds of all infrastructure projects. The 112th Congress is likely to provide oversight on NTIA and RUS efforts to monitor the funded projects. In the longer term, the FCC's National Broadband Plan has recommended an expansion of federal funding for broadband deployment in unserved areas. To the extent that Congress may consider whether broadband grant and loan programs should be continued, modified, reduced, expanded, or eliminated, the funding patterns and trends that emerged during rounds one and two, as well as the ultimate successes and failures of funded BTOP and BIP projects, could provide insights into whether and how such programs might be addressed, and how these or similar programs might be fashioned within the context of a national broadband policy.
|
One facet of the broader debate over aliens who are present in the United States in violation of federal immigration law has been their eligibility for driver's licenses and other forms of government-issued identification documents (IDs). The issuance of driver's licenses has historically been considered a state matter, and states have taken a variety of approaches here. Some states, responding to concerns about national security, the rule of law, or the presence of "illegal aliens" within their jurisdiction, have adopted measures that directly or indirectly bar such aliens from obtaining driver's licenses and other state-issued ID. In contrast, other states, motivated by concerns related to community policing or the welfare of immigrant communities, have adopted measures that permit unlawfully present aliens to obtain driver's licenses and other ID. While these licenses may—or may not—be visually distinct from the licenses issued to U.S. citizens and lawfully present aliens, some states do not purport to restrict the license's use for ID purposes, a widely recognized function of driver's licenses. Yet other states, seeking to promote traffic safety by screening drivers, but not wishing to issue driver's licenses to unlawfully present aliens, have adopted measures that permit these aliens to obtain "Certificates for Driving" (CFDs) or "Driving Privilege Cards" (DPCs), but not driver's licenses. These CFDs or DPCs note, on their face, that they are valid for driving, but not for purposes of identification. There has been similar divergence in terms of whether local governments provide alternate forms of ID to unlawfully present aliens, and in state and local approaches to recognizing consular IDs (e.g., Mexico's matrícula consular). The federal government has generally not intruded on state control over the issuance of driver's licenses, although the REAL ID Act of 2005 will, when fully implemented, bar federal agencies from accepting, "for any official purpose," licenses or ID cards issued by states that do not meet specific requirements. Congress also regulates immigration, which some have claimed means that state measures regarding the issuance of driver's licenses to unlawfully present aliens are preempted. In particular, Congress has enacted legislation that restricts unlawfully present aliens' eligibility for state and local public benefits , a term that has been defined to include certain state-issued licenses, as well as "assistance" provided by state agencies or state funds. This report provides an overview of key legal issues raised by state laws regarding the denial or issuance of driver's licenses and other forms of ID to unlawfully present aliens. It also addresses the legal issues raised by local governments issuing ID cards to unlawfully present aliens, as well as by state and local approaches to recognizing foreign-issued ID documents. State measures that would deny or provide driver's licenses and other forms of government-issued ID to unlawfully present aliens have been challenged on various grounds. These grounds can vary depending upon the specific statute or practice in question. However, the grounds most commonly asserted appear to be violations of the Equal Protection and Supremacy Clauses of the U.S. Constitution. Thus, these provisions are the focus of discussion in this report, and the following paragraphs provide an overview of the basic principles implicated in discussions of equal protection and preemption. The Equal Protection Clause of the Fourteenth Amendment bars states from "deny[ing] to any person within [their] jurisdiction the equal protection of the laws." Aliens have been found to be encompassed by the Fourteenth Amendment's usage of "person." As a result, measures that would treat aliens differently than citizens may be subject to challenge on equal protection grounds. The level of scrutiny applied by the courts in reviewing such measures frequently determines whether the measure is upheld or struck down. With "rational basis review," the challenged measure will generally be upheld if it is a rational means of promoting a legitimate government objective. The measure is "presumed constitutional," and those challenging the law have the burden of negating all possible rational justifications for the classification. In contrast, with "strict scrutiny," the challenged measure will be upheld only if the government can demonstrate that the measure is necessary to achieve a compelling interest and is narrowly tailored for that purpose. Courts have also applied other tests, falling between rational basis review and strict scrutiny, in some cases due to the persons or rights affected by the measure. The level of scrutiny applied to measures that classify on the basis of alienage depends, in part, on whether the measure is a federal one, or a state or local one. Because Congress's plenary power over immigration permits it to enact measures as to aliens that would be unconstitutional if applied to citizens, federal classifications based on alienage are subject to rational basis review, and have generally been upheld. For example, in its 1976 decision in Mathews v. Diaz , the Supreme Court upheld a federal law that barred lawful permanent residents (LPRs) who had not resided in the United States for five years from enrolling in Medicare Part B, because it viewed the measure as a valid exercise of the federal government's authority to regulate the entry and residence of aliens, not as "irrational." State and local measures, in contrast, have generally been subject to strict scrutiny, unless (1) the restrictions involve "political and governmental functions," or (2) Congress has "by uniform rule prescribed what it believes to be appropriate standards for the treatment of an alien subclass." However, it is important to note that the Supreme Court decisions applying strict scrutiny to state or local measures that treat aliens differently than citizens all involved LPRs, and the Supreme Court has expressly noted that "undocumented status is not irrelevant to any proper legislative goal." In the 1982 decision in which it stated this, Plyler v. Doe , the Court applied what has since come to be characterized as "intermediate scrutiny" in striking down a Texas statute that prohibited the use of state funds to provide elementary and secondary education to children who were not "legally admitted" to the United States. However, later courts and commentators have suggested the heightened level of scrutiny applied in Plyler reflects the facts and circumstances of the case—which involved a law that a majority of the Court viewed as depriving "minor children" of a "basic education" —and is not generally applicable to classifications affecting unlawfully present aliens. The Supreme Court has recognized a fundamental right to interstate travel, the deprivation of which generally results in the application of strict scrutiny by the courts when assessing the permissibility of the measure. However, courts have also taken the view that restrictions on a particular mode of travel (e.g., driving) do not necessarily constitute a deprivation of the right to travel. The ability to obtain a driver's license or other state-issued identification has not been recognized as a fundamental right. The doctrine of preemption, in turn, derives from the Supremacy Clause of the U.S. Constitution, which establishes that federal law, treaties, and the Constitution itself are "the supreme Law of the Land, ... any Thing in the Constitution or Laws of any state to the Contrary notwithstanding." Thus, one essential aspect of the federal structure of government is that states can be precluded from taking actions that would otherwise be within their authority if federal law would be thwarted thereby. Because the Constitution entrusts Congress with the power to regulate immigration, state or local measures that purport to regulate immigration—by determining which aliens may enter or remain in the United States, or the terms of their continued presence—are, per se, preempted, regardless of whether Congress has legislated on the matter. Other measures, which affect aliens, but do not constitute regulation of immigration, could also be found to be preempted, depending upon the scope of any congressional enactments. Specifically, federal statutes may preempt state and local measures in one of three ways: the statute expressly indicates its preemptive intent ( express preemption ); a court concludes that Congress intended to occupy the regulatory field, thereby implicitly precluding state or local action in that area ( field preemption ); or state or local action directly conflicts with or otherwise frustrates the purpose of the federal scheme ( conflict preemption ). However, state action in fields that have traditionally been subject to state regulation may be accorded a presumption against preemption whenever Congress legislates in the field. States have historically regulated the issuance of driver's licenses, and at least one court has suggested that a presumption against preemption may apply in cases involving restrictions upon the issuance of driver's licenses to unlawfully present aliens. Two federal statutes are generally also noted, along with the federal government's power to regulate immigration, in discussions of whether state measures regarding unlawfully present aliens' eligibility for driver's licenses are preempted. The first of these statutes, the REAL ID Act of 2005, augmented standards for federal agencies' acceptance of certain state driver's licenses and other forms of identification, including by establishing new minimum standards that states must satisfy if the driver's licenses or ID cards they issue are to be accepted by federal agencies for any "official purpose." Notably, in order for a state-issued ID to be accepted by federal agencies for an official purpose, the state issuing the ID must require valid documentary evidence of an applicant's legal status. Specifically, evidence generally must be submitted that the applicant falls under one of the following nine categories: is a citizen or national of the United States; is an alien lawfully admitted for permanent or temporary residence in the United States; has conditional permanent resident status in the United States; has an approved application for asylum in the United States or has entered into the United States in refugee status; has a valid, unexpired nonimmigrant visa or nonimmigrant visa status for entry into the United States; has a pending application for asylum in the United States; has a pending or approved application for temporary protected status in the United States; has approved deferred action status; or has a pending application for adjustment of status to that of an alien lawfully admitted for permanent residence in the United States or conditional permanent resident status in the United States. In satisfying the REAL ID Act's standards, a state may only issue a temporary driver's license or ID card to an applicant who provides documentation that he or she falls under one of the latter five categories listed above. This license or ID must either (1) be valid only for the period of time that the alien is authorized to stay in the United States, or (2) expire within one year of its issuance, if the alien is authorized to stay within the United States for an indefinite period. The initial deadline for compliance with REAL ID Act requirements was May 11, 2008—three years after the act's date of enactment. However, the act permits the Secretary of the Department of Homeland Security (DHS) to extend the deadline for a state to comply with the act's minimum standard requirements, provided that the state has provided DHS with "an adequate justification for noncompliance." The Secretary of DHS has extended this deadline on a few occasions, and has also deferred enforcement of the act with respect to federal recognition of non-compliant state IDs. As of the date of this report, a majority of states and territories have either been deemed compliant with the act's requirements by DHS or have been granted an extension to achieve compliance. A few states and territories do not currently have an extension in effect, and are not deemed to be in compliance with the act. On December 20, 2013, DHS announced a timeline for the implementation of the act's requirements through a "phased enforcement plan," under which federal agencies shall begin restricting their acceptance of IDs for official purposes from noncompliant states and territories. The second statute, the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996, as amended, generally bars state and local governments from providing "state and local public benefits" to unlawfully present aliens unless the state enacts legislation that "affirmatively provides" for their eligibility, and defines state and local public benefit to mean the following: (A) any grant, contract, loan, professional license, or commercial license provided by an agency of a State or local government or by appropriated funds of a State or local government; and (B) any retirement, welfare, health, disability, public or assisted housing, postsecondary education, food assistance, unemployment benefit, or any other similar benefit for which payments or assistance are provided to an individual, household, or family eligibility unit by an agency of a State or local government or by appropriated funds of a State or local government. PRWORA also required, as part of its provisions to improve child support enforcement, that states record applicants' Social Security numbers—which unlawfully present aliens generally cannot obtain —on applications for commercial driver's licenses. The Balanced Budget Act of 1997 extended this requirement to all driver's licenses. However, this provision has reportedly been construed as mandating that states have procedures which require individuals to furnish "any Social Security Number [they] may have" when applying for driver's licenses, not as "requiring that an individual have a social security number as a condition of receiving a license." Separate provisions in a companion measure to PRWORA, the Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA) of 1996, would have barred federal agencies from accepting, for "any identification-related purpose," driver's licenses or other state-issued ID that did not contain a Social Security number that could be read visually or electronically, among other things. However, these provisions of IIRIRA were repealed in 1999. Several states have adopted measures that bar unlawfully present aliens from obtaining driver's licenses and other state-issued ID. Sometimes, the prohibition is explicit, as is the case with Arizona, which has enacted legislation barring the state Motor Vehicle Division from issuing or renewing a license or ID to a "person who does not submit proof satisfactory to the department that the applicant's presence in the United States is authorized under federal law." In other cases, the denial may be effectuated by requiring that applicants for driver's licenses provide Social Security numbers, which generally cannot be issued to unlawfully present aliens. Legal challenges have been brought against both types of measures on the grounds that they violate the Equal Protection Clause by abridging the fundamental right to interstate travel and impermissibly distinguishing between aliens and citizens. Challenges have also been brought claiming that these measures are per se preempted because they regulate immigration and impliedly preempted by the REAL ID Act. To date, these legal challenges have generally failed. The one apparent exception involves challenges to recent state practices of issuing driver's licenses to some, but not all, aliens granted deferred action or employment authorization documents (EADs) by the federal government. In the decisions published to date, courts have generally rejected the argument that denying driver's licenses to unlawfully present aliens runs afoul of the Equal Protection Clause. Arguably key to the courts' findings here has been their determination that measures denying driver's licenses to unlawfully present aliens are subject to rational basis review, not some type of heightened scrutiny. In reaching this conclusion, courts have taken the view that the fundamental right to interstate travel is not implicated by such measures because restrictions on one mode of travel do not constitute deprivations of the right to travel, and aliens' right to travel is less extensive than citizens' right. Indeed, one court even questioned whether unlawfully present aliens have a "fundamental right to travel about this country when their mere presence here is a violation of federal law," and it is a federal crime to knowingly transport such aliens. Courts have also expressly declined to extend the same type of heightened scrutiny applied in Plyler to state measures denying driver's licenses to unlawfully present aliens. Those advocating for such an extension have noted that the "minor children," whose wellbeing the Court was concerned with in Plyler , are now adults, and argue that denying them a driver's license marginalizes them socioeconomically, just like denying them a "basic education" would have done. Courts, however, have rejected these arguments on the grounds that "the harm caused by the deprivation of a drivers [sic] license, while not insubstantial, pales in comparison with the harm caused by the denial of a basic education." Several courts have also distinguished the plaintiffs, as adults, from the unlawfully present minor children denied access to primary and secondary education in Plyler . Courts have further noted a range of "legitimate" government interests served by barring the issuance of driver's licenses and other forms of ID to unlawfully present aliens, including the state (1) not allowing itself to be used to "facilitat[e] the concealment of illegal aliens"; (2) preserving scarce resources by not issuing licenses to persons who may be deported; and (3) assuring the integrity of identity documents. However, while state measures denying driver's licenses to unlawfully present aliens have thus far been found to be generally permissible, there have been circumstances wherein the denial of licenses to particular aliens who entered or remained in the United States in violation of federal immigration law have been found to violate the Equal Protection Clause. For example, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit recently enjoined the State of Arizona from denying driver's licenses to aliens without legal status who have been granted deferred action and employment authorization documents (EADs) by the federal government on the grounds that the state's distinction between these aliens and other aliens granted relief from removal and EADs by the federal government cannot withstand rational basis review. The executive branch has long had a practice of granting deferred action—a type of relief from removal—to unlawfully present aliens who are not a priority for removal. Aliens granted deferred action lack legal immigration status, but generally do not accrue additional unlawful presence while covered by a grant of deferred action. They may also be granted EADs if they establish an "economic necessity" for employment. The Obama Administration's Deferred Action for Childhood Arrivals (DACA) initiative—which resulted in certain aliens without legal status who were brought to the United States as children being granted deferred action and work authorization—prompted resistance from some who are concerned about the apparent granting of deferred action to a group of people, rather than on an individual basis, among other things. In 2012, the governor of Arizona issued an executive order tasking state agencies with making any changes "necessary to prevent [DACA beneficiaries] from obtaining eligibility, beyond [that] available to any person regardless of lawful status, for any taxpayer-funded public benefits and state identification, including a driver's license." This order, in turn, prompted the Arizona Motor Vehicle Division to distinguish between those granted EADs as a result of DACA, and other aliens without legal immigration status who were granted EADs, in the issuance of driver's licenses. The state attempted to justify this distinction, in part, on the grounds that issuing licenses to DACA beneficiaries could lead to "improper access" to federal and state public benefits, and that the state would have to cancel their licenses if the DACA initiative were ended. However, the Ninth Circuit agreed with the reviewing district court that none of the justifications put forth by the state constitute a legitimate basis for the distinction between DACA beneficiaries and other aliens granted EADs. A state court in Nebraska has suggested that it is similarly skeptical as to whether that state's practice of denying licenses to those granted deferred action through DACA, while issuing licenses to other aliens with deferred action status, has a "rational basis." The federal court decisions concerning the Arizona and Nebraska restrictions appear to be limited to the facts and circumstances of the cases, and should not be taken to mean that every state measure that bars the issuance of driver's licenses to unlawfully present aliens necessarily violates the Equal Protection Clause. A measure that denied licenses to unlawfully present aliens without distinguishing between categories of aliens, or relying on state officials' determinations of aliens' status, would likely be distinguished from the Arizona and Nebraska measures. The courts have also generally rejected the view that state measures denying driver's licenses to unlawfully present aliens constitute an impermissible regulation of immigration that is per se preempted. In challenges to state restrictions on the issuance of driver's licenses to unlawfully present aliens, plaintiffs have sometimes argued that these restrictions are regulations of immigration because they purportedly seek to exclude aliens from the community and thus attempt to determine "who should or should not be admitted into the country, and the conditions under which ... entrant[s] may remain." For example, in 2011, the U.S. Department of Justice (DOJ) challenged provisions of Alabama's H.B. 56 that barred unlawfully present aliens from obtaining or renewing driver's licenses. The DOJ initially asserted that Alabama had "essentially given unlawful aliens the choice" between not obtaining licenses or other services from the state; obtaining such licenses and services and, thereby, committing a felony; or "leaving Alabama." Other plaintiffs and commentators have made similar arguments against the Alabama law and comparable enactments in other states, suggesting that restricting the issuance of driver's licenses to unlawfully present aliens reflects the intent to exclude them from the United States. This line of argument has generally been rejected. Several courts have indicated that they view such restrictions as affecting purely local matters, rather than constituting an attempt to regulate who may enter or remain in the United States. One court took the view that, in addition to furthering legitimate state interests, a challenged state measure mirrored and complimented "federal objectives by denying … driver's licenses to those who are in this country illegally according to federal law." Nonetheless, an argument could be made that particular state measures denying driver's licenses to unlawfully present aliens are per se preempted as regulations of immigration, if those measures rely upon state rather than federal definitions of who is unlawfully present, or task state officials with determining aliens' status. State or local measures that do either of these two things (i.e., establish their own classifications for aliens, or have state officials determine aliens' status independently from federal authorities) have been found to constitute impermissible regulations of immigration in other contexts. In addition to per se challenges, some plaintiffs and commentators have also alleged that state measures denying driver's licenses to unlawfully present aliens are preempted by federal statutes, including the REAL ID Act. Thus far, however, the few courts that have considered this argument have not been persuaded. Notably, in its 2012 decision in United States v. Alabama , the U.S. Court of Appeals for the Eleventh Circuit ("Eleventh Circuit") rejected the DOJ's preemption arguments against provisions of Alabama's H.B. 56, which barred aliens "not lawfully present in the United States" from obtaining driver's licenses and made it a criminal offense for such aliens to apply for licenses. The appellate court held that these provisions were not facially preempted by federal law, including the REAL ID Act. In particular, the Eleventh Circuit emphasized that the REAL ID Act "encouraged individual states to require evidence of lawful status as a prerequisite to issuing a driver's license or identification card to an applicant." The Eleventh Circuit did raise the possibility of tension between the state law and applicable federal statutes. It noted, for example, a possible incongruence between the category of aliens ineligible to receive a license under Alabama law and the standards for federal acceptance of driver's licenses provided in the REAL ID Act. However, the court believed the Alabama law "could be construed to avoid this problem, and if this issue does arise, it may be more appropriately addressed in the context of an as-applied challenge." The appellate court also rejected the argument that the Alabama statute is inconsistent with federal law because it criminalizes conduct that is not subject to criminal penalty under federal statute. The Eleventh Circuit viewed this alleged conflict as a "hypothetical or potential" one, since H.B. 56 criminalizes conduct "that appears highly unlikely to occur, given that Alabama has chosen not to make [driver's licenses and certain benefits] available [to unlawfully present aliens] in the first place." More broadly, the Eleventh Circuit interpreted the REAL ID Act as not purporting to regulate "driver's licenses, identification cards, and unlawfully present aliens," and leaving the field open "for the states to adopt different policies concerning this subject." In contrast to states seeking to deny unlawfully present aliens driver's licenses (see " Denying Driver's Licenses and Other ID "), several states have adopted measures that would permit unlawfully present aliens to obtain driver's licenses. Sometimes, the state permits such aliens to obtain a license that looks like those issued to citizens, LPRs, and eligible lawful nonimmigrants, as New Mexico does. At other times, the state issues licenses to unlawfully present aliens that are visually distinguishable from the licenses issued to U.S. citizens and foreign nationals with lawful immigration status, although the state does not purport to restrict their usage for identification purposes. Some have suggested that such measures are per se preempted by federal law because they regulate immigration, or are impliedly preempted by the REAL ID Act or PRWORA. However, such claims do not appear to have resulted in any judicial holdings or findings on the issue, perhaps because of limitations on who has standing to challenge such measures. Moreover, even if a plaintiff were found to have standing to challenge these measures, the argument that they are preempted by federal law could be difficult to maintain given that (1) state measures denying driver's licenses to unlawfully present aliens have generally not been viewed as regulations of immigration; (2) the REAL ID Act contemplates states issuing driver's licenses and other ID that are not recognized by federal agencies; and (3) PROWRA expressly permits states to provide public benefits to unlawfully present aliens by enacting legislation that affirmatively provides for their eligibility. Several commentators and at least one court (in non-binding dicta) have suggested that state measures granting driver's licenses to unlawfully present aliens are per se preempted because such measures regulate immigration by legitimizing the presence of aliens whom the federal government has not authorized to be present in the United States. Those making this argument appear to be particularly concerned that driver's licenses can be used in various everyday transactions, from opening a bank account to obtaining employment, the successful performance of which further integrates the unlawfully present alien into the community—and helps create an appearance of lawful presence. However, the view that the issuance of driver's licenses to unlawfully present aliens constitutes a regulation of immigration does not appear to have been adopted in the holdings or findings of any federal or state court. The only court to have espoused this characterization did so in dicta, in the course of rejecting a challenge to a state measure that barred unlawfully present aliens from obtaining driver's licenses. Arguably, a court could reject a challenge to measures granting driver's licenses to unlawfully present aliens on the grounds that such a measure does not regulate immigration (for example, by reasoning that state measures granting driver's licenses to unlawfully present aliens address purely local matters, not national ones). As previously discussed, the REAL ID Act, when fully implemented, will prohibit federal agencies from recognizing a state driver's license or other forms of state-issued ID for official purposes unless unlawfully present aliens are ineligible to receive such documents. While some might argue that the act broadly preempts states from issuing IDs to unlawfully present aliens, these arguments seem difficult to maintain. To date, no court has held that the REAL ID Act preempts states from issuing driver's licenses and other IDs to unlawfully present aliens. The express language of the REAL ID Act does not purport to bar states from issuing driver's licenses to unlawfully present aliens. The legislative history of the act supports the view that the statute was not intended to prohibit states from issuing IDs that do not comply with REAL Act standards. Indeed, the act is directed primarily at federal agencies, and bars them from accepting, "for any official purpose," a state driver's license or other ID card that does not satisfy the act's minimum standard requirements. Arguments that the REAL ID Act generally preempts states from issuing driver's licenses and other IDs that do not comply with the act's minimum standard requirements also seem undercut by the language of Section 202(d)(11) of the act, which states the following: In any case in which the State issues a driver's license or identification card that does not satisfy the requirements of this section, [States shall adopt practices which] ensure that such license or identification card— (A) clearly states on its face that it may not be accepted by any Federal agency for federal identification or any other official purpose; and (B) uses a unique design or color indicator to alert Federal agency and other law enforcement personnel that it may not be accepted for any such purpose. The nature of this requirement seems to indicate that states are not preempted from issuing forms of identification that do not comply with the minimum standards established pursuant to the REAL ID Act. Moreover, while the act requires that non-conforming IDs use a unique identifier to alert federal officials that the document is not to be accepted for official purposes, the apparent consequence of a state failing to comply with this requirement is not that the state will be preempted from issuing IDs; rather, the consequence appears to be simply that the IDs that state issues will not be recognized by federal agencies for official purposes At least one commentator has suggested that measures granting driver's licenses to unlawfully present aliens are preempted by PRWORA, but this appears unlikely given PRWORA's definition of state and local public benefits and its provisions expressly permitting states to enact legislation that affirmatively provides for unlawfully present aliens' eligibility for such benefits. As an initial matter, it is unclear that PRWORA's definition of state and local public benefit encompasses the issuance of driver's licenses to unlawfully present aliens. This definition has two prongs, one of which includes "any grant, contract, loan, professional license, or commercial license provided by an agency of a State or local government or by appropriated funds of a State or local government." The other includes any retirement, welfare, health, disability, public or assisted housing, postsecondary education, food assistance, unemployment benefit, or any other similar benefit for which payments or assistance are provided to an individual, household, or family eligibility unit by an agency of a State or local government or by appropriated funds of a State or local government. Driver's licenses would not appear to be public benefits under the first prong, insofar as that prong applies only to professional and commercial licenses, and "ordinary" (i.e., noncommercial) driver's licenses would not appear to be encompassed by the everyday meaning of either "professional license" or "commercial license." An argument could also be made that driver's licenses are not state and local public benefits under the second prong of PRWORA's definition because they do not entail "payments" or "assistance"—as that term has generally been construed—to individuals or households. Driver's licenses are issued by state agencies using appropriated funds, and an argument could be made that their issuance "assists" unlawfully present aliens by making it easier for them to engage in everyday transactions. However, courts have generally declined to view "assistance" as encompassing everything that could benefit unlawfully present aliens in any way, instead construing it to refer only to services that "assist people with economic hardship," and could "create [an] incentive for illegal immigration." Moreover, even if driver's licenses were viewed as public benefits for purposes of PRWORA, PRWORA expressly authorizes states to grant public benefits to unlawfully present aliens by subsequently enacting legislation that affirmatively provides for their eligibility. Thus, the only state actions that would potentially be barred by PRWORA would seem to be those that are not pursuant to state legislation enacted subsequent to PRWORA. A few states, seeking to promote traffic safety by screening drivers, but not wishing to issue driver's licenses to unlawfully present aliens, have adopted measures that permit such aliens to obtain "Certificates for Driving" (CFDs) or "Driving Privilege Cards" (DPCs), but not driver's licenses. Utah is one such state, issuing DPCs to persons who cannot "provid[e] evidence of lawful presence in the United States." Tennessee formerly had a similar provision that permitted "[p]ersons whose presence in the United States has [not] been authorized by the federal government" to obtain CFDs. In both cases, the documents issued by the state expressly note, on their face, that they are for driving purposes only, but not for ID purposes. This restriction is arguably significant, in that driver's licenses and other state-issued ID have been widely recognized to play an important role in establishing identity for purposes of various everyday transactions (e.g., opening bank accounts, obtaining employment). Partly because CFDs and DPCs would not necessarily be recognized for such purposes, and partly because of the perceived "stigma" associated with having a CFD or a DPC instead of a driver's license, some have alleged that these measures are impermissible, and that states must grant unlawfully present aliens' driver's licenses like those that issued to citizens and LPRs. These arguments were rejected by a federal district court in the case of League of United Latin American Citizens [LULAC] v. Bredesen , in a ruling that was upheld by the U.S. Court of Appeals for the Sixth Circuit ("Sixth Circuit'). In this case, the district court's found that a Tennessee measure, permitting unlawfully present aliens to obtain CFDs but not driver's licenses, did not run afoul of the Equal Protection and Supremacy Clauses. In so finding, the district court held that (1) "illegal aliens" are not a "suspect class"; (2) heightened scrutiny, like that applied in Plyler , is unwarranted because the aliens denied driver's licenses "do[] not resemble the class of children described in Plyler "; and (3) aliens' right to travel is more limited than citizens' right. However, due in part to the unique nature of the state document at issue in the case, which granted aliens documents that were valid for driving, but not for ID, the reviewing district court touched upon issues not addressed in other decisions. For example, the district court expressly rejected the argument that there is a "constitutional right to a state-issued identification card acceptable to third-parties." It also rejected the plaintiffs' due process claim that the Tennessee measure created an unconstitutional irrebuttable presumption that aliens holding CFDs are "threats to homeland security" because the plaintiffs' failed to show that the state's distinctions between documents issued to unlawfully present aliens and other persons were not rationally related to the state's legitimate interest in promoting homeland security. The issuance of CFDs and DPCs to unlawfully present aliens has also been criticized by those who would also deny driver's licenses to unlawfully present aliens. However, such criticisms do not appear to have resulted in legal challenges, and any such challenges to the granting of CFDs and DPCs to unlawfully present aliens would likely be subject to the same analysis given to measures granting driver's licenses to such persons. Some cities have also adopted measures that provide unlawfully present aliens with municipal ID cards for use in their dealings with the city. For example, the San Francisco Board of Supervisors passed an ordinance on November 20, 2007, authorizing the County Clerk's Office to issue "SF City ID Cards" to all San Francisco residents, regardless of their immigration status. All city agencies and "other entities receiving [c]ity funds" are required to accept the cards as proof of identity and residence, unless state or federal law requires otherwise. This includes the Police Department, Department of Public Health, Public Utilities Commission, and Child Support Services, among others. The card can also be used as a library card at the city's public libraries; a form of identification to open a checking account at participating banks; or to open a "Family Account" with the Recreation and Parks Department. Some commentators have expressed concerns about such practices that are akin to those raised about state measures granting driver's licenses to unlawfully present aliens. However, for the reasons previously discussed, this practice may be unlikely to be found to be barred by federal law (see " Granting Driver's Licenses and Other ID "). It is also important to note that municipal ID card measures would arguably not override existing federal restrictions upon the receipt of federal, state, or local public benefits by unlawfully present aliens. Federal law bars unlawfully present aliens from receiving federal public benefits —a term that encompasses any benefit provided using federal funds, even if the program is administered by a state or local government. This general prohibition upon the provision of federal public benefits to unlawfully present aliens would continue to apply, even if a local agency were otherwise "required" to accept municipal ID cards, because federal law preempts inconsistent provisions of state and local law. Similarly, where state and local public benefits are concerned, the state would arguably need to have enacted legislation that "affirmatively provides" for unlawfully present aliens' eligibility in order for the local agency to provide such benefits to such aliens. A foreign consulate's issuance of consular IDs to its country's nationals has been a long-standing practice. However, the number of IDs issued to foreign nationals residing in the United States, and the recognition of these IDs as a legitimate form of identification by government and private institutions, has grown significantly in recent decades. Some states and localities have adopted measures that recognize consular IDs, including as a form of identification to obtain a driver's license, while others have limited or prohibited their acceptance by government and private entities. Measures restricting or permitting the acceptance of consular IDs by government entities generally seem unlikely to give rise to preemption concerns. Restrictions on the acceptance of consular IDs by government authorities, particularly in relation to applications for a state-issued driver's license or ID, appear to be consistent with federal law, and the adoption of such restrictions seems to be encouraged by the REAL ID Act. The act effectively prohibits states, when issuing driver's licenses or state ID cards, from accepting for purposes of personal identification foreign documents other than valid passports, if such driver's licenses or ID cards are to be accepted for federal purposes. Accordingly, a state ID would not comport with REAL ID Act standards if an applicant for the state ID document were allowed to submit a consular ID as verification of his or her identity. On the other hand, it also does not appear that the REAL ID Act bars states from recognizing consular IDs, including for purposes of verifying the identity of an applicant for a state-issued ID. As previously discussed, the REAL ID Act appears to still permit states to issue driver's licenses and other IDs that do not comply with the act's issuance standards, though non-compliant IDs may not be accepted by federal agencies for official purposes. Accordingly, a state that opts to accept consular IDs as a form of identification, including as part of an application for a state-issued form of ID, would not appear to be preempted from doing so. While it might generally be permissible for state or local governments to deny recognition of consular IDs without coming into conflict with federal law, a limited exception might exist in the context of law enforcement. The United States is a party to the Vienna Convention on Consular Relations (VCCR), a multilateral agreement codifying consular practices originally governed by customary practice and bilateral agreements. Pursuant to Article 36 of the VCCR, when a national of a signatory State (i.e., country) is arrested or otherwise detained in another signatory State, appropriate authorities within the receiving State must inform him "without delay" of his right to have his consulate notified. Arguably, possession of a consular ID by an arrested person may assist law enforcement in verifying that the person is a foreign national and assist police in identifying the appropriate foreign consulate to contact on the foreign national's behalf. A state or local restriction on police acceptance of such documents could be subject to a preemption challenge on the grounds that the policy conflicts with or frustrates the purposes of the VCCR's consular notification requirements. State or local restrictions on private entities' acceptance of consular IDs have been subject to legal challenge, and the single reviewing federal court that considered such a challenge found that the restriction raised preemption and other concerns. In 2011, a federal district court in Buquer v. City of Indianapolis preliminarily enjoined enforcement of an Indiana statute that made the offering or acceptance of a consular ID as a form of identification (other than for law enforcement purposes) a civil infraction. While the parties stipulated that a state could decline to recognize consular IDs as a legitimate form of identification, the district court agreed with plaintiffs' argument that the Indiana statute's "sweeping prohibition" conflicted with the rights afforded to foreign consulates under the VCCR, and also had the potential to directly interfere with the Executive's conduct of foreign affairs. While the district court noted that the state law did not bar foreign consulates from issuing consular IDs (which the court opined would have been a direct violation of the VCCR ), it characterized the Indiana statute as making the issuance of consular IDs "meaningless as [the restriction] prohibits almost every use for which the documents are ordinarily issued, including for identification purposes in private commercial transactions that are conducted between private parties." The court also deemed it important that the State Department had cautioned against action from being taken against consular IDs that might lead other countries to establish similar limitations on U.S. citizens' usage of consular IDs within their territories. Finally, the court noted U.S. Treasury Department regulations which permit (but do not require) financial institutions to accept consular IDs as a legitimate form of identification. While the court did not believe the Indiana measure directly conflicted with this regulation, it stated that the regulation provided "further evidence of the federal government's overarching and legitimate interest in proceeding with caution with regard to regulating the use" of consular IDs. The Buquer court also found that the plaintiffs were likely to succeed on their due process and equal protection challenges to the statute, as Indiana had failed to establish a rational relation between the statute's prohibition and a legitimate governmental interest. While Indiana had argued that the statute helped to ensure the prevention of fraud and the reliability of identification of individuals within the state, the court concluded that, after "examination of the admittedly limited evidence before it," consular IDs were at least as reliable forms of documentation as other types of ID that were not singled out for sanction by Indiana.
|
One aspect of the broader debate over aliens who are present in the United States in violation of federal immigration law has been their eligibility for driver's licenses and other forms of state-issued identification documents (IDs). The issuance of driver's licenses has historically been considered a state matter, and states have taken a variety of approaches. Some have barred the issuance of driver's licenses and other state-issued ID to unlawfully present aliens; others permit their issuance; and yet others instead grant unlawfully present aliens Certificates for Driving (CFDs) or Driving Privilege Cards (DPCs). CFDs or DPCs expressly state, on their face, that they are valid for driving, but not for other purposes. The federal government has generally not intruded on state control over the issuance of driver's licenses, although the REAL ID Act of 2005 (P.L. 109-13, Div. B) will, when implemented, bar federal agencies from accepting, "for any official purpose," licenses or ID cards issued by states that do not meet specific requirements. Regardless of whether they would deny or grant driver's licenses and other state-issued ID to unlawfully present aliens, such state measures have been challenged on various grounds. While these grounds can vary depending upon the specific statute or practice in question, the grounds most commonly asserted appear to be violations of the Equal Protection and Supremacy Clauses of the U.S. Constitution. The Equal Protection Clause bars states from "deny[ing] to any person within [their] jurisdiction the equal protection of the laws," and aliens have been found to be encompassed by the Clause's usage of "person." As a result, measures that would treat aliens differently than citizens may be subject to challenge on equal protection grounds. In particular, state measures that distinguish between aliens and citizens are generally subject to some type of heightened scrutiny, although the exact degree of scrutiny can vary depending upon the persons and rights affected. The Supremacy Clause, in turn, establishes that federal law is "the supreme Law of the Land," and may preempt any incompatible provisions of state law. State measures that would deny driver's licenses and other state-issued ID to unlawfully present aliens have historically not been found to violate either the Equal Protection or the Supremacy Clause, as a general matter. The various courts that have reviewed such challenges, to date, have found that these measures do not infringe upon the fundamental right to travel because restrictions upon a single mode of travel (i.e., driving) are not tantamount to restrictions on the right to travel, and aliens' right to travel is more limited than citizens' right. The courts have similarly found that such measures do not impermissibly distinguish between unlawfully present aliens and other persons because unlawfully present aliens are not a "suspect classification," and the measures serve "legitimate" government interests. The courts have also found these measures are not, as a general matter, per se preempted on the grounds that they regulate immigration, or preempted by the REAL ID Act. However, state measures that distinguish, without a legitimate interest, between categories of aliens, or that rely upon state definitions or determinations of aliens' status, may be found to be impermissible. Although some commentators have suggested that they are preempted, state measures that grant driver's licenses and state-issued ID to unlawfully present aliens do not appear to have been subject to litigation. The argument that such measures are preempted could, however, be difficult to maintain, because the REAL ID Act arguably contemplates states issuing licenses and other IDs that federal agencies do not recognize for official purposes, and it seems unlikely that granting licenses to unlawfully present aliens would be seen to regulate immigration. Similarly, while federal law generally restricts the circumstances in which states may provide "public benefits" to unlawfully present aliens, driver's licenses are unlikely to be seen as public benefits.
|
The Constitution gives Congress the authority to impeach and remove the President, Vice President, and other federal "civil officers" upon a determination that such officers have engaged in treason, bribery, or other high crimes and misdemeanors. Impeachment is one of the various checks and balances created by the Constitution, and is a crucial tool for potentially holding government officers accountable for violations of the law and abuse of power. Rooted in various constitutional provisions, impeachment is largely immune from judicial review. When considering impeachment matters, Members of Congress have historically examined the language of the Constitution; past precedents; the debates at the Constitutional Convention; the debates at the ratifying conventions; English common law and practice; state impeachment practices; analogous case law; and historical commentaries. Although the term "impeachment" is commonly used to refer to the removal of a government official from office, the impeachment process, as described in the Constitution, entails two distinct proceedings carried out by the separate houses of Congress. First, a simple majority of the House impeaches —or formally approves allegations of wrongdoing amounting to an impeachable offense, known as articles of impeachment. The articles of impeachment are then forwarded to the Senate where the second proceeding takes place: an impeachment trial. If the Senate, by vote of a two-thirds majority, convicts the official of the alleged offenses, the result is removal from office of those still in office, and, at the Senate's discretion, disqualification from holding future office. The House has impeached 19 individuals: 15 federal judges, one Senator, one Cabinet member, and two Presidents. The Senate has conducted 16 full impeachment trials. Of these, eight individuals—all federal judges—were convicted by the Senate. This report briefly surveys the constitutional provisions governing the impeachment power, examines which individuals are subject to impeachment, and explores the potential grounds for impeachment. In addition, it provides a short overview of impeachment procedures in the House and Senate and concludes with a discussion of the limited nature of judicial review for impeachment procedures. The House of Representatives shall chuse their Speaker and other Officers; and shall have the sole Power of Impeachment. —Article I, Section 2 The President, Vice President and all civil Officers of the United States, shall be removed from Office on Impeachment for, and Conviction of, Treason, Bribery, or other high Crimes and Misdemeanors . —Article II, Section 4 The Senate shall have the sole Power to try all Impeachments. When sitting for that Purpose, they shall be on Oath or Affirmation. When the President of the United States is tried, the Chief Justice shall preside: And no Person shall be convicted without the Concurrence of two thirds of the Members present. Judgment in Cases of Impeachment shall not extend further than to removal from Office, and disqualification to hold and enjoy any Office of honor, Trust or Profit under the United States; but the Party convicted shall nevertheless be liable and subject to Indictment, Trial, Judgment and Punishment, according to Law. —Article I, Section 3 The Constitution provides that impeachment applies only to the "President, Vice President, and all civil Officers of the United States," and that the grounds for impeachment are limited to "Treason, Bribery, or other high Crimes and Misdemeanors." The decision to impeach an individual rests solely with the House of Representatives. The House thus has discretion over whether to impeach an individual and what articles of impeachment will be presented to the Senate. The Senate, in turn, has the sole power to try impeachments. Conviction of an individual requires a two-thirds majority of the present Senators on one of the articles brought by the House. When conducting the trial, Senators must be "on oath or affirmation," and the right to a jury trial does not extend to impeachment proceedings. As President of the United States Senate, the Vice President usually presides at impeachment trials; however, if the President is impeached and tried in the Senate, the Chief Justice of the Supreme Court presides at the trial. The immediate effect of conviction upon an article of impeachment is removal from office, although the Senate may subsequently vote on whether the official shall be disqualified from again holding an office of public trust under the United States. If this option is pursued, a simple majority vote is required. Convicted individuals are still subject to criminal prosecutions for the same factual situations, and individuals who have already been convicted of crimes may be impeached for the same underlying behavior later. Finally, the Constitution bars the President from using the pardon power to shield individuals from impeachment or removal from office. In considering the use of the impeachment power, Congress confronts at least two preliminary legal questions bearing on whether an impeachment inquiry against a given official is constitutionally appropriate: first, whether the individual whose conduct is under scrutiny holds an office that is subject to impeachment and removal, and second, whether the conduct for which the official is accused constitutes an impeachable offense. The Constitution explicitly makes "[t]he President, Vice President and all civil Officers of the United States" subject to impeachment and removal. Which officials are to be considered "civil Officers of the United States" for purposes of impeachment is a significant constitutional question that remains mostly unresolved. In the past, Congress has seemingly shown a willingness to impeach Presidents, federal judges, and Cabinet-level executive branch officials, but a reluctance to impeach private individuals and Members of Congress. A question which precedent has not thus far addressed is whether Congress may impeach and remove subordinate, non-Cabinet level executive branch officials. The Constitution does not define "civil Officers of the United States." Nor do the debates at the Constitutional Convention provide significant evidence of which individuals (beyond the President and Vice President) the Founders intended to be impeachable. Impeachment precedents in both the House and Senate are equally unhelpful with respect to subordinate executive officials. In all of American history, only three members of the executive branch have been impeached: two Presidents and a Secretary of War. Thus, while it seems that executive officials of the highest levels are "civil Officers," historical precedent provides no examples of the impeachment power being used against lower-level executive officials. One must, therefore, look to other sources for aid in determining precisely how far down the federal bureaucracy the impeachment power might reach. The general purposes of impeachment may assist in interpreting the proper scope of "civil Officers of the United States." The congressional power of impeachment constitutes an important aspect of the various checks and balances that were built into the Constitution to preserve the separation of powers. It is a tool, entrusted to the House and Senate alone, to remove government officials in the other branches of government, who either abuse their power or engage in conduct that warrants their dismissal from an office of public trust. At least one commentator has suggested that the Framers recognized, particularly with respect to executive branch officials, that there would be instances in which it may not be in the President's interest to remove a "favorite" from office, even when that individual has violated the public trust. As such, the Framers "dwelt repeatedly on the need of power to oust corrupt or oppressive ministers whom the President might seek to shelter." If the impeachment power were meant to ensure that Congress has the ability to impeach and remove corrupt officials that the President was unwilling to dismiss, it would seem arguable that the power should extend to officers exercising a degree of authority, the abuse of which would be harmful to the separation of powers and good government. The writings of early constitutional commentators also arguably suggest a broad interpretation of "civil Officers of the United States." Joseph Story addressed the reach of the impeachment power in his influential Commentaries on the Constitution , asserting that " all officers of the United states [] who hold their appointments under the national government, whether their duties are executive or judicial, in the highest or in the lowest departments of the government , with the exception of officers in the army and navy, are properly civil officers within the meaning of the constitution, and liable to impeachment." Similarly, William Rawle reasoned that "civil Officers" included "[ a ] ll executive and judicial officers, fro m the President downwards , from the judges of the Supreme Court to those of the most inferior tribunals ..." Consistent with the text of the Constitution, these early interpretations suggest the impeachment power was arguably intended to extend to "all" executive officers, and not just Cabinet level officials and other executive officials at the highest levels. But who is an officer? The most thorough elucidation of the definition of "Officers of the United States" can be found in judicial interpretations of the Appointments Clause. That provision, which establishes the methods by which "Officers of the United States" may be appointed, has generally been viewed as a useful guidepost in establishing the definition of "civil Officers" for purposes of impeachment. The Appointments Clause provides that the President shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, 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: but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments. In interpreting the Appointments Clause, the Court has made clear distinctions between "Officers of the United States," whose appointment is subject to the requirements of the Clause, and non-officers, also known as employees, whose appointment is not. The amount of authority that an individual exercises will generally determine his classification as either an officer or employee. As established in Buckley v. Valeo , an officer is "any appointee exercising significant authority pursuant to the laws of the United States," whereas employees are viewed as "lesser functionaries subordinate to the officers of the United States," who do not exercise "significant authority." The Supreme Court has further subdivided "officers" into two categories: principal officers, whom may be appointed only by the President with the advice and consent of the Senate; and inferior officers, whose appointment Congress may vest "in the President alone, in the Courts of Law, or in the Heads of Departments." The Court has acknowledged that its "cases have not set forth an exclusive criterion for distinguishing between principal and inferior officers for Appointments Clause purposes." The clearest statement of the proper standard to be applied in differentiating between the two types of officers appears to have been made in Edmo nd v. United States . In Edmond , the Court noted that "[g]enerally speaking, the term 'inferior officer' connotes a relationship with some higher ranking officer or officers below the President ... [and] whose work is directed and supervised at some level by others who were appointed by presidential nomination with the advice and consent of the Senate. " Thus, in analyzing whether one may be properly characterized as either an inferior or principal officer, the Court's decisions appear to focus on the extent of the officer's discretion to make autonomous policy choices and the authority of other officials to supervise and to remove the officer. Applying the principles established in the Court's Appointments Clause jurisprudence to define the scope of "civil Officers" for purposes of impeachment, it would appear that employees, as non-officers, are not subject to impeachment. Therefore lesser functionaries—such as federal employees who belong to the civil service, do not exercise "significant authority," and are not appointed by the President or an agency head—would not be subject to impeachment. At the opposite end of the spectrum, it would seem that any official who qualifies as a principal officer, including a head of an agency such as a Secretary, Administrator, or Commissioner, would be impeachable. The remaining question is whether inferior officers, or those officers who exercise significant authority under the supervision of a principal officer, are subject to impeachment and removal. As previously noted, it would appear that an argument can be made from the text and purpose of the impeachment clauses, as well as early constitutional interpretations, that the impeachment power was intended to extend to " all " officers of the United States, and not just those in the highest levels of government. Any official exercising "significant authority" including both principal and inferior officers, would therefore qualify as a "civil Officer" subject to impeachment. This view would permit Congress to impeach and remove any executive branch "officer," including many deputy political appointees and certain administrative judges. There is some historical evidence, however, to suggest that inferior officers were not meant to be subject to impeachment. For example, a delegate at the North Carolina ratifying convention asserted that "[i]t appears to me ... the most horrid ignorance to suppose that every officer, however trifling his office, is to be impeached for every petty offense ... I hope every gentleman ... must see plainly that impeachments cannot extend to inferior officers of the United States." Additionally, Governeur Morris, member of the Pennsylvania delegation to the Constitutional Convention, arguably implied that inferior officers would not be subject to impeachment in stating that "certain great officers of State; a minister of finance, of war, of foreign affairs, etc. ... will be amenable by impeachment to the public justice." Notwithstanding this ongoing debate, the authority to resolve any ambiguity in the scope of "civil Officers" for purposes of impeachment lays initially with the House, in adopting articles of impeachment, and with the Senate, in trying the officer. The Constitution describes the grounds of impeachment as "treason, bribery, or other high Crimes and Misdemeanors." While treason and bribery are relatively well-defined terms, the meaning of "high Crimes and Misdemeanors" is not defined in the Constitution or in statute and remains somewhat opaque. It was adopted from the English practice of parliamentary impeachments, which appears to have been directed against individuals accused of crimes against the state and encompassed offenses beyond traditional criminal law. Some have argued that only criminal acts are impeachable offenses under the United States Constitution; impeachment is therefore inappropriate for non-criminal activity. In support of this assertion, one might note that the debate on impeachable offenses during the Constitutional Convention in 1787 indicates that criminal conduct was encompassed in the "high crimes and misdemeanors" standard. The notion that only criminal conduct can constitute sufficient grounds for impeachment does not, however, comport with historical practice. Alexander Hamilton, in justifying placement of the power to try impeachments in the Senate, described impeachable offenses as arising from "the misconduct of public men, or in other words from the abuse or violation of some public trust." Such offenses were " political , as they relate chiefly to injuries done immediately to the society itself." According to this reasoning, impeachable conduct could include behavior that violates an official's duty to the country, even if such conduct is not necessarily a prosecutable offense. Indeed, in the past both houses of Congress have given the phrase "high Crimes and Misdemeanors" a broad reading, "finding that impeachable offenses need not be limited to criminal conduct." A variety of congressional materials support this reading. For example, committee reports on potential grounds for impeachment have described the history of English impeachment as including non-criminal conduct and noted that this tradition was adopted by the Framers. In accordance with the understanding of "high" offenses in the English tradition, impeachable offenses are "constitutional wrongs that subvert the structure of government, or undermine the integrity of office and even the Constitution itself." "[O]ther high crimes and misdemeanor[s]" are not limited to indictable offenses, but apply to "serious violations of the public trust." Congressional materials indicate that the term "Misdemeanor ... does not mean a minor criminal offense as the term is generally employed in the criminal law," but refers instead to the behavior of public officials. "[H]igh Crimes and Misdemeanors" are thus best characterized as "misconduct that damages the state and the operations of government institutions." Similarly, the judiciary subcommittee charged with investigating Associate Justice Douglas of the Supreme Court concluded that, at least with regard to federal judges, impeachment was appropriate in several circumstances. First, if the conduct was connected with the judicial office or the exercise of judicial power, then both criminal conduct and conduct constituting a serious dereliction of public duty were grounds for impeachment. Second, if the conduct was not connected to the duties of judicial office, then criminal conduct could constitute grounds for impeachment. The committee left unresolved whether non-criminal conduct outside of the judicial function could support an impeachment charge. The purposes underlying the impeachment process also indicate that non-criminal activity may constitute sufficient grounds for impeachment. The purpose of impeachment is not to inflict personal punishment for criminal activity. In fact, the Constitution explicitly makes clear that impeached individuals are not immunized from criminal liability once they are impeached for particular activity. Instead, impeachment is a "remedial" tool; it serves to effectively "maintain constitutional government" by removing individuals unfit for office. Grounds for impeachment include abuse of the particular powers of government office or a violation of the "public trust" —conduct that is unlikely to be barred via statute. Congressional practice also appears to support this notion. Many of the impeachments approved by the House of Representatives have included conduct that did not involve criminal activity. Less than a third have specifically invoked a criminal statute or used the term "crime." For example, in 1803, Judge John Pickering was impeached and convicted for, among other things, appearing on the bench "in a state of total intoxication." In 1912, Judge Robert W. Archbald was impeached and convicted for abusing his position as a judge by inducing parties before him to enter financial transactions with him. In 1936, Judge Halstead Ritter was impeached and convicted for conduct that "br[ought] his court into disrepute, to the prejudice of said court and public confidence in the administration of justice ... and to the prejudice of public respect for and confidence in the federal judiciary." And a number of judges were impeached for misusing their position for personal profit. Some have suggested that the standard for impeaching a federal judge differs from an executive branch official. While Article II, Section 1, of the Constitution specifies the grounds for the impeachment of civil officers as "treason, bribery, and other high Crimes and Misdemeanors," Article III, Section 1, provides that federal judges "hold their Offices during good behaviour." One argument posits that these clauses should be read in conjunction, meaning that judges can be impeached and removed from office if they fail to exhibit good behavior or if they are guilty of "treason, bribery, and other high Crimes and Misdemeanors." However, while one might find some support for the notion that the "good behavior" clause constitutes an additional ground for impeachment in early twentieth century practice, the "modern view" of Congress appears to be that the phrase "good behavior" simply designates judicial tenure. Under this reasoning, rather than functioning as a ground for impeachment, the "good behavior" phrase simply makes clear that federal judges retain their office for life unless they are removed via a proper constitutional mechanism. For example, a 1973 discussion of impeachment grounds released by the House Judiciary Committee reviewed the history of the phrase and concluded that the "Constitutional Convention ... quite clearly rejected" a "dual standard" for judges and civil officers. The "treason, bribery, and high Crimes and Misdemeanors" clause thus serves as the sole standard for impeachable conduct for both executive branch officials and federal judges. The next year, the House Judiciary Committee's Impeachment Inquiry asked whether the "good behavior" clause provides an additional ground for impeachment of judges and concluded that "[i]t does not." It emphasized that the House's impeachment of judges was "consistent" with impeachment of "non-judicial officers." Finally, the House Report on the Impeachment of President Clinton affirmed this reading of the Constitution, stating that impeachable conduct for judges mirrored impeachable conduct for other civil officers in the government. Nevertheless, even if the "good behavior" clause does not delineate a standard for impeachment and removal for federal judges, as a practical matter, one might argue that the range of impeachable conduct differs between judges and executive branch officials due to the differing nature of each office. For example, one might argue that a federal judge could be impeached for perjury or fraud because of the importance of trustworthiness and impartiality to the judiciary, while the same behavior might not constitute impeachable conduct for an executive branch official. However, given the wide variety of factors at issue—including political calculations, the relative paucity of impeachments of non-judicial officers compared to judges, and the fact that a non-judicial officer has never been convicted by the Senate—it is uncertain if conduct meriting impeachment and conviction for a judge would fail to qualify for a non-judicial officer. The impeachment and acquittal of President Clinton illustrates this difficulty. The House of Representatives impeached President Clinton for (1) providing perjurious and misleading testimony to a federal grand jury and (2) obstruction of justice in regards to a civil rights action against him. The House Judiciary Committee report that recommended articles of impeachment argued that perjury by the President was an impeachable offense, even if committed with regard to matters outside his official duties. The report rejected the notion that conduct such as perjury was "more detrimental when committed by judges and therefore only impeachable when committed by judges." The report pointed to the impeachment of Judge Claiborne, who was impeached and convicted for falsifying his income tax returns—an act which "betrayed the trust of the people of the United States and reduced confidence in the integrity and impartiality of the judiciary." While it is "devastating" for the judiciary when judges are perceived as dishonest, the report argued, perjury by the President was "just as devastating to our system of government." In addition, the report continued, both Judge Claiborne and Judge Nixon were impeached and convicted for perjury and false statements in matters distinct from their official duties. Likewise, the report noted the President's perjurious conduct, though seemingly falling outside of his official duties as President, nonetheless constituted grounds for impeachment. In contrast, the minority views from the report opposing impeachment reasoned that "not all impeachable offenses are crimes and not all crimes are impeachable offenses." The minority emphasized that the President was not impeachable for all potential crimes, no matter how minor; impeachment was reserved for "conduct that constitutes an egregious abuse or subversion of the powers of the executive office." Examining the impeachment of President Andrew Johnson and the articles of impeachment drawn up for President Richard Nixon, the minority concluded that both were accused of committing "public misconduct" integral to their "official duties." The minority noted that the Judiciary Committee had rejected an article of impeachment against President Nixon alleging that he committed tax fraud, primarily because that "related to the President's private conduct, not to an abuse of his authority as President." The minority did not explicitly claim that the grounds for impeachment might be different between federal judges and executive branch officials, but its reasoning at least hints in that direction. Its rejection of nonpublic behavior as sufficient grounds for impeachment for the President—including its example of tax fraud as nonpublic behavior that does not qualify—appears to conflict with the past impeachment and conviction of federal judges on just this basis. One reading of the minority's position is that certain behavior might be impeachable conduct for a federal judge, but not for the President. While two articles of impeachment were approved by the House, the Senate acquitted President Clinton on both charges. However, generating firm conclusions from this result is quite difficult as there may have been varying motivations for these votes. One possibility is that the acquittal occurred because some Senators—though agreeing that such conduct merited impeachment—thought the House Managers failed to prove their case. Another is that certain Senators disagreed that such behavior was impeachable at all. Yet another possibility is that neither ideological stance was considered, and voting was conducted solely according to political calculations. Congressional materials have cautioned that the grounds for impeachment "do not all fit neatly and logically into categories" because the remedy of impeachment is intended to "reach a broad variety of conduct by officers that is both serious and incompatible with the duties of the office." Nonetheless, congressional precedents reflect three broad types of conduct thought to constitute grounds for impeachment, although they should not be understood as exhaustive or binding: (1) improperly exceeding or abusing the powers of the office; (2) behavior incompatible with the function and purpose of the office; and (3) misusing the office for an improper purpose or for personal gain. The House has impeached several individuals for abusing or exceeding the powers of their office. For example, in 1868, amidst a struggle over Reconstruction policy, the House impeached President Andrew Johnson on allegations that he violated the Tenure of Office Act, which restricted the power of the President to remove members of the Cabinet without Senate approval. Considering the statute unconstitutional, President Johnson removed Secretary of War Edwin M. Stanton and was impeached shortly thereafter on nine articles relating to his actions. Two more articles were brought the next day, alleging that he had made "harangues" criticizing the Congress and questioning its legislative authority that brought the presidency "into contempt, ridicule, and disgrace" and attempted to prevent the execution of the Tenure in Office Act and an army appropriations act by conspiring to remove Stanton. President Johnson was acquitted by a margin of one vote in the Senate. In 1974, the House Judiciary Committee recommended articles of impeachment against President Richard Nixon on the theory that he abused the powers of his office. First, the articles alleged that the President, "using the powers of his high office," attempted to obstruct the investigation of the Watergate Hotel break-in, conceal and protect the perpetrators, and conceal the existence of other illegal activity. Second, that he used the power of the office of the Presidency to violate citizens' constitutional rights, "impair[]" lawful investigations, and "contravene[]" laws applicable to executive branch agencies. Third, that he refused to cooperate with congressional subpoenas. President Nixon resigned before the House voted on the articles. One of the articles of impeachment recommended by the House Judiciary Committee against President Clinton also alleged abuse of the powers of his office, although the House rejected this article. That article alleged that the President refused to comply with certain congressional requests for information and provided false and misleading information in response to others. The committee report argued that such conduct "showed contempt for the legislative branch and impeded Congress's exercise of its Constitutional responsibility" of impeachment. A number of individuals have also been impeached for behavior incompatible with the nature of the office they hold. For example, Judge Harry Claiborne was impeached for providing false information on federal income tax forms, an offense for which he had previously been convicted for in a criminal case. The first two articles of impeachment against Judge Claiborne simply laid out the underlying behavior. The third article "rest[ed] entirely on the conviction itself" and stood for the principle that "by conviction alone he is guilty of 'high crimes' in office." The fourth alleged that Judge Claiborne's actions brought the "judiciary into disrepute, thereby undermining public confidence in the integrity and impartiality of the administration of justice" which amounted to a "misdemeanor." The Senate voted to convict Judge Claiborne on the first, second, and fourth articles. Two judges were impeached for appearing on the bench in a state of intoxication. Judge John Pickering was impeached and convicted in 1803 for, among other things, appearing in court "in a state of intoxication and using profane language." Judge Mark H. Delahay was impeached in 1873 for his "personal habits," including being intoxicated on and off the bench. He resigned before a trial in the Senate. Various other activities incompatible with the nature of an office have merited impeachment procedures. In 1862, Judge West H. Humphrey was impeached and convicted for neglecting his duties as a judge and joining the Confederacy. In 1926 Judge George English was impeached for showing judicial favoritism which eroded the public's confidence in the court. And in 2009, Judge Samuel B. Kent was impeached for allegedly sexually assaulting two court employees, obstructing the judicial investigation of this behavior, and making false and misleading statements to agents of the Federal Bureau of Investigation about the activity. Judge Kent resigned before the Senate trial was completed. Finally, one might classify some of the articles of impeachment brought against President Clinton as grounded on alleged behavior considered incompatible with the nature of the office of the Presidency. Both the first article, for allegedly lying to a grand jury, and the second, for allegedly obstructing justice by concealing evidence in a federal civil rights action brought against him, noted that by doing this, "William Jefferson Clinton has undermined the integrity of his office, has brought disrepute on the Presidency, has betrayed his trust as President, and has acted in a manner subversive of the rule of law and justice, to the manifest injury of the people of the United States." A number of individuals have been impeached for official conduct for an improper purpose. The first type of behavior involves vindictive use of the office. For example, in 1826, Judge James Peck was impeached for charging a lawyer with contempt, imprisoning him, and ordering his disbarment for criticizing one of the judge's decisions. Judge Peck was acquitted by the Senate. In 1904, Judge Charles Swayne was also impeached by the House and acquitted by the Senate. Among the articles of impeachment was the allegation that he had unlawfully imprisoned several individuals on false charges of contempt. The second type of behavior involves misuse of the office for personal gain. Secretary of War William W. Belknap was impeached in 1876 for allegedly receiving payments in return for appointing an individual to maintain a trading post in Indian Territory. Belknap resigned two hours before the House impeached him, but the Senate nevertheless conducted a trial in which Belknap was acquitted. In 1912, Judge Robert W. Archbald was impeached and convicted for using the office to acquire business favors from both litigants in his court and potential litigants. And the impeachments of Judges English, Louderback, and Ritter all involved "misusing their power to appoint and set the fees of bankruptcy receivers for personal profit." Similarly, Judge Alcee L. Hastings was impeached by the House on 16 articles, including involvement in a conspiracy to accept bribes in return for lenient sentences for defendants, lying about the underlying events at his criminal trial, and fabricating false documents and submitting them as evidence at his criminal trial. Judge Hastings was convicted by the Senate on eight articles. In addition, Judge Walter L. Nixon Jr. was convicted in a criminal case on two counts of perjury to a grand jury concerning his relationship with a man whose son was being prosecuted. He was subsequently impeached in 1989 for his behavior, including making false statements to the grand jury about whether he had discussed a criminal case with the prosecutor and attempted to influence the case, as well as for concealing such matters from federal investigators. The Senate convicted Judge Nixon on two of three articles. Finally, in 2010, Judge G. Thomas Porteous Jr. was impeached for participating in a corrupt financial relationship with attorneys in a case before him, and engaging in a corrupt relationship with bail bondsmen whereby he received things of value in return for helping bondsman develop corrupt relationships with state court judges. Judge Porteous was convicted by the Senate on all the articles brought against him. Most impeachments have concerned behavior occurring while an individual is in a federal office. However, some have addressed, at least in part, conduct before individuals assumed their positions. For example, in 1912, a resolution impeaching Judge Robert W. Archbald and setting forth 13 articles of impeachment was reported out of the House Judiciary Committee and agreed to by the House. The Senate convicted Judge Archbald in January the following year. At the time that Judge Archbald was impeached by the House and tried by the Senate in the 62 nd Congress, he was U.S. Circuit Judge for the Third Circuit and a designated judge of the U.S. Commerce Court. The articles of impeachment brought against him alleged misconduct in those positions as well as in his previous position as U.S. District Court Judge of the Middle District of Pennsylvania. Judge Archbald was convicted on four articles alleging misconduct in his then-current positions as a circuit judge and Commerce Court judge, and on a fifth article that alleged misuse of his office both in his then current positions and in his previous position as U.S. District Judge. While Judge Archbald was impeached and convicted in part for behavior occurring before he assumed his then-current position, the underlying behavior occurred while he held a prior federal office. Judge G. Thomas Porteous, in contrast, is the first individual to be impeached by the House and convicted by the Senate based in part upon conduct occurring before he began his tenure in federal office. Articles I and II each alleged misconduct beginning while he was a state court judge as well as misconduct while he was a federal judge. Article IV alleged that Judge Porteous made false statements to the Senate and FBI in connection with his nomination and confirmation to the U.S. District Court for the Eastern District of Louisiana. On December 8, 2010, he was convicted on all four articles, removed from office, and disqualified from holding future federal offices. On the other hand, it does not appear that any President, Vice President, or other civil officer of the United States has been impeached by the House solely on the basis of conduct occurring before he began his tenure in the office held at the time of the impeachment investigation, although the House has, on occasion, investigated such allegations. It appears that federal officials who have resigned have nonetheless been thought to be susceptible to impeachment and a ban on holding future office. Secretary of War William W. Belknap resigned two hours before the House impeached him, but the Senate nevertheless conducted a trial in which Belknap was acquitted. However, during the trial, upon objection by Belknap's counsel that the Senate lacked jurisdiction because Belknap was now a private citizen, the Senate voted in favor of jurisdiction. That said, the resignation of an official under investigation for impeachment often ends impeachment proceedings. For example, no impeachment vote was taken following President Richard Nixon's resignation after the House Judiciary Committee decided to report articles of impeachment to the House. And proceedings were ended following the resignation of Judges English, Delahay, and Kent. The Constitution sets forth the general principles which control the procedural aspects of impeachment, vesting the power to impeach in the House of Representatives, while imbuing the Senate with the power to try impeachments. Both the Senate and the House have designed procedures to implement these general principles in dealing with a wide range of impeachment issues. This section provides a brief overview of the impeachment process, reflecting the roles of both the House and the Senate during the course of an impeachment inquiry and trial. Impeachment proceedings may be commenced in the House of Representatives by a Member declaring a charge of impeachment on his or her own initiative, by a Member presenting a memorial listing charges under oath, or by a Member depositing a resolution in the hopper, which is then referred to the appropriate committee. The impeachment process may be triggered by non-Members, such as when the Judicial Conference of the United States suggests that the House may wish to consider impeachment of a federal judge, where an independent counsel advises the House of any substantial and credible information which he or she believes might constitute grounds for impeachment, by message from the President, by a charge from a state or territorial legislature or grand jury, or by petition. Resolutions regarding impeachment may be of two types. A resolution impeaching a particular individual, who is within the category of impeachable officers under Article II, Section 4 of the Constitution, is usually referred directly to the House Committee on the Judiciary. A resolution to authorize an investigation as to whether grounds exist for the House to exercise its impeachment power is referred to the House Committee on Rules. Generally, such a resolution is then referred to the House Judiciary Committee. During the House impeachment investigation of President Richard M. Nixon, a resolution reported out of the House Judiciary Committee, H.Res. 803 , was called up for immediate consideration as a privileged matter. The resolution authorized the House Judiciary Committee to investigate fully whether sufficient grounds existed for the House to impeach President Nixon, specified powers which the Committee could exercise in conducting this investigation, and addressed funding for that purpose. The resolution was agreed to by the House. While the House Judiciary Committee usually conducts impeachment investigations, such matters have occasionally been referred to other committees, such as the House Committee on Reconstruction in the impeachment of President Andrew Johnson, or to a special or select committee. In addition, an impeachment investigation may be referred by the House Judiciary Committee to one of its subcommittees or to a specially created subcommittee. In all prior impeachment proceedings, the House has examined the charges prior to entertaining any vote. Usually an initial investigation is conducted by the Judiciary Committee, to which investigating and reporting duties are delegated by resolution after charges have been presented. However, it is possible that this investigation could be carried out by a select or special committee. If authorized by the House, the Judiciary Committee may designate a subcommittee or task force to investigate whether an individual should be impeached. For example, in 2009, the House passed a resolution authorizing the Judiciary Committee or a designated subcommittee or task force to investigate whether Judge Porteous should be impeached. The resolution also authorized the taking of depositions, the issuance of subpoenas, the disbursement of funds, and the hiring of staff. The focus of the impeachment inquiry is to determine whether the person involved has engaged in treason, bribery, or other high crimes and misdemeanors. If a subcommittee or task force is charged with investigating a possible impeachment, the Members can vote to recommend articles of impeachment to the full committee. If the full committee, by majority vote, determines that grounds for impeachment exist, a resolution impeaching the individual in question and setting forth specific allegations of misconduct, in one or more articles of impeachment, will be reported to the full House. At the conclusion of debate, the House may consider the resolution as a whole, or may vote on each article separately. In addition, "as is the usual practice, the committee's recommendations as reported in the resolution are in no way binding on the House." The House may vote to impeach even if the House Judiciary Committee does not recommend impeachment. Pursuant to Article I of the Constitution, a vote to impeach by the House requires a simple majority of those present and voting, upon satisfaction of quorum requirements. If the House votes to impeach, managers are then selected to present the matter to the Senate. In recent practice, managers have been appointed by resolution, although historically they occasionally have been elected or appointed by the Speaker of the House pursuant to a resolution conferring such authority upon him. The House will also adopt a resolution in order to notify the Senate of its action. The Senate, after receiving such notification, will then adopt an order informing the House that it is ready to receive the managers. Subsequently, the appointed managers will appear before the bar of the Senate to impeach the individual involved and exhibit the articles against him or her. After this procedure, the managers would return and make a verbal report to the House. Impeachment proceedings in the Senate are governed now by the Rules of Procedure and Practice in the Senate when Sitting on Impeachment Trials. After presentation of the articles and organization of the Senate to consider the impeachment, the Senate will issue a writ of summons to the respondent, informing him or her of the date on which appearance and answer should be made. On the date established by the Senate, the respondent may appear in person or by counsel. The respondent may also choose not to appear. In the latter event, the proceedings progress as though a "not guilty" plea were entered. The respondent may demur, arguing that he or she is not a civil official subject to impeachment, or that the charges listed do not constitute sufficient grounds for impeachment. The respondent may also choose to answer the articles brought against him or her. The House has traditionally filed a replication to the respondent's answer, and the pleadings may continue with a rejoinder, surrejoinder, and similiter. When pleadings have concluded, the Senate will set a date for trial. Upon establishing this date, the Senate will order the House managers or their counsel to supply the Sergeant at Arms of the Senate with information regarding witnesses who are to be subpoenaed, and will further indicate that additional witnesses may be subpoenaed by application to the Presiding Officer. Under Article I, Section 3, clause 6 of the Constitution, the Chief Justice presides over the Senate impeachment trial if the President is being tried. In impeachment trials, the full Senate may receive evidence and take testimony, or may order the Presiding Officer to appoint a committee of Senators to serve this purpose. If the latter option is employed, the committee will present a certified transcript of the proceedings to the full Senate. The Senate will determine questions of competency, relevancy, and materiality. The Senate may also take further testimony in an open Senate, or may order that the entire trial be before the full Senate. At the beginning of the trial, House managers and counsel for the respondent present opening arguments outlining the charges to be established and controverted. The managers for the House present the first argument. During the course of the trial evidence is presented, and witnesses may be examined and cross-examined. The Senate has not adopted standard rules of evidence to be used during an impeachment trial. The Presiding Officer possesses authority to rule on all evidentiary questions. However, the Presiding Officer may choose to put any such issue to a vote before the Senate. Furthermore, any Senator may request that a formal vote be taken on a particular question. Final arguments in the trial will be presented by each side, with the managers for the House of Representatives opening and closing. When the presentation of evidence and argument by the managers and counsel for the respondent has concluded, the Senate as a whole meets in closed session to deliberate. Voting on whether to convict on the articles of impeachment commences upon return to open session, with yeas and nays being tallied as to each article separately. A conviction on an article of impeachment requires a two-thirds vote of those Senators present. If the respondent is convicted on one or more of the articles against him or her, the Presiding Officer will pronounce the judgment of conviction and removal. No formal vote is required for removal, as it is a necessary effect of the conviction. The Senate has not always voted on every article of impeachment before it; for example, when the Senate did not convict President Andrew Johnson in the votes on three of the articles of impeachment against him, the Senate did not vote on the remaining articles. The Senate may subsequently vote on whether the impeached official shall be disqualified from again holding an office of public trust under the United States. If this option is pursued, a simple majority vote is required. Impeachment proceedings have been challenged in federal court on a number of occasions. Perhaps most significantly, the Supreme Court has ruled that a challenge to the Senate's use of a trial committee to take evidence posed a nonjusticiable political question. In Nixon v. United States , Judge Walter L. Nixon had been convicted in a criminal trial on two counts of making false statements before a grand jury and was sent to prison. He refused, however, to resign and continued to receive his salary as a judge while in prison. The House of Representatives adopted articles of impeachment against the judge and presented the Senate with the articles. The Senate invoked Impeachment Rule XI, a Senate procedural rule which permits a committee to take evidence and testimony. After the committee completed its proceedings, it presented the full Senate with a transcript and report. Both sides then presented briefs to the full Senate and delivered arguments, and the Senate then voted to convict and remove him from office. The judge thereafter brought a suit arguing that the use of a committee to take evidence violated the Constitution's provision that the Senate "try" all impeachments. The Supreme Court noted that the Constitution grants "the sole Power" to try impeachments "in the Senate and nowhere else"; and the word "try" "lacks sufficient precision to afford any judicially manageable standard of review of the Senate's actions." This constitutional grant of sole authority, the Court reasoned, meant that the "Senate alone shall have authority to determine whether an individual should be acquitted or convicted." In addition, because impeachment functions as the " only check on the Judicial Branch by the Legislature," the Court noted the important separation of powers concerns that would be implicated if the "final reviewing authority with respect to impeachments [was placed] in the hands of the same body that the impeachment process is meant to regulate." Further, the Court explained that certain prudential considerations—"the lack of finality and the difficulty of fashioning relief"—weighed against adjudication of the case. Judicial review of impeachments could create considerable political uncertainty, if, for example, an impeached President sued for judicial review. The Court was careful to distinguish the situation from Powell v. McC ormack , a case also involving congressional procedure where the Court declined to apply the political question doctrine. That case involved a challenge brought by a Member-elect of the House of Representatives, who had been excluded from his seat pursuant to a House Resolution. The precise issue in Powell was whether the judiciary could review a congressional decision that the plaintiff was "unqualified" to take his seat. That determination had turned, the Court explained, "on whether the Constitution committed authority to the House to judge its Members' qualifications, and if so, the extent of that commitment." The Court noted that while Article I, Section 5, does provide that Congress shall determine the qualifications of its Members, Article I, Section 2, delineates the three requirements for House membership—Representatives must be at least 25 years of age, have been U.S. citizens for at least seven years, and inhabit the states they represent. Therefore, the Powell Court concluded, the House's claim that it possessed unreviewable authority to determine the qualifications of its Members "was defeated by this separate provision specifying the only qualifications which might be imposed for House membership." In other words, finding that the House had unreviewable authority to decide its Members' qualifications would violate another provision of the Constitution. The Court therefore concluded in Powell that whether the three requirements in the Constitution were satisfied was textually committed to the House, "but the decision as to what these qualifications consisted of was not." Applying the logic of Powell to the case at hand, the Nixon Court noted that here, in contrast, leaving the interpretation of the word "try" with the Senate did not violate any "separate provision" of the Constitution. In addition, several other aspects of the impeachment process have been challenged. Judge G. Thomas Porteous brought a suit seeking to bar counsel for the Impeachment Task Force of the House Judiciary Committee from using sworn testimony the judge had provided pursuant to a grant of immunity. The impeachment proceedings were initiated after a judicial investigation of Judge Porteous for alleged corruption on the bench. During that investigation, Judge Porteous testified under oath to the Special Investigatory Committee under an order granting him immunity from that information being used against him in a criminal case. Before the U.S. District Court for the District of Columbia, Judge Porteous argued that the use of his immunized testimony during an impeachment proceeding violated his Fifth Amendment right not to be compelled to serve as a witness against himself. The court rejected his challenge, reasoning that because the use of such testimony for an impeachment proceeding fell within the legislative sphere, the Speech or Debate Clause prevented the court from ordering the committee staff members to refrain from using the testimony. Similarly, Judge Alcee L. Hastings sought to prevent the House Judiciary Committee from obtaining the records of a grand jury inquiry during the Committee's impeachment investigation. Prior to the impeachment proceedings, although ultimately acquitted, Judge Hastings had been indicted by a federal grand jury for a conspiracy to commit bribery. Judge Hastings' argument was grounded in the separation of powers: he claimed that permitting disclosure of grand jury records for an impeachment investigation risked improperly allowing the executive and judicial branches to participate in the impeachment process—a tool reserved for the legislature. The U.S. Court of Appeals for the Eleventh Circuit, however, rejected this "absolutist" concept of the separation of powers and held that "a merely generalized assertion of secrecy in grand jury materials must yield to a demonstrated, specific need for evidence in a pending impeachment investigation." The U.S. District Court for the District of Columbia initially threw out Judge Hastings' Senate impeachment conviction, because the Senate had tried his impeachment before a committee rather than the full Senate. The decision was vacated on appeal and remanded for reconsideration in light of Nixon v. United States . The district court then dismissed the suit because it presented a nonjusticiable political question.
|
The impeachment process provides a mechanism for removal of the President, Vice President, and other "civil Officers of the United States" found to have engaged in "treason, bribery, or other high crimes and misdemeanors." The Constitution places the responsibility and authority to determine whether to impeach an individual in the hands of the House of Representatives. Should a simple majority of the House approve articles of impeachment specifying the grounds upon which the impeachment is based, the matter is then presented to the Senate, to which the Constitution provides the sole power to try an impeachment. A conviction on any one of the articles of impeachment requires the support of a two-thirds majority of the Senators present. Should a conviction occur, the Senate retains limited authority to determine the appropriate punishment. Under the Constitution, the penalty for conviction on an impeachable offense is limited to either removal from office, or removal and prohibition against holding any future offices of "honor, Trust or Profit under the United States." Although removal from office would appear to flow automatically from conviction on an article of impeachment, a separate vote is necessary should the Senate deem it appropriate to disqualify the individual convicted from holding future federal offices of public trust. Approval of such a measure requires only the support of a simple majority. Key Takeaways of This Report The Constitution gives Congress the authority to impeach and remove the President, Vice President, and other federal "civil officers" upon a determination that such officers have engaged in treason, bribery, or other high crimes and misdemeanors. A simple majority of the House is necessary to approve articles of impeachment. If the Senate, by vote of a two-thirds majority, convicts the official on any article of impeachment, the result is removal from office and, at the Senate's discretion, disqualification from holding future office. The Constitution does not articulate who qualifies as a "civil officer." Most impeachments have applied to federal judges. With regard to the executive branch, lesser functionaries—such as federal employees who belong to the civil service, do not exercise "significant authority," and are not appointed by the President or an agency head—do not appear to be subject to impeachment. At the opposite end of the spectrum, it would appear that any official who qualifies as a principal officer, including a head of an agency such as a Secretary, Administrator, or Commissioner, is likely subject to impeachment. Impeachable conduct does not appear to be limited to criminal behavior. Congress has identified three general types of conduct that constitute grounds for impeachment, although these categories should not be understood as exhaustive: (1) improperly exceeding or abusing the powers of the office; (2) behavior incompatible with the function and purpose of the office; and (3) misusing the office for an improper purpose or for personal gain. The House has impeached 19 individuals: 15 federal judges, one Senator, one Cabinet member, and two Presidents. The Senate has conducted 16 full impeachment trials. Of these, eight individuals—all federal judges—were convicted by the Senate.
|
In late October 2012, Hurricane Sandy impacted a wide swath of the East Coast of the United States. The President had, as of January 31, 2013, declared major disasters for 12 states plus the District of Columbia under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq). The Administration submitted a request to Congress on December 7, 2012, for $60.4 billion in supplemental funding and legislative provisions to address both the immediate losses and damages from Hurricane Sandy, as well as to mitigate the damage from future disasters in the impacted region. The Administration's proposal included $47.44 billion in funding for a range of disaster assistance, and $12.97 billion specifically for mitigation of damage from potential future storms and flooding. Budget authority of $55 billion was requested as emergency funding, while $5.4 billion was requested as disaster relief under the Budget Control Act (BCA). On December 17, 2012, S.Amdt. 3338 , entitled the Disaster Relief Appropriations Act, 2013, was introduced as an amendment to H.R. 1 of the 112 th Congress. This bill was a continuing resolution that had previously passed the House of Representatives, and served as the Senate legislative vehicle for disaster relief supplemental appropriations. On December 19, the amendment was withdrawn and S.Amdt. 3395 , with the same title and overall cost, was offered in its place. This legislation would have provided $60.41 billion in supplemental appropriations for disaster assistance, as well as a suite of legislative provisions that included reforms to disaster assistance authorities. The Senate amendment did not explicitly separate all its mitigation provisions from other relief appropriations, although it did reference some funding as being for mitigation. Budget authority of $55 billion in the legislation was designated as emergency funding, while $5.379 billion in funding for the Disaster Relief Fund would have been designated as being for disaster relief under the BCA. A budget point of order was upheld against part of the legislation, removing the emergency designation from $3.461 billion of construction funding for the Army Corps of Engineers. The Senate made several changes to the amendment (which was passed by voice vote), and then passed the supplemental appropriations legislation on December 28, 2012, by a vote of 62-32. The House did not act on the legislation before the end of the 112 th Congress. However, one facet of the Administration's request did become law through the 112 th Congress. The Administration had sought a legislative provision to increase the bond limit for the Small Business Administration's Surety Bond Guarantees Revolving Fund. A provision increasing the bond limit to $6.5 million, and up to $10 million if a federal contracting officer certified it was necessary, was included in P.L. 112-239 , the National Defense Authorization Act for Fiscal Year 2013. On January 4, 2013, the House and Senate both passed H.R. 41 , legislation providing an additional $9.7 billion in borrowing authority for the National Flood Insurance Program (NFIP), which had been a part of the Administration's request. The President signed it into law as P.L. 113-1 on January 6, 2013. H.R. 152 , which included another portion of the Administration's supplemental request, was introduced on January 4, 2013, and an amendment was filed that same day that included further portions. The House Appropriations Committee described H.R. 152 as including $17 billion "to meet immediate and critical needs," and described the amendment as including $33 billion "funding for longer-term recovery efforts and infrastructure improvements that will help prevent damage caused by future disasters." On January 7, an amendment in the nature of a substitute to H.R. 152 which contained some minor textual changes, along with a restructured "long-term recovery" amendment, was posted on the House Rules Committee website. The House took up the legislation on January 15, 2013. The amendment with long-term recovery funding passed with several amendments, and the amended bill passed the House by a vote of 241-180. The rule for consideration of the bill combined H.R. 219 , a House-passed package of legislative provisions reforming disaster assistance programs, with the appropriations legislation upon engrossment of H.R. 152 , and sent them to the Senate as a single package. The Senate passed H.R. 152 unchanged on January 28, 2013 by a vote of 62-36, and it was signed into law as P.L. 113-2 the next day. Table 1 below outlines the Administration's request for supplemental funding and mitigation funding in the wake of Hurricane Sandy, and the congressional response to those requests. All figures are in millions of dollars of budget authority. The Administration's request is redistributed by appropriations subcommittee. There is no distinction made in this table for mitigation funding. A breakdown of the Administration's request that illuminates the Administration's separate request for mitigation funding is included in CRS Report R42869, FY2013 Supplemental Funding for Disaster Relief . Headers in bold italics note the Appropriations subcommittee of jurisdiction, followed by the department or independent agency in bold capitals. Two columns then specify where a given appropriation is going, by bureau, if applicable, then account or program. The Administration's request is next, in millions of dollars of budget authority, followed by the appropriations that would have been provided if Senate-amended H.R. 1 from the 112 th Congress had been enacted. This is provided only for historical reference, as the bill expired with the end of the 112 th Congress. The last column reflects the amount of funding provided in H.R. 152 as it passed both House and Senate and was ultimately signed into law. Where accounts are funded through transfers, that number is shown in the table and the donor account is reduced accordingly. The Budget Control Act (BCA) changed the way Congress accounted for federal funding for disaster response and recovery. In previous years, Congress provided funds over and above limits on discretionary appropriations by designating additional appropriations as being for emergency needs. Budget authority provided in this manner did not count against funding limitations on discretionary spending in budget resolutions. Although the BCA included legislation allowing for emergency appropriations, the new law included provisions that outlined separate treatment for disaster relief, as distinct from emergency funding. Funding designated as disaster relief in future spending bills could be "paid for" by adjusting upward the discretionary spending caps. This allowable adjustment for disaster relief is limited, however, to an amount based on the 10-year rolling average of what has been spent by the federal government on relief efforts for major disasters. This disaster relief allowable adjustment for FY2013 is $11.8 billion. Under the continuing resolution signed into law on September 28, 2012 ( P.L. 112-175 ), the amount of disaster relief as defined under the BCA that would be provided if the resolution were extended for the full fiscal year was $6.4 billion. The Administration proposed using the remainder of the allowable adjustment for disaster relief in its supplemental request, and using an emergency funding designation to ensure the remaining resources provided through the request do not count against the FY2013 budget caps. The Administration proposed designating all of the supplemental funding it sought as an emergency requirement, with the exception of a portion of the request for the DRF, which would be designated as being for disaster relief under the BCA. The Administration noted in the letter accompanying the request that it was unclear how much of the disaster relief allowable adjustment might be available pending the finalization of general FY2013 appropriations, and that therefore these numbers could require adjustment. Senate-passed H.R. 1 proposed that $5,379 million in DRF funding be designated as being for disaster relief under the BCA, with all but $3,461 million (for Army Corps of Engineers construction activities) of the remaining funding in the bill designated as emergency funding. P.L. 113-2 contains $41,669 million in emergency funding, $5,379 million for the DRF designated as disaster relief, and $3,461 million for Army Corps of Engineers construction activities that would count against the discretionary budget caps. One potential method for accommodating disaster response and recovery costs beyond the allowable adjustment for disaster relief would be offsetting the additional spending through rescissions or other means that would reduce the net budgetary scoring of the bill. Traditionally, supplemental funding for the Disaster Relief Fund (DRF) has been treated as emergency spending—it was not counted against discretionary budget caps, nor was an offset required. However, supplemental spending packages have at times carried rescissions or transfers that have offset, to one degree or another, the budgetary impact of other forms of disaster assistance that could be defined as "disaster relief" under the BCA. Of the 59 bills passed with supplemental appropriations from 1990 to the end of 2012, 6 were fully offset by rescissions. Only one of those actually provided net additional resources for the DRF—the Emergency Supplemental and Rescissions for Antiterrorism and Oklahoma City Disaster, 1995 ( P.L. 104-19 ). In other cases, the DRF was used as an offset for disaster assistance provided through other federal entities. Offsetting the Administration's supplemental request, however, would have been complicated by two key factors. First, as the federal government is operating under a continuing resolution, there was no baseline appropriation in the current fiscal year to offset from. It is also worth noting the scale of the offset required. The budget authority sought in the request is more than all but 3 of the 12 general appropriations bills for FY2012, and exceeds the 3 smallest appropriations bills from that year combined—even if none of the nearly $13 billion in the Administration's mitigation request were counted. The Administration's request, Senate-passed H.R. 1 , and P.L. 113-2 did not include offsets, and the Administration's request letter and Statement of Administration Policy on H.R. 152 specifically stated the Administration's position that the funding could and should be provided without offset. However, an amendment was offered in the House to offset $17 billion of disaster assistance from H.R. 152 by making an across-the-board cut of 1.63% to FY2013 discretionary spending. This amendment failed by a vote of 162-258. A Senate amendment to offset the entire cost of H.R. 152 through reducing the caps on discretionary spending through FY2021 also was not agreed to by a vote of 35-62. When the Senate struck the emergency designation for Army Corps of Engineers construction activities, it allowed $3,461 million of Senate-passed H.R. 1 to count against the FY2013 discretionary budget caps. P.L. 113-2 gave the same treatment to the $3,461 million it provides for Army Corps of Engineers construction. This means that $3,461 million in discretionary budget authority that would have been available to resolve the FY2013 regular appropriations legislation has been expended, and the final resolution of the FY2013 appropriations process will have to accommodate that reality to avoid violating the budget caps. As Congress debated the provision of supplemental funding in the wake of Hurricane Sandy, some commentators compared the scope and magnitude of Hurricane Sandy to past disasters. Generally, comparisons were drawn to other major disasters in recent memory, including Hurricane Irene of 2011 because of the similarities in geographic region impacted, and Hurricanes Katrina of 2005 and Andrew of 1992 because of their scope and magnitude of damage. Some comparisons spoke to the loss of life, others to the disruption of daily activities of citizens, and other to the relative impacts on the local and regional economies. While these comparisons helped provide a level of perspective on the scale of devastation, it is important to note that all disasters, and especially disasters of the magnitude of Hurricane Sandy, are produced by a set of unique circumstances that result in an equally unique set of needs for assistance from the federal government. Two major concepts should be kept in mind when comparing the need for federal assistance following disasters. First, because of the federalism principles of emergency management—that the federal government generally provides assistance to supplement the work of state, tribal, and local governments only after they become overwhelmed and only at their request—the varying capabilities of a state/tribal/local government can change the types and scope of assistance provided by the federal government. This issue was discussed by the Administrator of FEMA in testimony on Hurricane Sandy. In reference to the denial of an application for one form of disaster assistance (individual assistance), Administrator Fugate explained that decisions to provide federal assistance are based not upon the need of any particular individual, but upon the need of the state as whole and whether the state is capable of addressing that need without federal assistance. Second, the relative levels of federal assistance required for each disaster depend on the proportional impact to various sectors of the community. For example, a particular disaster may destroy one community's business district and overwhelm the ability of the state to respond to that impact, while another may significantly damage the majority of the community's public facilities. In the first disaster, the assistance from the federal government may be noteworthy for the relatively large amount of loan assistance provided by the Small Business Administration, while the second disaster may be noteworthy for the relatively large amount of assistance provided through the FEMA's Public Assistance (PA) program. Some additional disaster-specific factors that may inhibit the comparability of disasters include: The comparative density and socioeconomic status of the impacted populations; The percentage of properties and private/public losses that were insured, and the adequacy of the insurance coverage; and The number of jurisdictions impacted by the disasters, and whether these jurisdictions span multiple states requiring greater federal coordination of the response and recovery effort.
|
On January 29, 2013, the Disaster Relief Appropriations Act, 2013, a $50.5 billion package of disaster assistance largely focused on responding to Hurricane Sandy, was enacted as P.L. 113-2. In late October 2012, Hurricane Sandy impacted a wide swath of the East Coast of the United States, resulting in more than 120 deaths and major disaster declarations for 12 states plus the District of Columbia. The Administration submitted a request to Congress on December 7, 2012, for $60.4 billion in supplemental funding and legislative provisions to address both the immediate losses and damages from Hurricane Sandy, as well as to mitigate the damage from future disasters in the impacted region. On January 15, 2013, the House of Representatives passed H.R. 152, the Disaster Relief Appropriations Act, 2013. This bill included $50.5 billion in disaster assistance. This was the third piece of disaster legislation considered by the House in the 113th Congress. H.R. 41, which passed the House and Senate on January 4, 2013 and was signed into law two days later as P.L. 113-1, provided $9.7 billion in additional borrowing authority for the National Flood Insurance Program. On January 14, the House passed H.R. 219, legislation making changes to disaster assistance programs. The rule for consideration of H.R. 152 combined the text of H.R. 219 with H.R. 152 upon its engrossment, to send them to the Senate as a single package. The Senate passed H.R. 152 unchanged on January 28, 2013 by a vote of 62-36, and it was signed into law as P.L. 113-2 the next day. H.R. 152 was not the initial legislative response to the storm. In the 112th Congress, the Senate passed a separate package of disaster assistance totaling $60.4 billion, as well as several legislative provisions reforming federal disaster programs. While appropriations legislation generally originates in the House of Representatives, the Senate chose to act on the Administration's request first by amending an existing piece of House-passed appropriations legislation—H.R. 1. This passed the Senate December 28, 2012, by a vote of 62-32. The House did not act on the legislation before the end of the 112th Congress. This summary report analyzes the Administration's request, the initial Senate position from the 112th Congress, and H.R. 152, the legislative package developed in the House that was ultimately enacted as P.L. 113-2. For details concerning the legislative provisions requested by the Administration, as well as those included in Senate-amended H.R. 1, see CRS Report R42869, FY2013 Supplemental Funding for Disaster Relief. Division B of P.L. 113-2, which amends several disaster assistance programs managed by FEMA, is discussed separately in CRS Report R42991, Analysis of the Sandy Recovery Improvement Act of 2013.
|
The increasing costs of health care have focused congressional attention upon both the development and public availability of prescription drugs. Congress has long recognized that the patent system has an important role to play in the pharmaceutical industry in each respect. The Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, in part reformed both the patent and food and drug laws in order to balance incentives for innovation and competition within the pharmaceutical industry. Recently, congressional attention has been directed towards one aspect of the patent system, the settlement of pharmaceutical patent litigation. Although brand-name pharmaceutical companies commonly procure patents on their innovative products and processes, such rights are not self-enforcing. If a brand-name drug company wishes to enforce its patents against generic competitors, it must pursue litigation in the federal courts. Such litigation ordinarily terminates in either a judgment of infringement, which typically blocks generic competition until such time as the patent expires, or a judgment that the patent is invalid or not infringed, which typically opens the market to generic entry. As with other sorts of commercial litigation, however, the parties to pharmaceutical patent litigation may choose to settle their case. Certain of these settlements call for the generic firm to neither challenge the brand-name company's patents nor sell a generic version of the patented drug. In exchange, the brand-name drug company agrees to make cash payments to the generic firm. This compensation has been termed an "exclusion" or "exit" payment or, because the payment flows counterintuitively, from the patent proprietor to the accused infringer, a "reverse" payment." Some observers have also termed these settlements as "pay-for-delay" agreements. Commentators differ markedly in their views of reverse payment settlements. Some observers believe that they result from the specialized patent litigation procedures established by the Hatch-Waxman Act. Others conclude that when one competitor pays another not to market its product, such a settlement is anti-competitive and presumptively a violation of the antitrust laws. Since 2003, Congress has required that litigants notify federal antitrust authorities of their pharmaceutical patent settlements. To date, Congress has not stipulated substantive standards for assessing the validity of these agreements under the antitrust law, however. That determination was left to judicial application of general antitrust principles. Uniformity of results was not a hallmark of this line of cases. Facing different factual patterns, some lower courts have concluded that a particular reverse payment settlement constituted an antitrust violation, while others had upheld the agreement. The June 17, 2013, decision of the U.S. Supreme Court in Federal Trade Commission v. Actavis, Inc. resolved this disagreement by holding 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 lower courts now face the potentially complex task of applying the rule of reason to reverse payment settlements going forward. Legislation before the 113 th Congress also relates to reverse payment settlements. The Preserve Access to Affordable Generics Act ( S. 214 ) would create a rebuttable presumption that certain reverse payment settlements were illegal. In addition, the FAIR Generics Act ( S. 504 ) would introduce reforms to the Hatch-Waxman Act that would reduce incentives for generic firms to settle with brand-name companies. This legislation has not yet been enacted. This report introduces and analyzes innovation and competition policy issues associated with pharmaceutical patent litigation settlements. It begins with a review of pharmaceutical patent litigation procedures under the Hatch-Waxman Act. The report then introduces the concept of reverse payment settlements. Next, the report analyzes the status of reverse payment settlements under the antitrust laws. The report closes with a summary of congressional issues and possible alternatives. Inventors must prepare and submit applications to the U.S. Patent and Trademark Office (USPTO) if they wish to obtain patent protection. USPTO officials, known as examiners, then assess whether the application merits the award of a patent. A patent application must include a specification that so completely describes the invention that skilled artisans are able to practice it without undue experimentation. Applicants must also draft at least one claim that particularly points out and distinctly claims the subject matter that they regard as their invention. While reviewing a submitted application, the examiner will determine whether the claimed invention fulfills certain substantive standards set by the patent statute. Two of the most important patentability criteria are novelty and nonobviousness. To be judged novel, the claimed invention must not be fully anticipated by a prior patent, publication, or other knowledge within the public domain. The sum of these earlier materials, which document state-of-the-art knowledge that is accessible to the public, is termed the "prior art." To meet the standard of nonobviousness, an invention must not have been readily within the ordinary skills of a competent artisan based upon the teachings of the prior art. If the USPTO allows the application to issue as a granted patent, the owner or owners of the patent obtain the right to exclude others from making, using, selling, offering to sell or importing into the United States the claimed invention. The term of the patent is ordinarily set at twenty years from the date the patent application was filed. Patent title therefore provides inventors with limited periods of exclusivity in which they may practice their inventions, or license others to do so. The grant of a patent permits inventors to receive a return on the expenditure of resources leading to the discovery, often by charging a higher price than would prevail in a competitive market. In the pharmaceutical industry, for example, the introduction of generic competition often results in the availability of lower-cost substitutes for the innovative product. A patent proprietor bears responsibility for monitoring its competitors to determine whether they are using the patented invention. Patent owners who wish to compel others to observe their intellectual property rights must often commence litigation in the federal district courts. Although the award of a patent claiming a pharmaceutical provides its owner with a proprietary interest in that product, it does not actually allow the owner to distribute that product to the public. Permission from the FDA must first be obtained. In order to obtain FDA marketing approval, the developer of a new drug must demonstrate that the product is safe and effective. This showing typically requires the drug's sponsor to conduct both preclinical and clinical investigations. In deciding whether to issue marketing approval or not, the FDA evaluates the test data that the sponsor submits in a so-called New Drug Application (NDA). Prior to the enactment of the Hatch-Waxman Act, the federal food and drug law contained no separate provisions addressing marketing approval for independent generic versions of drugs that had previously been approved by the FDA. The result was that a would-be generic drug manufacturer had to file its own NDA in order to sell its product. Some generic manufacturers could rely on published scientific literature demonstrating the safety and efficacy of the drug by submitting a so-called "paper NDA." Because these sorts of studies were not available for all drugs, however, not all generic firms could file a paper NDA. Further, at times the FDA requested additional studies to address safety and efficacy questions that arose from experience with the drug following its initial approval. The result was that some generic manufacturers were forced to prove once more that a particular drug was safe and effective, even though their products were chemically identical to those of previously approved pharmaceuticals. Some commentators believed that the approval of a generic drug was a needlessly costly, duplicative, and time-consuming process. These observers noted that although patents on important drugs had expired, manufacturers were not moving to introduce generic equivalents for these products due to the level of resource expenditure required to obtain FDA marketing approval. In response to these concerns, Congress enacted the Hatch-Waxman Act, a complex statute that sought compromise between brand-name and generic pharmaceutical companies. Its provisions included the creation of an expedited marketing approval pathway for generic drugs termed an Abbreviated New Drug Application, or ANDA. An ANDA allows an independent generic applicant to obtain marketing approval by demonstrating that the proposed product is bioequivalent to an approved pioneer drug, without providing evidence of safety and effectiveness from clinical data or from the scientific literature. The availability of ANDAs often allows a generic manufacturer to avoid the costs and delays associated with filing a full-fledged NDA. They may also allow an independent generic manufacturer, in many cases, to place its FDA-approved bioequivalent drug on the market as soon as any relevant patents expire. As part of the balance struck between brand-name and generic firms, Congress also provided patent proprietors with a means for restoring a portion of the patent term that had been lost while awaiting FDA approval. The maximum extension period is capped at a five-year extension period, or a total effective patent term after the extension of not more than 14 years. The scope of rights during the period of extension is generally limited to the use approved for the product that subjected it to regulatory delay. This period of patent term extension is intended to compensate brand-name firms for the generic drug industry's reliance upon the proprietary pre-clinical and clinical data they have generated, most often at considerable expense to themselves. During its development of accelerated marketing approval procedures for generic drugs, Congress recognized that the brand-name pharmaceutical firm may be the proprietor of one or more patents directed towards that drug product. These patents might be infringed by a product described by a generic firm's ANDA or in the event that product is approved by the FDA and sold in the marketplace. The Hatch-Waxman Act therefore established special procedures for resolving patent disputes in connection with applications for marketing generic drugs. In particular, the Hatch-Waxman Act states that each NDA applicant "shall file" a list of patents that the applicant believes would be infringed if a generic drug were marketed prior to the expiration of these patents. The FDA then lists these patents in a publication titled Approved Drug Products with Therapeutic Equivalence Evaluations , which is more commonly known as the "Orange Book." Would-be manufacturers of generic drugs must then engage in a specialized certification procedure with respect to Orange Book-listed patents. An ANDA applicant must state its views with respect to each Orange Book-listed patent associated with the drug it seeks to market. Four possibilities exist: (1) that the brand-name firm has not filed any patent information with respect to that drug; (2) that the patent has already expired; (3) that the generic company agrees not to market until the date on which the patent will expire; or (4) that the patent is invalid or will not be infringed by the manufacture, use, or sale of the drug for which the ANDA is submitted. These certifications are respectively termed paragraph I, II, III, and IV certifications. An ANDA certified under paragraphs I or II is approved immediately after meeting all applicable regulatory and scientific requirements. An independent generic firm that files an ANDA including a paragraph III certification must, even after meeting pertinent regulatory and scientific requirements, wait for approval until the brand-name drug's listed patent expires. The filing of an ANDA with a paragraph IV certification constitutes a "somewhat artificial" act of patent infringement under the Hatch-Waxman Act. The act requires the independent generic applicant to notify the proprietor of the patents that are the subject of a paragraph IV certification. The patent owner may then commence patent infringement litigation against that applicant. In order to encourage challenges of pharmaceutical patents, the Hatch-Waxman Act provides prospective manufacturers of generic pharmaceuticals with a potential reward. That reward consists of a 180-day exclusivity period awarded to the first ANDA applicant to file a paragraph IV certification. Once a first ANDA with a paragraph IV certification has been filed, the FDA cannot issue marketing approval to a subsequent ANDA with a paragraph IV certification on the same drug product for 180 days. Because market prices could drop considerably following the entry of additional generic competition, the first paragraph IV ANDA applicant may potentially obtain more handsome profits than subsequent market entrants—thereby stimulating patent challenges in the first instance. Following 2003 amendments to the Hatch-Waxman Act, in some circumstances a first paragraph IV ANDA applicant may lose its entitlement to the 180-day generic exclusivity period. The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) established a number of "forfeiture events" that, if triggered, result in a relinquishment of generic exclusivity. Among the forfeiture events are: (1) failure to market its product promptly; (2) failure to obtain FDA approval to market the generic drug in a reasonably timely manner; and (3) all of the certified patents that entitled the applicant to the 180-day generic exclusivity period have expired. The possibility of forfeiture was intended "to prevent the practice of 'parking' the exclusivity period and to force generic manufacturers to market promptly." As discussed previously, a generic firm's filing of a paragraph IV ANDA may result in a patent infringement suit brought by a brand-name drug company. In such litigation, if the NDA holder demonstrates that the independent generic firm's proposed product would violate its patents, then the court will ordinarily issue an injunction that prevents the generic drug company from marketing that product. That injunction will expire on the same date as the NDA holder's patents. Independent generic drug companies commonly amend their ANDAs in this event, replacing their paragraph IV certifications with paragraph III certifications. On the other hand, the courts may decide in favor of the independent generic firm. The court may conclude that the generic firm's proposed product does not infringe the asserted patents, or that the asserted patents are invalid or unenforceable. In this circumstance, the independent generic firm may launch its product once the FDA has finally approved its ANDA. In addition to the issuance of final judgment in favor of either the brand-name drug company or generic firm, another resolution of pharmaceutical patent litigation is possible. This legal situation led to a number of cases with varying details, but a common core fact pattern. Upon filing a paragraph IV ANDA, a generic firm would be sued for patent infringement as provided by the Hatch-Waxman Act. The NDA holder and generic applicant would then settle their dispute. The settlement would call for the generic firm to neither challenge the patent nor produce a generic version of the patented drug, for a period of time up to the remaining term of the patent. In exchange, the NDA holder would agree to compensate the ANDA applicant, often with substantial monetary payments over a number of years. Opinions about the effects of reverse payment settlements upon social welfare have varied. Some commentators believe that such settlements are anticompetitive. They believe that many of these agreements may amount to no more than two firms colluding in order to restrict output and share patent-based profits. Such settlements are also said to eliminate the possibility of a judicial holding of patent invalidity, which may open the market to generic competition and benefit consumers. On the other hand, some commentators have found nothing inherently troublesome about reverse payment settlements. Among their observations is that there is a general judicial policy in favor of promoting settlement. Settlements can allow the parties to avoid the expenses of litigation, achieve a resolution to the dispute in a timely manner, and avoid the risk of an uncertain result in the courtroom. The settlement of litigation further serves the goal of resolving disputes in a peaceful manner, and also preserves scarce judicial resources. Second, any settlement of litigation between rational actors necessarily involves an exchange of benefits and obligations. As Judge Richard Posner has explained: [A]ny settlement agreement can be characterized as involving "compensation" to the defendant, who would not settle unless he had something to show for the settlement. If any settlement agreement is thus to be classified as involving a forbidden "reverse payment," we shall have no more patent settlements. Third, certain reverse payment settlements have allowed for the introduction of generic competition prior to the date the relevant patent expires. It is possible, for example, for the brand-name and generic firms to divide the remaining patent term between them, with the generic firm being allowed to market a competing product prior to the running of the full patent term. Such agreements may potentially benefit consumers, certainly in comparison to a judgment that the patent is not invalid and infringed. Finally, the dispute settlement procedures established by the Hatch-Waxman Act may themselves promote the use of reverse payment settlements in pharmaceutical patent litigation. In patent litigation outside the Hatch-Waxman Act context, the accused infringer is ordinarily using or marketing the patented technology. A judicial finding of infringement would expose the accused infringer to an injunction, along with damages awarded for past uses and sales. As a result, the accused infringer may well be willing to compensate the patent proprietor in order to avoid the risk of such a holding. Some observers believe that the structure of the Hatch-Waxman Act alters the traditional balance of risks between the plaintiff-patentee and accused infringer. As explained by one federal district court: [I]n creating an artificial act of infringement (the ANDA IV filing), the Hatch-Waxman Amendments grant generic manufacturers standing to mount a validity challenge without incurring the cost of entry or risking enormous damages flowing from infringing commercial sales.... Because of the Hatch-Waxman scheme, [the generic firm's] exposure in the patent litigation was limited to litigation costs, but its upside–exclusive generic sales–was immense. The patent holder, however, has no corresponding upside, as there are no infringement damages to collect, but has an enormous downside–losing the patent. As a result, some commentators believe that it is entirely predictable that the unique procedures of the Hatch-Waxman Act have resulted in the new phenomenon of reverse payment settlements. At the present time, congressional action on pharmaceutical patent litigation settlements has been limited. In the 2003 Medicare Prescription Drug, Improvement, and Modernization Act (MMA), Congress mandated that the Department of Justice (DOJ) and the Federal Trade Commission (FTC) receive copies of certain patent settlements agreements in the pharmaceutical field. The filing requirement applies to agreements executed on or after January 7, 2004, between an ANDA applicant, on one hand, and either the NDA holder or an owner of an Orange Book-listed patent, on the other. Such agreements trigger the statutory notification requirement if they relate to one of three topics: (1) The manufacture, marketing, or sale of the brand-name drug that is the listed drug in the ANDA; (2) The manufacture, marketing, or sale of the generic drug for which the ANDA was submitted; or (3) The 180-day generic exclusivity period as it applies to that ANDA, or to another ANDA filed with respect to the same brand-name drug. The MMA stipulates that certain agreements are not subject to this filing requirement. In particular, agreements that solely consist of purchase orders for raw materials, equipment and facility contracts, employment or consulting contracts, or packaging and labeling contracts do not need to be submitted to the DOJ or FTC. The FTC reported that during FY2012 (October 1, 2011, to September 30, 2012), the agency received "140 final resolutions of patent disputes between a brand and a generic, of which 40 settlements may involve pay-for-delay payments." Although the MMA imposed a filing obligation upon certain patent settlements between pharmaceutical firms, that legislation did not set substantive standards as to the validity of these agreements. Both prior and subsequent to congressional enactment of the MMA, however, various government and private actors asserted that certain reverse payment settlements violated the antitrust laws. In order to resolve these claims, different courts applied general principles of antitrust law. Facing different factual patterns, the courts ultimately reached varying results. After introducing the basic concepts of antitrust law, this report next reviews several judicial opinions that address reverse payment settlements. The primary legal mechanism for addressing conduct alleged to be anti-competitive—including reverse payment settlements—consists of the antitrust laws. The antitrust laws are comprised of the Sherman Act, the Clayton Act, the Federal Trade Commission Act, and other federal and state statutes that prohibit certain kinds of anticompetitive economic conduct. Although a complete review of the antitrust laws exceeds the scope of this report, other sources provide more information for the interested reader. Section 1 of the Sherman Act declares "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade ... to be illegal." The courts have long interpreted this language as applying only to unreasonable restraints of trade. The determination of whether particular conduct amounts to an unreasonable restraint of trade is commonly conducted under the "rule of reason." Under this approach, "the finder of fact must decide whether the questioned practice imposes an unreasonable restraint on competition, taking into account a variety of factors, including specific information about the relevant business, its condition before and after the restraint was imposed, and the restraint's history, nature, and effect." The rule of reason essentially calls upon courts to reach a judgment of reasonableness by balancing the anticompetitive consequences of a challenged practice against its business justifications and potentially procompetitive impact. Other sorts of restraints are deemed unlawful per se . Per se illegality is appropriate "[o]nce experience with a particular kind of restraint enables the Court to predict with confidence that the rule of reason will condemn it." The Supreme Court has explained that "there are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use." Among the practices that have been judged per se violations are price fixing, group boycotts, and market division. In some circumstances, courts apply an antitrust standard that falls between the per se illegality standard and the rule of reason. The so-called "quick look" or "truncated rule of reason" approach applies when the plaintiff demonstrates that the defendant has engaged in practices similar to those previously held to be subject to per se treatment. In these circumstances, the defendant must then demonstrate that the practice has pro-competitive justifications in order to avoid liability for an antitrust violation. The courts have differed in their antitrust approaches to reverse payment settlements in pharmaceutical patent litigation. The first two appellate courts to address this issue, from the District of Columbia and Sixth Circuits, subjected such agreements to strict antitrust scrutiny. The Sixth Circuit opinion in In re Cardizem CD Antitrust Litigation is representative of this approach. There the Court of Appeals held that a reverse payment settlement agreement between Hoescht Marion Roussel Inc. and Andrx Pharmaceuticals was per se invalid. The Sixth Circuit reasoned that the HMR-Andrx agreement was appropriately classified as a so-called horizontal agreement; that is to say, a restraint of trade involving businesses at the same level of competition. Such agreements had long been classified as antitrust violation per se , the Court of Appeals explained. Despite this early precedent, three subsequent Courts of Appeals to consider the matter—from the Second, Eleventh, and Federal Circuits—reached a different result, ruling that reverse payment settlements were permissible so long as they do not authorize arrangements that exceed the scope of the patent. One representative case, Valley Drug Co. v. Geneva Pharmaceuticals, Inc ., involved agreements Abbott Laboratories reached with two different generic firms, Zenith Goldline Pharmaceuticals and Geneva Pharmaceuticals. At trial, the district court held that the two settlement agreements constituted a horizontal market allocation that was per se illegal under the Sherman Act. The Eleventh Circuit reversed on appeal, concluding that the standard of per se illegality was "premature" and inappropriate. Instead, the Court of Appeals remanded the matter for a determination of whether any part of the agreement went beyond the protections afforded by the brand-name firm's patent and, if so, to apply antitrust scrutiny only to those portions of the agreement. Under this "scope of the patent" approach, reverse payment settlements are permitted so long as (1) the commercial arrangement dictated by the settlement does not extend beyond the scope of the patent; (2) the patent holder's claim of infringement was not objectively baseless; and (3) the patent was not obtained by defrauding the USPTO. On July 16, 2012, the Court of Appeals for the Third Circuit addressed the antitrust status of reverse payments settlements in K-Dur Antitrust Litigation . The Third Circuit rejected the scope of the patent test, explaining that "that test improperly restricts the application of antitrust law and is contrary to the policies underlying the Hatch-Waxman Act and a long line of Supreme Court precedent on patent litigation and competition." The Third Circuit believed that courts following the scope of the patent test had placed too much weight on the presumption of validity accorded to granted patents. This presumption was merely a procedural device, not a substantive right of the patent holder, the Court of Appeals explained. The Court of Appeals also recognized the judicial preference for private settlements, but reasoned that this practice should not displace congressional goals underlying the Hatch-Waxman Act—including the invalidation of improvidently granted patent through litigation. In the view of the Third Circuit, the scope of the patent test essentially prevented antitrust authorities from reviewing settlement agreements involving weak or narrow patents that would not have blocked generic competition. In place of the scope of the patent test, the Third Circuit adopted a "quick rule of reason" test that presumed that reverse payments were anticompetitive. However, the parties to the agreement could rebut that conclusion by demonstrating that the payments were for a purpose other than delayed entry or offered some pro-competitive benefit. In view of this conflict between the lower courts, the Supreme Court agreed to hear the case of Federal Trade Commission v. Actavis, Inc . 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. Solvay Pharmaceuticals is the NDA holder of the testosterone-replacement drug ANDROGEL®. When generic firms Actavis and Paddock Laboratories filed paragraph IV ANDAs, Solvay brought charges of patent infringement in keeping with the Hatch-Waxman Act. The parties ultimately settled the case, with the generic firms receiving substantial sums of money in exchange for the promise not to market their products until August 31, 2015, 65 months before Solvay's patent expired. The FTC subsequently charged the settling parties with a violation of Section 5 of the Federal Trade Commission Act by unlawfully agreeing "to share in Solvay's monopoly profits, abandon their patent challenges, and refrain from launching their low-cost generic products to compete with AndroGel for nine years." The District Court for the Northern District of Georgia rejected the FTC's claims, and on appeal the Eleventh Circuit affirmed. Applying the "scope of the patent" standard that had been developed in earlier cases, the Court of Appeals explained that "absent sham litigation or fraud in obtaining a patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the exclusionary potential of the patent." The Supreme Court subsequently granted certiorari and, in a 5-3 ruling, reversed the judgment of the Eleventh Circuit and remanded. Writing for the majority, Justice Breyer accepted that the anticompetitive effects of the agreement between Solvay and the generic firms fell with the scope of its patent. However, this fact by itself did not immunize the agreement from antitrust scrutiny, he reasoned. The majority explained that while the holder of a valid patent may be exempt from antitrust liability when enforcing the exclusionary right, litigation under the Hatch-Waxman Act involves assertions of patent invalidity or noninfringement. If the generic firm successfully makes either case, the patent proprietor would not enjoy the right to exclude the proposed generic product from the marketplace. As a result, such agreements may have significant adverse effects on competition. Justice Breyer therefore reasoned that "it would be incongruous to determine antitrust legality by measuring the settlement's anticompetitive effects solely against patent law policy, rather than by measuring them against procompetitive antitrust policies as well." Observing that its precedent had held that certain patent-related settlements can violate the antitrust laws, the Court summarized its patent-antitrust case law as follows: [R]ather than measure the length or amount of a restriction solely against the length of the patent's term or its earning potential, as the Court of Appeals apparently did here, this Court answered the antitrust question by considering traditional antitrust factors such as likely anticompetitive effects, redeeming virtues, market power, and potentially offsetting legal considerations present in the circumstances, such as here those related to patents. The Court also concluded that the structure of the Hatch-Waxman Act—including its patent challenge provisions, requirement of notification of settlements to the antitrust authorities, and its "general procompetitive thrust"—was consistent with subjecting reverse payment settlements to antitrust scrutiny. Justice Breyer acknowledged that the strong judicial policy favoring the settlement of disputes supported the holding of the Eleventh Circuit. But he cited five considerations in support of a contrary result: [A] reverse payment, where large and unjustified, can bring with it the risk of significant anticompetitive effects; one who makes such a payment may be unable to explain and to justify it; such a firm or individual may well possess market power derived from the patent; a court, by examining the size of the payment, may well be able to assess its likely anticompetitive effects along with its potential justifications without litigating the validity of the patent; and parties may well find ways to settle patent disputes without the use of reverse payments. In our view, these considerations, taken together, outweigh the single strong consideration—the desirability of settlements—that led the Eleventh Circuit to provide near-automatic antitrust immunity to reverse payment settlements. Finally, Justice Breyer declined to adopt the Commission's suggestion that reverse payment settlements should be presumptively unlawful and subject to a "quick-look approach." According to the majority, this approach was appropriate only where "an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anticompetitive effect on customers and markets." This treatment was inappropriate here because the likelihood of a reverse payment bringing about anticompetitive effects depends upon a number of factors, including the size of the payment, its scale in relation to the payor's anticipated litigation costs, its independence from other consideration within the settlement, and the lack of any other convincing justification. Instead, the Court concluded that the FTC must establish antitrust liability using the traditional rule of reason analysis. Chief Justice Roberts contributed a dissent that was joined by Justices Scalia and Thomas. The dissent would have held that a reverse payment settlement violates antitrust law only when it exceeds the scope of the patent, the patents were obtained by fraud, or the patentee engages in sham litigation. The dissenters feared that the majority holding would dissuade generic firms from challenging patents in the first place, discourage settlement of patent litigation, and weaken the protection afforded to innovators by patents. Although the Supreme Court's opinion in Actavis does not eliminate the ability of pharmaceutical firms to settle litigation under the Hatch-Waxman Act, the contracting parties will have to structure and explain their agreements carefully. Parties that lack the appetite for such an effort will be left to litigate their pharmaceutical patent cases to a final conclusion. With respect to existing agreements, the lower courts have been assigned the potentially complex task of giving substance to the rule of reason in Hatch-Waxman cases. Justice Breyer was of the view that Hatch-Waxman antitrust cases would not routinely involve a detailed examination of the validity and infringement of the underlying patent. However, the Chief Justice expressed concern that the issues of patent invalidity and infringement lie at the core of the antitrust dispute. In his view, resolution of these issues could prove extremely intricate and costly. In view of this landscape, several options are available for Congress. One possibility is to await further judicial developments. The Supreme Court's Actavis decision arguably resolved the split among the courts of appeal with respect to reverse payment settlements, but it remains to be seen how the lower courts will continue to refine this case law. Another option is to regulate the settlement of pharmaceutical patent litigation in some manner. Two bills in the 113 th Congress pertain to reverse payment settlements. The Preserve Access to Affordable Generics Act, S. 27 , 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." That presumption would not apply if the parties to the agreement demonstrated by clear and convincing evidence that the procompetitive benefits of the agreement outweighed the anticompetitive effects of the agreement. S. 27 includes a list of factors to be weighed by the courts in such circumstances. In addition, the Fair and Immediate Release of Generics Act, S. 504 , would make a number of changes to the Hatch-Waxman Act in order to discourage reverse payments settlements. In particular, S. 504 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 obligate 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. The settlement of pharmaceutical patent litigation forms an important issue because such litigation is itself important to our public health system. Our patient population relies upon brand-name drug companies to develop new medicines, but it also relies upon generic firms to increase access to such medications once they have been developed. The Hatch-Waxman Act provides for patent litigation between these two traditional rivals as a primary vehicle through which these competing demands are mediated. When concluded in a manner that comports with antitrust principles, such settlements may further the public policy goals of encouraging the labors that lead to medical innovation, but also distributing the fruits of those labors to consumers.
|
Although brand-name pharmaceutical companies routinely procure patents on their innovative medications, such rights are not self-enforcing. Brand-name firms that wish to enforce their patents against generic competitors must therefore commence litigation in the federal courts. Such litigation ordinarily terminates in either a judgment of infringement, which typically blocks generic competition until such time as the patent expires, or a judgment that the patent is invalid or not infringed, which typically opens the market to generic entry. As with other sorts of commercial litigation, however, the parties to pharmaceutical patent litigation may choose to settle their case. Certain of these settlements have called for the generic firm 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. Since 2003, Congress has required that litigants notify federal antitrust authorities of their pharmaceutical patent settlements. That legislation did not dictate substantive standards for assessing the validity of these agreements under the antitrust law, however. That determination was left to judicial application of general antitrust principles. Facing different factual patterns, some lower courts had concluded that a particular reverse payment settlement constituted an antitrust violation, while others have upheld the agreement. The June 17, 2013, decision of the U.S. Supreme Court in Federal Trade Commission v. Actavis, Inc. resolved this disagreement by holding 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 lower courts now face the potentially complex task of applying the rule of reason to reverse payment settlements going forward. Congress possesses a number of alternatives for addressing reverse payment settlements. One possibility is to await further judicial developments. Another option is to regulate the settlement of pharmaceutical patent litigation in some manner. In the 113th Congress, the Preserve Access to Affordable Generics Act (S. 214) would establish a presumption of either legality or illegality under the antitrust laws, along with consideration of relevant factors to be weighed by the courts. Another proposal, the FAIR Generics Act (S. 504), would introduce reforms to the food and drug laws that would reduce incentives for generic firms to settle with brand-name companies.
|
The federal government provides elementary and secondary education and educational assistance to Indian children, either directly through federally funded schools or indirectly through educational assistance to public schools. The Bureau of Indian Education (BIE) in the U.S. Department of the Interior (DOI) oversees the federally funded BIE system of elementary and secondary schools. The BIE system is funded primarily by the BIE but also receives considerable funding from the U.S. Department of Education (ED). The public school systems of the states receive federal funding from ED, the BIE, and other federal agencies. Federal provision of educational services and assistance to Indian children is based not on race/ethnicity but primarily on their membership in, eligibility for membership in, or familial relationship to members of Indian tribes, which are political entities. Federal Indian education programs are intended to serve Indian children who are members of, or, depending on the program, are at least second-degree descendants of members of, one of the 567 tribal entities recognized and eligible for funding and services from the Bureau of Indian Affairs (BIA) by virtue of their status as Indian tribes. The federal government considers its Indian education programs to be based on its trust relationship with Indian tribes, a responsibility derived from federal statutes, treaties, court decisions, executive actions, and the Constitution (which assigns authority over federal-Indian relations to Congress). Despite this trust relationship, Indian education programs are discretionary and not an entitlement like Medicare. Indian children, as enrollees in public education, are also eligible for the federal government's general programs of educational assistance, but such programs are not Indian education programs and will not be discussed in this report. This report provides a brief history of federal Indian education programs, a discussion of students served by these programs, an overview of programs and their funding, and brief discussions of selected issues in Indian education. U.S. government concern with the education of Indians began with the Continental Congress, which in 1775 appropriated funds to pay expenses of 10 Indian students at Dartmouth College. Through the rest of the 18 th century, the 19 th century, and much of the 20 th century, Congress's concern was for the civilization of the Indians, meaning their instruction in Euro-American agricultural methods, vocational skills, and habits, as well as in literacy, mathematics, and Christianity. The aim was to change Indians' cultural patterns into Euro-American ones—in a word, to assimilate them. From the Revolution until after the Civil War, the federal government provided for Indian education either by directly funding teachers or schools on a tribe-by-tribe basis pursuant to treaty provisions or by funding religious and other charitable groups to establish schools where they saw fit. The first Indian treaty providing for any form of education for a tribe—in this case, vocational—was in 1794. The first treaty providing for academic instruction for a tribe was in 1803. Altogether over 150 treaties with individual tribes provided for instructors, teachers, or schools, whether vocational, academic, or both, either permanently or for a limited period of time. The first U.S. statute authorizing appropriations to "promote civilization" among Indian tribes was the Indian Trade and Intercourse Act of 1793, but the Civilization Act of 1819 was the first authorization and appropriation specifically for instruction of Indian children near frontier settlements in reading, writing, and arithmetic. Civilization Act funds were expended through contracts with missionary and benevolent societies. Besides treaty schools and "mission" schools, some additional schools were initiated and funded directly by Indian tribes. The state of New York also operated schools for its Indian tribes. The total of such treaty, mission, tribal, and New York schools reached into the hundreds by the Civil War. After the Civil War, the U.S. government began to create a federal Indian school system, with schools not only funded but also constructed and operated by DOI's BIA with central policies and oversight. In 1869, the Board of Indian Commissioners—a federally appointed board that jointly controlled with DOI the disbursement of certain funds for Indians —recommended the establishment of government schools and teachers. In 1870, Congress passed the first general appropriation for Indian schools not provided for under treaties. The initial appropriation was $100,000, but both the amount appropriated and the number of schools operated by the BIA rose swiftly thereafter. The BIA created both boarding and day schools, including off-reservation industrial boarding schools on the model of the Carlisle Indian Industrial School (established in 1879). Most BIA students attended on- or off-reservation boarding schools. BIA schools were chiefly elementary and vocational schools. An organizational structure for BIA education began with a Medical and Education Division during 1873-1881, appointment of a superintendent of education in 1883, and creation of an education division in 1884. The education of Alaska Native children, however, along with that of other Alaskan children, was assigned in 1885 to DOI's Office of Education, not the BIA. Mission, tribal, and New York state schools continued to operate, and the proportion of school-age Indian children attending a BIA, mission, tribal, or New York school rose slowly. A major long-term shift in federal Indian education policy, from federal schools to public schools, began in FY1890-FY1891 when the Commissioner of Indian Affairs, using his general authority in Indian affairs, contracted with a few local public school districts to educate nearby Indian children for whose schooling the BIA was responsible. After 1910, the BIA pushed to move Indian children to nearby public schools and to close BIA schools. Congress provided some appropriations to pay public schools for Indian students, although they were not always sufficient and moreover were not paid where state law entitled Indian students to public education. By 1920, more Indian students were in public schools than BIA schools. Figure 1 displays the changing number of Indian students in BIA, public, and other schools from 1900 to 1975. The shift to public schools accompanied the increase in the percentage of Indian youths attending any school, which rose from 40% in 1900 to 60% in 1930. Comparable data are no longer available. In 1921, Congress passed the Snyder Act in order to authorize all programs the BIA was then carrying out. Most BIA programs at the time, including education, lacked authorizing legislation. The Snyder Act continues to provide broad and permanent authorization for federal Indian programs. In 1934, to simplify the reimbursement of public schools for educating Indian students, Congress passed the Johnson-O'Malley (JOM) Act, authorizing the BIA to contract with the states, except Oklahoma, and the territories for the education of Indians (and other services to Indians). In the 1920s and 1930s, the BIA began expanding some of its own schools' grade levels to secondary education. Under the impetus of the Meriam Report and New Deal leadership, the BIA also began to shift its students toward its local day schools instead of its boarding schools, and, to some extent, to move its curriculum from solely Euro-American subjects to include Indian culture and vocational education. In addition in 1931, responsibility for Alaska Native education was transferred to the BIA. The first major non-DOI federal funding for Indian education in the 20 th century began in 1953, when the Federal Assistance for Local Educational Agencies Affected by Federal Activities program, now known as Impact Aid, was amended to cover Indian children eligible for BIA schools. Impact Aid pays public school districts to help fund the education of children in "federally impacted areas." Further changes to the Impact Aid law in 1958 and the 1970s increased the funding that was allocated according to the number of children on Indian lands. Congressional appropriations for Impact Aid increased as the JOM funding decreased. In 1966 Congress added further non-DOI funding for Indian education by amending the Elementary and Secondary Education Act (ESEA) of 1965, the major act authorizing federal education aid to public school districts, to add set-asides for BIA schools to the program of grants to help educate students from low-income families; school library resources, textbook, and instructional materials; and supplementary educational centers and services. A congressional study of Indian education in 1969 that was highly critical of federal Indian education programs led to further expansion of federal non-DOI assistance for Indian education, embodied in the Indian Education Act of 1972, now known as ESEA Title VI. The Indian Education Act established the Office of Indian Education (OIE) within the Department of Health, Education and Welfare and authorized OIE to make grants to local educational agencies (LEAs) with Indian children. The OIE was the first organization outside of DOI (since DOI's birth in 1849) that was created expressly to oversee a federal Indian education program. Federal Indian education policy also began to move toward greater Indian control of federal Indian education programs, in both BIA and public schools. In 1966, the BIA signed its first contract with an Indian group to operate a BIA school (the Rough Rock Demonstration School on the Navajo Reservation). In 1975, through enactment of the Indian Self-Determination and Education Assistance Act (ISDEAA), Congress authorized all Indian tribes and tribal organizations, such as tribal school boards, to contract to operate their BIA schools. Three years later, in Title XI, Part B, of the Education Amendments of 1978, Congress required the BIA "to facilitate Indian control of Indian affairs in all matters relating to education." This act created statutory standards and administrative and funding requirements for the BIA school system and separated control of BIA schools from BIA area and agency officers by creating a BIA Office of Indian Education Programs (OIEP) and assigning it supervision of all BIA education personnel. Ten years later, the Tribally Controlled Schools Act (TCSA) of 1988 authorized grants to tribes and tribal organizations to operate their BIA schools. These laws provide that grants and self-determination contracts be for the same amounts of funding as the BIA would have expended on operation of the same schools. Indian control in public schools received an initial boost from the 1972 Indian Education Act. The ESEA Title VI requires that public school districts applying for its grants prove adequate participation by Indian parents and tribal communities in program development, operation, and evaluation. The 1972 Indian Education Act also amended the Impact Aid program to mandate Indian parents' consultation in school programs funded by Impact Aid. In 1975, the ISDEAA added to the JOM a requirement that public school districts with JOM contracts have either a majority-Indian school board or an Indian parent committee that has approved the JOM program. Finally, the Improving America's Schools Act of 1994 ( P.L. 103-382 , Section 9112(b)) and the Every Student Succeeds Act (ESSA; P.L. 114-95 ) have expanded eligibility under the current ESEA Title VI formula grant program to Indian tribes; Indian organizations; Indian community-based organizations; and consortia of LEAs, Indian tribes, Indian organizations, and Indian community-based organizations. Starting in the 1960s, the number of schools in the BIA school system began to shrink through administrative consolidation and congressional closures. For example, all BIA-funded schools in Alaska were transferred to the state of Alaska between 1966 and 1985, removing an estimated 120 schools from BIA responsibility. The number of BIA-funded schools and dormitories stood at 233 in 1930 and 277 in 1965, but fell to 227 in 1982 and to 180 in 1986 before rising to 185 by 1994; it currently stands at 183. Since the 1990s, Congress has limited both the number of BIA schools and the grade structure of the schools. The number of Indian students educated at BIA schools has numbered approximately 48,000 over the last 15 years. In 2006, the Secretary of the Interior separated the BIA education programs in the Office of Indian Education Programs from the rest of the BIA and placed them in a new Bureau of Indian Education (BIE) under the Assistant Secretary–Indian Affairs. It is commonly estimated that BIE schools serve less than 10% of Indian students, public schools serve over 90%, and private schools serve 1% or less. These general percentages, however, are not certain. Data on Indian students come from differing programs and sources. Different federal Indian education programs serve different, though overlapping, sets of Indian students. Their student data also differ (and overlap). In addition, it is unlikely that every school or school district that enrolls at least one Indian student receives funding from a federal program designed to serve Indian students or funded based on numbers of Indian students. Although different federal Indian education programs have different eligibility criteria, none of the eligibility criteria are based solely on race/ethnicity. Eligibility is based on the political status of the groups of which the students are members or descendants of members. The BIE school system, for instance, serves students who are members of federally recognized Indian tribes or who are at least one-fourth degree Indian blood descendants of members of such tribes, and who reside on or near a federal Indian reservation or are eligible to attend a BIE off-reservation boarding school. Many Indian tribes allow less than one-fourth degree of tribal or Indian blood for membership, so many BIE Indian students have less than one-fourth Indian blood. Separately, the BIE's JOM program, according to its regulations, serves students in public schools who are at least one-fourth degree Indian blood and recognized by the BIA as eligible for BIA services. The ED ESEA Title VII-A programs, on the other hand, serve a broader set of students: (1) members of federally recognized tribes and their first and second degree descendants; (2) members of two types of nonfederally recognized tribes, state-recognized tribes and tribes whose federal recognition was terminated after 1940, and their first and second degree descendants; (3) members of an organized Indian group that received a grant under the ED Indian Education formula grant program as it was in effect before the passage of the Improving America's Schools Act of 1994; (4) Eskimos, Aleuts, or other Alaska Natives; and (5) individuals considered to be Indian by the Secretary of the Interior, for any purpose. Public school districts must have a minimum number or percentage of ESEA Title VII-eligible Indian students to receive a grant. The ESEA Title VII grants are administered by ED, so ED is the source of data on the ESEA Title VII students. Another major ED program, the Impact Aid program, funds public schools whose students reside on "Indian lands" or are federally connected children. The students residing on Indian lands for whom Impact Aid is provided need not, however, be Indian. Although there is no source for the status of Indian educational achievement nationally, the educational environment and achievements of BIE students and American Indian/Alaska Native (AI/AN) students are reported. Students who identify their race/ethnicity as AI/AN may not be members or descendants of members of federally recognized Indian tribes, and not all members of such tribes may identify as AI/AN. For example, ED's National Center for Education Statistics (NCES), which collects and analyzes student and school data and produces the National Assessment of Educational Progress (NAEP), publishes reports on AI/AN students' characteristics and academic achievements. NCES data are based on race/ethnicity (except most data on BIE students), so the data will include students who identify as AI/AN even though they are not members of tribes and do not fall into the eligibility categories of federal Indian education programs. NCES's race/ethnicity-based AI/AN student population is not the same as the student population served by federal Indian education programs. The two populations overlap, but the degree of overlap has not been determined. NCES data based on race/ethnicity, then, cannot be assumed to accurately represent the Indian student population served by federal Indian programs. The BIE funds a system consisting of elementary and secondary schools, which provide free education to eligible Indian students, and "peripheral dormitories" (discussed below). In 2014 and before, the BIE system was administered by a director and headquarters offices in Washington, DC, and Albuquerque, NM; three Associate Deputy Directors (ADDs) in the west, east, and Navajo area; and 22 education line offices (ELOs) across Indian Country. ELOs provided leadership, technical support, and instructional support for the schools and peripheral dorms. Starting in June 2014, the Secretary began restructuring the BIE in an effort to increase tribal capacity to operate schools and improve educational outcomes. The planned structure maintains a director in Washington, DC. It has separate oversight through three ADDs—one serving schools serving the Navajo nation, one serving the remaining BIE operated schools, and one serving tribally operated schools. Fifteen Education Resource Centers (ERC), renamed and restructured ELOs, report to the ADDs. The BIE-funded school system includes day and boarding schools and peripheral dormitories. The majority of BIE-funded schools are day schools, which offer elementary or secondary classes or combinations thereof and are located on Indian reservations. BIE boarding schools house students in dorms on campus and also offer elementary or secondary classes, or combinations of both levels, and are located both on and off reservations. Approximately one-third of BIE schools are K-8; while another one-third are either K-12 or K-6. Peripheral dormitories house students who attend nearby public or BIE schools; these dorms are also located both on and off reservations. Elementary and secondary schools funded by the BIE may be operated either directly by the BIE or by tribes and tribal organizations through grants or contracts authorized under the Tribally Controlled Schools Act (TCSA) of 1988 or the Indian Self-Determination and Education Assistance Act (ISDEAA) of 1975, respectively. (See the discussion of these two acts in " Statutory Authority for BIE Elementary and Secondary Schools ," below.) In addition, some schools are operated through a cooperative agreement with a public school district. In accordance with state law, the three BIE schools in Maine receive state funding. There are eight charter schools co-located at BIE schools. BIE funds 169 schools and 14 peripheral dorms. Table 1 shows the number of BIE-funded schools and peripheral dorms, by type of operator. The majority of BIE-funded schools are tribally operated. In the mid-1990s, Congress became concerned that adding new BIE schools or expanding existing schools would, in circumstances of limited financial resources, "diminish funding for schools currently in the system." As a consequence, the total number of BIE schools and peripheral dorms, the class structure of each school, and co-located charter schools has been limited by Congress. Through annual appropriation acts from FY1994 through FY2011, Congress prohibited BIE from funding schools that were not in the BIE system as of September 1, 1996, and from FY1996 through FY2011 prohibited the use of BIE funds to expand a school's grade structure beyond the grades in place as of October 1, 1995. Appropriations acts since FY2000 have prohibited the establishment of co-located charter schools. Beginning in FY2012, Congress has begun to loosen restrictions on the size and scope of the BIE school system. The FY2012 appropriations act maintained the aforementioned prohibitions except in the instance of schools and school programs that were closed and removed from the BIE school system between 1951 and 1972 and whose respective tribe's relationship with the federal government was terminated. As a result in July 2012, BIE began funding grades 1-6 of Jones Academy in Hartshorne, OK. Jones Academy was previously funded by BIE as a peripheral dormitory for students attending schools in grades 1-12, and by the local public school district as a grades 1-6 elementary school. The appropriations acts since FY2014 have authorized the Secretary to support the expansion of up to one additional grade to accomplish the BIE's mission. As a result, in 2014 the BIE approved funding for the tribally funded 6 th grade of the otherwise BIE-funded Shoshone-Bannock Junior High. Finally, appropriations acts since FY2015 have authorized the BIE to approve satellite locations of BIE schools at which an Indian tribe may provide language and cultural immersion educational programs as long as the BIE is not responsible for the facilities-related costs. Accordingly, in AY2015-2106 the Nay-Ah-Shing School in Minnesota opened the Pine Grove Satellite Learning Center using broadband and reducing transportation times and costs. Only Indian children attend the BIE school system, with few exceptions. In SY2016-2017, BIE-funded schools and peripheral dorms serve approximately 48,000 Indian students representing almost 250 tribes in 23 states. For SY2012-2013–SY2014-2015, approximately 62% of BIE-funded schools and dorms averaged 200 or fewer children in attendance. BIE schools and dormitories are not evenly distributed across the country. From SY2012-2013 to SY2014-2015, almost 66% of BIE schools and dormitories and approximately 65% of BIE students were located in 3 of the 23 states: Arizona (29% of students), New Mexico (21%), and South Dakota (16%). Table 2 shows the distribution of BIE schools and students across the 23 states. There are no BIE schools or students in Alaska, a circumstance directed by Congress (see " Brief History of Federal Indian Education Activities ," above). One measure of a school system's quality and the academic achievement of students is the average score of students on the National Assessment of Educational Progress (NAEP) reading and mathematics assessments. Table 3 indicates that, on average, students in BIE schools score below students in public schools on the NAEP assessment. For example, on the 4 th grade 2013 NAEP reading assessment all BIE school students scored an average of 181 while all public school students scored an average of 221. There were approximately 50 million public school students enrolled in elementary and secondary schools in fall 2013, and 523,000 (1.0%) were AI/ANs. In fall 2013 (the latest data available), approximately 80% of AI/AN students lived in 16 states. These states, presented in descending order of their number of AI/AN students, are Oklahoma, Arizona, California, New Mexico, Alaska, North Carolina, Texas, Montana, New York, South Dakota, Minnesota, Washington, Michigan, Wisconsin, Oregon, and Florida. A greater than average proportion of AI/AN students live in poverty and require services for students with disabilities. The percentage of AI/AN children under age 18 in families living in poverty was 35% in 2014. In SY2013–2014, the percentage of AI/AN children ages 3–21 who were served under the Individuals with Disabilities Education Act (IDEA) as a percentage of total enrollment in public schools was highest for AI/AN students (17%), the highest among all racial/ethnic groups. The percentage of 16- through 24-year-old AI/AN students who were not enrolled in school and had not earned a high school credential was 12% in 2014, compared to 6% for all 16- through 24-year-olds. The educational achievement of AI/AN students in public schools can be deduced from the average scores of AI/AN and non AI/AN students on the NAEP. Table 4 presents results of the 2015 NAEP for AI/AN and non AI/AN students in grades 4, 8, and 12. The average NAEP score for AI/AN students is consistently lower than that for white and Asian/Pacific Islander students. Although it is generally above the scores for black students and similar to the scores of Hispanic students. Federal Indian elementary and secondary education programs serve Indian elementary and secondary students in public schools, private schools, and the BIE system. Except for one BIE program, public schools do not generally receive BIE funding. Public schools instead receive most of their federal assistance for Indian education through the U.S. Department of Education (ED). BIE-funded schools, on the other hand, receive funding both from the BIE and from ED. The BIE estimates that it provides about 75% of BIE-funded schools' overall federal funding, and ED provides the remainder. This section of the report profiles first the BIE programs and second those ED programs that provide significant funding for Indian education. Currently, BIE-funded schools, dorms, and programs are administered under a number of statutes. The key statutes are summarized here. This act provides a broad and permanent authorization for federal Indian programs, including for "[g]eneral support and civilization, including education." The act was passed because Congress had never enacted specific statutory authorizations for most BIA activities, including BIA schools. Congress had instead made detailed annual appropriations for BIA activities. Authority for Indian appropriations in the House had been assigned to the Indian Affairs Committee after 1885 (and in the Senate to its Indian Affairs Committee after 1899). Rules changes in the House in 1920, however, moved Indian appropriations authority to the Appropriations Committee, making Indian appropriations vulnerable to procedural objections because they lacked authorizing acts. The Snyder Act was passed in order to authorize all the activities the BIA was then carrying out. The act's broad language, however, may be read as authorizing—though not requiring—nearly any Indian program, including education, for which Congress enacts appropriations. ISDEAA, as amended, provides for tribal administration of certain federal Indian programs, including BIA and BIE programs. The act allows tribes to assume some control over the management of BIE-funded education programs by negotiating "self-determination contracts" or Title IV "self-governance compacts" with BIE. Under a self-determination contract, BIE transfers to tribal control the funds it would have spent for the contracted school or dorm, so the tribe may operate it. Tribes or tribal organizations may contract to operate one or more schools. As of February 2017, only one BIE school, Miccosukee Indian School in Florida, is funded through an ISDEAA contract. Title XI of this act, as amended by the No Child Left Behind Act (NCLB; P.L. 107-110 ), "declares" federal policy on Indian education and establishes requirements and guidelines for the BIE-funded elementary and secondary school system. As amended, the act covers academic accreditation and standards, a funding allocation formula, BIE powers and functions, criteria for boarding and peripheral dorms, personnel hiring and firing, the role of school boards, facilities standards, a facilities construction priority system, and school closure rules, among other topics. It also authorizes several BIE grant programs, including administrative cost grants for tribally operated schools (described below), early childhood development program grants (also described below), and grants and technical assistance for tribal departments of education. TCSA added grants as another means, besides ISDEAA contracts, by which Indian tribes and tribal organizations may operate BIE-funded schools. The act requires that each grant include all funds that BIE would have allocated to the school for operation, administrative cost grants, transportation, maintenance, and ED programs. Because ISDEAA contracts were found to be a more cumbersome means of Indian control of schools, most tribally operated schools are grant schools. Funding for and operation of BIE-funded schools are carried out through a number of different programs. The major BIE funding programs are "forward-funded"—that is, the BIE programs' appropriations for a fiscal year are used to fund the school year that begins during that fiscal year. Forward funding in the case of elementary and secondary education programs was designed to allow additional time for school officials to develop budgets in advance of the beginning of the school year. These forward-funded appropriations are specified through provisions in the annual appropriations bill. The Indian School Equalization Program (ISEP) is the formula-based grant program through which congressional appropriations for BIE-funded schools' academic (and, if applicable, residential) operating costs are allocated among the schools. ISEP grant funds are the primary funding for basic and supplemental educational programs for Indian students attending BIE-funded schools. In addition, ISEP grant funds pay tuition to Sevier Public Schools in Utah for out-of-state Indian students living in the nearby BIE Richfield peripheral dormitory. The ISEP allocation formula, although authorized under the Education Amendments of 1978, is specified not in statute but in federal regulations. The formula is based on a count of student "average daily membership" (ADM) that is weighted to take into account schools' grade levels and students' residential-living status (e.g., in boarding schools or peripheral dorms) and is then supplemented with weights or adjustments for gifted and talented students, language development needs, supplemental education programs, and a school's size. The final weighted figure is called the "weighted student unit" (WSU). A three-year WSU average is calculated for each school and nationally. Each school receives a portion of the ISEP appropriation that is the same proportion that the school's three-year WSU average is to the national three-year average WSU. Before allocation under the funding formula, part of ISEP funds are set aside for program adjustments, contingencies, and appeals. In recent years, program adjustments have funded safety and security projects, behavior intervention programs, targeted education projects to increase academic achievement, police services, and parental participation projects. The targeted education project from SY2005-2006 to SY2015-2016 was the FOCUS program, which supported at-risk students in schools that were close to making adequate yearly progress (AYP) by providing for technical assistance on effective teaching practices and data-driven instructional decision-making. The targeted program starting in SY2016-2017 is intended to build school staff capacity with respect to budget and programming. To transport its students, both day and boarding, the BIE funds an extensive student transportation system. Student transportation funds provide for buses, fuel, maintenance, and bus driver salaries and training, as well as certain commercial transportation costs for some boarding school students. Because of largely rural and often remote school locations, many unimproved and dirt roads, and the long distances from children's homes to schools, transportation of BIE students can be expensive. Student transportation funds are distributed on a formula basis, using commercial transportation costs and the number of bus miles driven (with an additional weight for unimproved roads). BIE's early childhood development program provides grants to tribes and tribal organizations for services for pre-school Indian students and their parents. The program includes early childhood education for children under six years old, and parenting skills and adult education for their parents to improve their employment opportunities. The grants are distributed by formula among applicant tribes and organizations who meet the minimum tribal size of 500 members. From 1991 to 2013, FACE served over 19,000 adults and 21,000 children at 61 different schools. In SY 2015-2016, the last full year for which data are available, 2,129 adults and 2,265 children were served. Tribal grant support costs, formerly known as administrative cost grants, pay administrative and indirect costs for tribally operated TCSA-grant schools. Administrative costs for BIE-operated schools are funded through BIE program management appropriations. By providing assistance for direct and indirect administrative costs that may not be covered by ISEP or other BIE funds, administrative cost grants are intended to encourage tribes to take control of their schools. These are formula grants based on an "administrative cost percentage rate" for each school, with a minimum grant of $200,000. For the first time in FY2016, appropriations fully funded the statutorily determined grant amounts without the need for a ratable reduction. This program funds the operation of educational facilities at all BIE-funded schools and dorms. Operating expenses may include utilities, supplies, equipment, custodians, trash removal, maintenance of school grounds, minor repairs, and other services, as well as monitoring for fires and intrusions. This is not a forward-funded program. These funds are available at the beginning of the fiscal year for a period of 24 months. This program funds preventive, routine cyclic, and unscheduled maintenance for all school buildings, equipment, utility systems, and ground structures. Like facilities operations funds, the funds are available at the beginning of the fiscal year for a period of 24 months. Appropriations for facilities maintenance were transferred from the BIA Construction account to the BIE account in FY2012. Education Program Enhancements receive a line item in the appropriations request. This program allows the BIE discretion to provide targeted improvements and interventions. Examples of activities funded in recent years include supporting BIE reorganization efforts, providing leadership training and professional development, funding the Sovereignty in Indian Education (SIE) Enhancement program, and developing partnerships with tribally controlled colleges. In addition, funding has been used to develop tribal education departments. The Residential Education Placement program ensured that eligible Indian students with disabilities or social or emotional needs received an appropriate education in the least restrictive environment and as close to home as possible. Services included physical and occupational therapy, counseling, and alcohol and substance abuse treatment. In SY2008-2009, the BIE served 59 institutionalized students. The program was last funded in FY2011. The Juvenile Detention Education program supported educational services for children in BIA-funded detention facilities. This is not a forward-funded program. The program was funded in FY2007-FY2011 and then again in FY2016. The Secretary is authorized to make grants and provide technical assistance to tribes for the development and operation of tribal departments of education (TEDs) for the purpose of planning and coordinating all educational programs of the tribe. Beginning in FY2015, funds have been awarded under the authority to promote tribal control and operation of BIE-funded schools on their reservations. Funds have also been awarded to begin restructuring school governance, build capacity for academic success, and develop academically rigorous and culturally relevant curricula. There is one program by which the BIE provides assistance to tribes, tribal organizations, states, and LEAs for Indian students attending public schools. The Johnson O'Malley (JOM) program provides supplementary financial assistance, through contracts, to meet the unique and specialized educational needs of eligible Indian students in public schools and non-sectarian private schools. Eligible Indian students, according to BIE regulations, are students in public schools who are at least one-quarter degree Indian blood and recognized by the BIA as eligible for BIA services. BIE contracts with tribes and tribal organizations to distribute funds to schools or other programs providing JOM services, and it also contracts directly with states and public school districts for JOM programs. Most JOM funds are distributed through tribal contractors—88% as of FY2012. Prospective contractors must have education plans that have been approved by an Indian education committee made up of parents of Indian students. Funds are to be used for supplemental programs, such as tutoring, other academic support, books, supplies, Native language classes, cultural activities, summer education programs, after-school activities, or a variety of other education-related needs. JOM funds may be used for general school operations only when a public school district cannot meet state educational standards or requirements without them, and enrollment in the district is at least 70% eligible Indian students. This is not a forward-funded program. The BIA funds repair, improvement, and construction activities for BIE schools and school facilities. Activities may include replacing all facilities on an existing BIE school campus, replacing individual buildings, or making minor and major repairs and improvements. Included in the education construction program is improvement and repair of BIE employee housing units. Construction may be administered either by the BIA or by tribes under the ISDEAA or the TCSA. In order to prioritize projects and guide expenditures, the BIA maintains an aggregate Facilities Condition Index (FCI), Asset Priorities Index (API), a Replacement School Construction Priority list, a Five Year Deferred Maintenance and Construction Plan, an Asset Management Plan (AMP), a list of necessary emergency repairs, and a list of deficiencies with respect to the Americans with Disabilities Act (ADA; 42 U.S.C. §12101 et seq.), Uniform Federal Accessibility Standards (UFAS; 42 U.S.C. §§4151-4157), Environmental Protection Agency (EPA), National Fire Protection Association (NFPA), and other requirements. Indian affairs (the budgetary combination of BIA and BIE functions) appropriations for elementary and secondary education are divided between program funds, expended through the BIE, and construction and related spending carried out through the BIA. Table 5 shows detailed appropriations for BIE programs and BIA education construction for FY2007-FY2016. In nominal dollars, total BIA and BIE spending on elementary-secondary education and construction has increased 10% over the 10-year period, from $754 million to $831 million. In constant FY2016 dollars, total BIA and BIE spending on elementary-secondary education and construction has decreased 5% over the same 10-year period. Educational programming appropriations in nominal dollars for BIE elementary-secondary programs have risen 26% over the same period, from $549 million in FY2007 to $693 million in FY2016 in nominal dollars. Most of the increase is attributable to increased appropriations for ISEP and Tribal Grant Support Costs, and transferring appropriations for facilities maintenance from the BIA Education Construction account to the BIE Elementary-Secondary Education account. As illustrated in Figure 2 , and with the exception of FY2009, BIA education construction appropriations in nominal dollars have fallen 33%, from $205 million in FY2007 to $138 million in FY2016. Besides the facilities maintenance appropriation account transfer, this decrease is a result of lower appropriations for school and facility construction. The U.S. Department of Education (ED) provides funding specifically for Indian elementary and secondary education to both public and BIE schools. About three-quarters of this Indian education-specific funding goes to public schools and related organizations (see Table 6 below). ED's assistance specifically for Indian education is not to be confused with its general assistance to elementary and secondary education nationwide. Indian students benefit from ED's general assistance as they attend public schools. This section covers ED Indian assistance—that is, assistance statutorily specified for Indians or allotted according to the number of Indians—not general ED assistance that may also benefit Indian students. ED Indian education funding to public and BIE schools flows through a number of programs, most authorized under the Elementary and Secondary Education Act (ESEA) or the Individuals with Disabilities Education Act (IDEA), although other acts also authorize Indian education assistance. ESEA amendments enacted through the Every Student Succeeds Act (ESSA; P.L. 114-95) become effective for AY2017-2018 for the programs described herein. For more information on IDEA programs, see CRS Report R41833, The Individuals with Disabilities Education Act (IDEA), Part B: Key Statutory and Regulatory Provisions , by Kyrie E. Dragoo; and CRS Report R43631, The Individuals with Disabilities Education Act (IDEA), Part C: Early Intervention for Infants and Toddlers with Disabilities , by Kyrie E. Dragoo. Major ED Indian programs are profiled below. Some general ED programs have set-asides for BIE schools, while other programs either may be intended solely for Indian students, may specifically include Indian and non-Indian students, or may mention Indian students as a target of the assistance. In many instances, BIE schools are included in the definition of local educational agency (LEA) in the ESEA and IDEA, so many ED programs may provide funding to BIE schools even when the programs have no BIE set-aside or other specific provision for BIE schools, but these programs are not discussed here. Tribes, tribal organizations, the BIE, and BIE schools are also specifically eligible to apply for certain programs, which are not described here. Title I, Part A, of the ESEA authorizes formula grants to LEAs for the education of disadvantaged children. ESEA Title I-A grants provide supplementary educational and related services to low-achieving and other students attending pre-kindergarten through grade 12 schools with relatively high concentrations of students from low-income families. ESEA, as amended by ESSA, reserves 0.4% for the outlying areas and 0.7% for DOI unless the set-asides result in the states receiving less than their aggregate FY2016 amount, in which case the provisions under ESEA prior to the enactment of ESSA are in effect. DOI funds are for BIE schools and for out-of-state Indian students being educated in public schools under BIE contracts (e.g., students in peripheral dorms). The ESEA authorizes formula grants to states to support the development and implementation of state assessments and standards as required under ESEA Title I-A. ESEA Title I-B, as amended by ESSA, provides a set-aside of 0.5% for BIE. The ESEA authorizes formula grants to states that may be used for a variety of purposes related to the recruitment, retention, and professional development of K-12 teachers and school leaders. The ESEA Title II-A program, as amended by ESSA, provides a 0.5% set-aside of appropriations for programs in BIE schools. Title III, Part A of the ESEA authorizes formula grants to states to provide programs for and services to English learners (ELs), also known as limited English proficient (LEP) students, and immigrant students. The program is designed to help ensure that ELs and immigrant students attain English proficiency, develop high levels of academic achievement in English, and meet the same state academic standards that all students are expected to meet. The program provides a set-aside equal to the greater of 0.5% of appropriations or $5 million for Native American and Alaska Native Children in School. The set-aside is available to eligible Indian tribes, tribally sanctioned educational authorities, Native Hawaiian or Native American Pacific Islander native language educational organizations, BIE elementary and secondary schools, and consortia of BIE elementary and secondary schools. Title IV, Part B, of the ESEA authorizes formula grants to states for activities that provide learning opportunities for school-aged children during non-school hours. States award competitive subgrants to LEAs and community organizations for before- and after-school activities that will advance student academic achievement. The program provides a set-aside of no more than 1% of Title IV-B appropriations for the BIE and the outlying areas. The portion of the 1% that goes to the BIE is determined by the Secretary of Education. Title VI, Part A, Subpart 1 of the ESEA, as amended by ESSA, authorizes formula grants for supplementary education programs to meet the educational and cultural needs of Indian students. LEAs, Indian tribes, Indian organizations, Indian community-based organizations, consortia of the aforementioned entities, and BIE schools are eligible for grants. For an LEA to be eligible, at least 10 Indian students must be enrolled or at least 25% of its total enrollment must be Indians (exempted from these requirements are LEAs in Alaska, California, and Oklahoma and LEAs located on or near an Indian reservation). An LEA's application must be approved by a local committee of family members of Indian students and other stakeholders. The Indian Education programs also authorize special competitive grant programs. One provides demonstration grants to develop innovative services and programs to improve Indian students' educational opportunities and achievement. Another competitive program provides for professional development grants to colleges, or tribes or LEAs in consortium with colleges, to train Indian individuals as teachers or other professionals. In addition, the Indian Education programs authorize national programs. For example, grants to tribes for education administrative planning and development are authorized. Funds are also authorized for the National Advisory Council on Indian Education (NACIE), which advises the Secretary of Education and Congress on Indian education. Title VI, Part C, of the ESEA authorizes competitive grants to Alaska Native organizations, educational entities with Native experience, and cultural and community organizations for supplemental education programs that address the educational needs of Alaska Native students, parents, and teachers. Grants may be used for development of curricula and educational materials, student enrichment in science and math, professional development, family literacy, home preschool instruction, cultural exchange, dropout prevention, and other programs. Title VII of the ESEA, as amended by ESSA, authorizes Impact Aid Basic Support Payments. Impact Aid provides financial assistance to school districts whose tax revenues are significantly reduced, or whose student enrollments are significantly increased, because of the impacts of federal property ownership or federal activities. Among such impacts are having a significant number of children enrolled who reside on "Indian lands," which is defined as Indian trust and restricted lands, lands conveyed to Alaska Native entities under the Alaska Native Claims Settlement Act of 1971, public lands designated for Indian use, and certain lands used for low-rent housing. Impact Aid funds are distributed by formula directly to LEAs and are used for basic operating costs, special education, and facilities construction and maintenance. There is no requirement that the funds be used specifically or preferentially for the education of Indian students. There is, however, a requirement that Indian children participate on an equal basis with non-Indian children in all of the educational programs and activities provided by the LEA, including but not limited to those funded by Impact Aid. There is also a requirement that the LEA consult with the parents and tribes of children who reside on "Indian lands" concerning their education and to ensure that these children receive equal educational opportunities. A few BIE schools receive Impact Aid funding. ED indicates that about 113,000 students residing on Indian lands were used to determine formula allocations under Impact Aid for FY2015. The amount of Impact Aid funding going to LEAs based on the number of children residing on Indian lands makes it the largest ED Indian education program. Part B of the IDEA authorizes formula grants to states to help them provide a free appropriate public education to children with disabilities. States make subgrants to LEAs. Funds may be used for salaries of teachers or other special education personnel, education materials, transportation, special education services, and occupational therapy or other related services. Section 611(b)(2) of the IDEA reserves 1.226% of state-grant appropriations for DOI. Each appropriations act since the Departments of Labor, Health and Human Services, and Education, and Related Agencies Appropriations Act, 2006 (P.L. 109-149) has limited the DOI set-aside to the prior-year set-aside amount increased for inflation. As a consequence, in FY2016 the DOI set-aside is 0.79%. Section 611(h) of the IDEA directs the Secretary of the Interior to allocate 80% of the funds to BIE schools for special education for children aged 5-21 and 20% to tribes and tribal organizations on reservations with BIE schools for early identification of children with disabilities aged 3-5, parent training, and provision of direct services. Part C of the IDEA authorizes a grant program to aid each state in implementing a system of early intervention services for infants and toddlers with disabilities and their families. Section 643(b) of the IDEA reserves 1.25% of state-grant appropriations for DOI to distribute to tribes and tribal organizations for the coordination of assistance in the provision of early intervention services by the states to infants and toddlers with disabilities and their families on reservations served by BIE schools. Title VII, Part B, of the McKinney-Vento Homeless Assistance Act (MVHAA; 42 U.S.C. §§11431-11435) authorizes the Education for Homeless Children and Youth (EHCY) program. The program provides assistance to SEAs to ensure that all homeless children and youth have equal access to the same free appropriate public education, including public preschool education that is provided to other children and youth. The program provides a 1.0% set-aside of the appropriation to DOI for services provided by BIE to homeless children and youth. Title I of the Carl D. Perkins Career and Technical Education Act of 2006 (Perkins IV; P.L. 109-270) authorizes formula grants to states to support the development of career and technical skills among students in secondary and postsecondary education. The program provides a 1.25% set-aside for the Native American Career and Technical Education Program (NACTEP). Eligible entities for NACTEP funds include federally organized Indian tribes, tribal organizations, Alaska Native entities, and consortia of such, as well as BIE schools. ED Indian education funding primarily supports public schools. With the exception of FY2009, less than a quarter of ED Indian education funds are set aside for BIE schools (see Figure 3 ); however, this constitutes a significant source of BIE school funding. FY2009 funding was augmented by additional appropriations from the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ). In nominal dollars, the total ED Indian education program funding pattern during FY2007-FY2016 showed a steady increase, excluding funding from ARRA, from FY2007 ($.981 billion) to FY2012 ($1.084 billion), followed by a 6% decline in FY2013. The FY2013 decline was primarily a result of sequestration. Funding has increased since FY2013 to a 10-year high in nominal dollars in FY2016 ($1.119 billion), excluding funding from ARRA (see Table 6 ). In constant FY2016 dollars, total ED Indian education program spending on elementary-secondary education has decreased 1% over the same 10-year period. Impact Aid is the largest single ED elementary and secondary Indian education program, as Figure 3 illustrates. The second-largest funding stream is the BIE set-asides from several ESEA formula grant programs, especially IDEA Part B and ESEA Title I-A. The ESEA Indian Education programs provide over 10% of the total funding. Other ED programs—focused on Alaska Natives, career and technical education, early childhood education, and English language acquisition—account for about 8% of the ED funding provided for Indian education. Some of the issues of concern with regard to Indian education pertain to the comparatively poor academic outcomes of Indian students, Indian communities' desire for greater control of education, the effect of the Elementary and Secondary Education Act (ESEA) on Bureau of Indian Education (BIE) schools, the poor condition of BIE school facilities, and the allocation of Johnson O'Malley funds. The federal government has been actively engaged in addressing these issues in a holistic manner in hopes of ultimately increasing the academic achievement of Indian students. In 2011, the President signed Executive Order 13592, Improving American Indian and Alaska Native Educational Opportunities and Strengthening Tribal Colleges and Universities . The order commits Department of the Interior (DOI) and Department of Education (ED) to tribal self-determination; Native language, culture, and history education; and to working to provide a quality education for American Indians and Alaska Natives. As a consequence of the order, the departments signed a 2012 agreement to cement and designate the responsibilities of their collaboration toward fulfilling the order. In recent years, Congress has also supported efforts to address these issues. Beginning in 2012, Congress appropriated funds specifically to promote tribal self-determination with respect to public schools. Several ESEA provisions adopted through ESSA are designed to increase Indian and tribal influence in public schools. In recent years, authorizing and appropriating committees have held hearings on the condition of BIE school facilities. In addition, Congress has required BIE to address the process for reallocating Johnson O'Malley funds. There are significant gaps in educational outcomes for Indian students in BIE schools and American Indian/Alaska Native (AI/AN) students in public schools compared to other students. For more information on educational outcomes, see the earlier section entitled " Status of Indian and American Indian/Alaska Native Education ." As noted in the ESEA, "it is the policy of the United States to fulfill the federal government's unique and continuing trust relationship with and responsibility to the Indian people for the education of Indian children." Title 25 of the U.S. Code also refers to "the federal responsibility for and assistance to education of Indian children." In prior decades, there were consistent calls to increase the use of native language instruction to increase cultural relevance and improve overall academic performance. One argument contends that language, culture, and identity are intertwined and thus are important to the tribal identity. A counter argument is that native language instruction detracts from the core curriculum. In recent years, Congress has expanded program authorities and appropriated funds to permit native language instruction. There is not consensus in the research literature regarding the relative effectiveness of native language instruction. One commonly cited review of research studies with control groups, for instance, suggests that bilingual instruction in some instances was found to improve English reading proficiency in comparison to English immersion, but in other instances it had no impact. This review focused principally on studies conducted prior to 1996 and examining instruction for Spanish-speaking elementary school children, and many of the studies have limitations. The one study of Indian native language students included in the review found no significant difference in English reading outcomes between bilingual and English-immersion instruction. Some longitudinal studies prior to 2007 indicated that native language immersion students achieved higher scores on assessments of English and math than native students who did not receive native language immersion. However, a more recent review of the literature suggests that rigorous Native language and culture programs sustain non-English academic achievement, build English proficiency, and enhance student motivation. There are several federal programs that support native language acquisition: The ESEA Title III-A English Language Acquisition (see the earlier eponymous section) permits the use of both English and a child's native language to enable the child to develop and attain English proficiency. The program set-aside may be used to help Indian and AI/AN children learn and study Native American languages, except that an outcome shall be increased English proficiency. The ESEA Indian Education formula grant program (ESEA Title VI-A-1) allows funds to be used to support Native American language programs and Native American language restoration programs. The special Indian Education program for the Improvement of Educational Opportunities for Indian Children (ESEA Title VI-A-2) allows funds to be used for bilingual and bicultural projects. The special Indian Education program for Professional Development for Teachers and Education Professionals (ESEA Title VI-A-2) allows funds to be used to train traditional leaders and cultural experts to assist pre- and in-service Indian teachers with relevant native language and cultural mentoring, guidance, and support. The national Indian Education program for Native American and Alaska Native Language Immersion Schools and Programs (ESEA Title VI-A-3) support the development, maintenance, and improvement of such programs in elementary and secondary schools. The ESEA Alaska Native Education Equity program (ESEA Title VI-C) allows funds to be used for curricula that reflect the cultural diversity, languages, history, or the contributions of Alaska Native people, and for Alaska Native language instructional and immersion programs. The Department of Health and Human Services' Native American Language Preservation and Maintenance program (42 U.S.C. 2991b-3) supports the survival and continuing vitality of Native American languages through grants to Indian tribes, Native American organizations, Alaska Native villages, and other entities. In 2015, the BIE introduced a native language policy framework for BIE-operated schools, including college and preschool programs. The policy is intended to require the integration of Native language instruction to the extent that native language standards exist. Consistent with this set of aims, DOI, ED, and the Department of Health and Human Services (HHS) signed a memorandum of understanding to work together to encourage instruction in and preservation of Native languages. Tribal representatives have indicated that violence and alcohol and drug use are serious community issues that affect students and their ability to learn. A high incidence of substance abuse in Indian country communities contributes to or is symptomatic of high levels of depression, domestic violence, suicide, disease, death, and other situations that are not conducive to learning. Among persons aged 12 or older in 2013, American Indians or Alaska Natives had the highest rate of substance dependence or abuse (14.9%) compared to other racial/ethnic groups. This environment affects Indian students enrolled in BIE and public schools. A February 2010 evaluation of violence prevention policies and measures at BIE schools by DOI's Office of Inspector General (OIG) found areas of concern for potential violence and deficiencies in the policies and procedures for preventing and managing incidents. According to the OIG evaluation, in recent years 6% of public high school students carried a weapon on campus, whereas 37% of BIE middle school students reported the same. The OIG evaluation found that many BIE schools had open campuses—little or no fencing, inadequate security access procedures, and flawed camera surveillance systems. The OIG recommended that the BIA and BIE establish safety policies and accurate incident tracking systems, evaluate campus safety and security, correct weaknesses or require tribal operators to correct weaknesses, address safety as a criterion for tribes to maintain operating grants and contracts, and implement staff training to prevent and manage incidents. Follow-up inspections in 2014 indicated the need for improvement in several areas. Emergency preparedness and security plans failed to cover all applicable topics. Violence prevention training for staff and students also failed to cover all applicable topics. Schools need to evaluate and implement necessary safety measures. ED has indicated that American Indian/Alaska Native students enrolled in public schools are overrepresented among out-of-school suspensions and expulsions. Suspensions and expulsions can have negative educational consequences. ED has released a Dear Colleague Letter to schools providing resources regarding their obligation to administer discipline without discriminating on the basis of race, color, or national origin. BIE school-specific issues include how to define an effective academic accountability system for BIE schools, construction and repair of BIE schools, and insufficient grant support cost funding. The structure and administration of the BIE school system has long been considered a contributor to poor educational outcomes. A landmark 1928 report, known as the Meriam Report, found that underfunding and paternal federal policy contributed to deficient boarding school student diets, low qualification standards and salaries for teaching staff, student labor to maintain schools, and a prescriptive and unresponsive curriculum. Another milestone report in 1969, known as the Kennedy report, recommended a promotion of the status of BIA within DOI but declined to make a recommendation regarding what it characterized as the long-standing and most serious issue of the ineffective internal organization of the BIA. The 1969 report highlighted that education was not the BIA's highest priority and called attention to a lack of centralized authority, data, and information; a clear chain of command; educational expertise among administrators; and a high quality, motivated, and stable teaching staff. Additional organizational assessments were conducted in 1992, 1999, and 2012. Since 2013, the Government Accountability Office (GAO) has published several reports on DOI management of BIE schools. In 2017, GAO added DOI management of Indian education programs to its high-risk list of government programs. It found fragmented administrative structures, a lack of clear roles and poor coordination between responsible offices, frequent turnovers in leadership, and inadequate procedures and internal controls. In addition, GAO indicated that the small enrollment of many BIE schools makes it more difficult to acquire all of the necessary educational and personnel resources. The BIE has an inadequate number of staff to oversee school expenditures, and staff have inadequate training and written procedures with which to fulfill their administrative obligations. Federal administration of BIE schools is complicated by statutory provisions. While the Indian Self-Determination and Education Assistance Act of 1975 (ISDEAA) and Tribally Controlled Schools Act (TCSA) support the federal policy of tribal control, DOI management of tribally operated schools is necessarily limited by the two laws. In contrast, state educational agencies (SEAs) may establish standards, processes, and programs for public schools to implement. BIE administers TCSA grants, which are limited to schools, but BIA administers ISDEAA contracts, which may include other funding streams such as funds for roads and economic development. Also, the requirement for tribal consultations supports self-determination and may improve results and acceptance, but it slows change and innovation. Several options have been considered to address these long-standing administrative, organizational, and ultimately student achievement issues. Similar to the transfer of BIA-funded schools in Alaska to the state of Alaska, the remaining BIE schools or students could be transferred to the states, which have established and known governance systems. AI/AN students in public schools demonstrate higher academic achievement than BIE students, which lends some support for this option. However, AI/AN students in public schools on average score lower than white and Asian/Pacific Islander students in public schools ( Table 3 and Table 4 ). In addition, AI/AN students in public schools and BIE students may not be comparable populations. Some stakeholders have suggested colocating or transitioning BIE schools to tribally operated charter schools. As charter schools are public-state schools, this option is similar to the aforementioned option of transferring BIE schools to the states except that charter schools provide greater autonomy to the operator than is available to traditional public schools. Some stakeholders have suggested transferring the BIE school system to ED because ED is the federal agency whose mission is educational excellence and equal access. Transferring BIE to ED may be difficult as some tribal stakeholders advocate for DOI-Indian Affairs maintaining responsibility for Indian affairs and the fact that ED does not have experience operating a school system. The Administration and Congress have initiated DOI reorganizations and restructurings to address the issue directly. The proposals have variously tried to centralize or decentralize authority and responsibility, improve options for high-quality personnel recruitment and retention, delineate all of the education functions into a separate or independent organization, share support functions between BIE and BIA to leverage expertise, publish policy/procedures manuals, and improve tribal participation. In 2014 following results of the American Indian Education Study Group, DOI ordered a restructuring of BIE in order to address many outstanding issues, in particular encouraging greater tribal control, improving student achievement, and increasing communication within the BIE and with its stakeholders. The reorganization is designed to provide greater support and technical assistance to tribally operated BIE schools in order to promote more effective teachers and principals, better respond to resource needs, and foster family and community support for students. The reorganization is also designed to ensure the budget is aligned with expected outcomes and processes. During the 114 th Congress, the Senate Committee on Indian Affairs approved the Reforming American Indian Standards of Education Act of 2016 (S. 2580) to create an independent Indian education agency that would be within DOI and that would be directed by a presidential appointee. The 115 th Congress instructed DOI to reorganize and present a reorganization plan for Indian affairs such that all Indian education functions are administered by and accountable to the BIE. The ESEA, as amended by ESSA, requires DOI to develop regulations for defining BIE school standards, assessments, and an accountability system under ESEA Title I-A, and it permits BIE schools to waive such regulatory requirements if the tribal governing body or school board of a BIE school determines the regulations to be inappropriate. Should such a determination be made, the tribal governing body or school board must submit a proposal to the Secretary of the Interior that includes alternate standards, assessments, and an accountability system, if applicable, that are consistent with the requirements of ESEA Section 1111 and take into account the unique circumstances of the school. The BIE announced and initiated the Accountability Negotiated Rulemaking Committee in January 2017. The final regulations are expected to be in place for AY2017-2018. The Miccosukee Tribe and Navajo Nation had alternative standards, assessments, and accountability plans approved by DOI and ED—the Miccosukee Tribe for AY2014-2015, AY2015-2016, and AY2016-2017, and the Navajo Nation for AY2015-2016 and AY 2016-2017. The ability of the Miccosukee Tribe and Navajo Nation to continue using the alternative systems in AY2017-2018 and beyond will likely depend on the waiver requirements established under negotiated rulemaking. For at least 20 years, BIE school facilities have been characterized by a very large number of old facilities with a high rate of deficiencies. Some facilities are in poor condition and do not meet health and safety standards. Reports from students and faculty suggest that conditions affect learning and enrollment. GAO and DOI have reported several weaknesses in the management of BIE school facilities. The weaknesses include a lack of consistent and complete facilities condition information, inadequate implementation of procedures to address facilities' deficiencies, insufficient staffing, inadequate staff training, inconsistent oversight, insufficient internal controls and procedures, and poor communication. The BIA retains responsibility for BIE school construction, including replacement of all of a school's facilities, replacement of individual facilities at schools, improvement and repair of existing school facilities, and repair of education employee housing. In 2016, DOI estimated that the replacement cost of BIE school facilities exceeded $4.6 billion and that the cost to correct known deficiencies exceeded $430 million. On December 31, 2009, the latest estimate available, the BIA estimated that the costs to replace, repair, construct, and improve existing facilities in poor condition, excluding facilities in fair or good condition, would be $1.3 billion. In 2011, the U.S. Environmental Protection Agency (EPA) reached a settlement with the BIA and BIE to address alleged violations of waste, water, air, toxics, and community right-to-know laws at schools and public water systems. The alleged violations are related to the labeling, storage, and release of wastes; asbestos management plans; and drinking water monitoring and contaminant levels. The original settlement required BIA and BIE to correct alleged violations at 72 schools and 27 water systems and implement an environmental compliance auditing program and an environmental management system (EMS) to improve environmental practices at all of its BIE schools. The consent agreement was modified in 2014, expanding the list of BIA/BIE facilities subject to the consent agreement. In response to ongoing facilities needs and unsafe conditions, Congress has established requirements of DOI in an effort to facilitate addressing the issues. The No Child Left Behind Act (NCLB, P.L. 107-110) required that DOI establish a negotiated rulemaking committee to report on BIE schools' needs for school and school facilities replacement and repair, and to develop formulas to distribute funds to address these needs. In 2012, the BIA published its catalog of facilities, formulas for renovation and repair, and recommendations for addressing school facilities needs. Congress has periodically directed the BIA to develop replacement school priority lists. The previous replacement school construction priority list of 14 schools was published in 2004, The FY2016 appropriations act funded replacement of the last two schools on the 2004 list. In 2016, the BIA published a new construction priority list of 10 schools. In addition to annual appropriations, the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ) authorized Qualified School Construction Bonds (QSCBs; 26 U.S.C. §54F). QSCBs are a tax credit bond program that make bond proceeds available for the construction, rehabilitation, or repair of a public school facility or for the acquisition of land for a public school facility. Treasury allocated $200 million in each of 2009 and 2010 to DOI for Indian tribal governments to construct or repair BIE-funded schools. As of May 2014, no tribe had taken advantage of the program partly because many tribes are unable to sell bonds because they are high risk entities; although the allocation remains available. There are a several potential options for addressing poor facilities at BIE schools. Some that are routinely suggested or have been suggested by organizations like GAO include the following: additional funds for maintenance, improvement, and construction could be appropriated to cover the estimated cost of bringing facilities into good condition; public-private partnerships could be formed to fund and/or provide expertise to affect facilities improvement and construction; implementation of a DOI-based unit or organization that would execute appropriate communication, procedures, internal controls, oversight, and staffing to properly manage BIE facilities; and congressional and administrative oversight of measured progress in facilities' improvement and construction may affect outcomes. Indian education issues affecting public schools include the JOM freeze and the participation of Indian parents and tribes. By statute, JOM funds are distributed to contractors by formula, based on a count of Indian students and average per-pupil operating costs. Student counts for allocating funds have been effectively frozen since FY1995. The House and Senate reports, accompanying the DOI and Related Agencies Appropriations Act, 1995 ( P.L. 103-332 ), instructed the BIA to transfer JOM allocations to tribal priority allocations (TPA) along with certain funds for housing improvement in an effort to stabilize funding for tribes and provide them additional control and flexibility in the use of the funds. The intention was to include the JOM funds in each tribe's recurring base funding. Based on public comment and the appropriations reports, the BIA decided to use the FY1995 JOM allocations based on the FY1995 student counts to establish JOM base funding for each of the tribal contractors, excluding tribal organizations. There is a statutory prohibition on changing a tribe's base funding. This transfer to TPA has resulted in what is commonly referred to as the JOM freeze . In FY2005, JOM served about 272,000 students in 33 states. At the direction of Congress, the BIE is attempting to count the current number of students served. As a result of the 1995 freeze, the BIE no longer systematically collects data about the numbers of students served by projects, the needs of those students, the services provided, or the outcomes realized. The freeze allows pre-1995 contractors to receive funding based on their 1995 student count regardless of the number of students actually served. The freeze included each tribe's 1995 JOM allocation into its base funding or tribal priority allocation (TPA). TPA allows tribes flexibility in the management and use of funds for various programs and services. Tribes that receive JOM as part of their base funding are dependent on this as a fairly stable source of funding. Appropriations conference reports since FY2012 have directed the BIE to count the number of students eligible for (participating in) the Johnson O'Malley (JOM) program and recommend a methodology to distribute funds in the future. As of May 2017, the BIE was still trying to collect an accurate and complete count. The participation and influence of Indian parents and tribes in the education of Indian students has increased over time. The JOM, Impact Aid, and Indian Education formula grant programs require consultation with an Indian parent committee. ESEA, as amended by ESSA, requires that LEAs with substantial AI/AN or Indian student enrollment consult with Indian tribes and tribal organizations prior to submitting their applications for several ESEA formula grant programs. Since FY2012, through the ESEA Indian Education Programs, ED has awarded several demonstration grants to partnerships between tribes or tribal education departments (TEDs) and states, LEAs, or BIE schools. There is continued interest in increasing the role of Indian tribes in an effort to increase student achievement and cultural relevance of education. Increasing the role of tribes in public schools may confront sovereignty, accountability, collective bargaining, and property ownership issues and will impact non-Indian students in public schools. For instance, the Tribal Education Departments National Assembly, Co. has proposed allowing tribal education departments (TEDs) to operate public schools, particularly public schools on or near reservations and public schools with large enrollments of tribal children. Programs funded under ESEA Title VI might be viewed as incremental efforts to increase cultural relevance and tribal influence.
|
The federal government provides elementary and secondary education and educational assistance to Indian children, either directly through federally funded schools or indirectly through educational assistance to public schools. Direct education is provided by the Bureau of Indian Education (BIE) in the U.S. Department of the Interior (DOI), through elementary and secondary schools funded by the BIE. Educational assistance to public schools is provided chiefly through programs of the U.S. Department of Education (ED). The student population served by federal Indian education programs consists of members (or descendants of members) of Indian tribes, not American Indians/Alaska Natives (AI/ANs), as identified by race/ethnicity. Most of this Indian education population attends public schools. Most federal data on Indian students are based on race/ethnicity, however, which complicates analysis of results for the population served by federal Indian education programs. The BIE was originally part of the Bureau of Indian Affairs (BIA) in DOI. The BIA began the current system of direct Indian education in the decades following the Civil War, with congressional approval and funding. The system developed gradually to its current structure. In the late 19th century, the BIA began placing a few students in public schools, a trend that accelerated after about 1910. At present, over 90% of the Indian student population attends public schools. The BIE-funded education system for Indian students includes 169 schools (and 14 "peripheral dormitories" for students attending public schools nearby). Schools and dorms may be operated by the BIE itself or by tribes and tribal organizations. A number of BIE programs provide funding and services, supplemented by set-asides for BIE schools from ED programs. Federal funding for Indian students in public schools flows to school districts chiefly through ED programs, with a small addition from a single BIE program. Most of the ED funds are authorized under the Elementary and Secondary Education Act (ESEA) and Individuals with Disabilities in Education Act (IDEA). A perennial issue regarding Indian education is comparatively poor academic achievement among students in BIE schools and AI/AN students in public schools. Since the 1970s, federal policies to address this issue include permitting greater tribal control and influence through tribally operated BIE schools and culturally relevant educational curriculum and language instruction, and encouraging collaboration between states, local educational agencies, and public schools and tribes and parents of Indian students. ESEA standards and accountability requirements also aim to promote the academic achievement of students. With respect to BIE schools, Congress has wrestled to find a BIE administrative structure that will support greater academic achievement of BIE students. Other issues that Congress and Administrations have attempted to address are the condition of school facilities, the incidence of violence and alcohol and drug use among Indian students, the differential administration of discipline in public schools, and the adequacy of funding.
|
The Joint Cargo Aircraft (JCA) is a small, intra-theater airlifter being procured by the Army and Air Force. Small airlifters have filled niche roles for the Department of Defense (DOD) over the past several decades, flying missions to deliver time-sensitive cargo, transport important personnel, evacuate casualties, and resupply austere operating locations. During the Vietnam War, the Air Force flew C-123 Providers while the Army used C-7 Caribous for intra-theater airlift. A source of inter-service tension, C-7 ownership transferred to the Air Force in 1966, but the Air Force continued to fly them attached to Army units. With funding scarce after Vietnam, the Air Force retired both the C-7 and C-123 without replacement. In the 1980s, the Air Force bought 18 C-23 Sherpas to move supplies between European bases. After the Cold War, six Sherpas were transferred to the Army before 40 more were acquired and assigned mostly to Army National Guard units. In 1991, the Air Force purchased 10 C-27A Spartans for operations around Howard AFB, Panama, but these aircraft were retired in 1999 after the base closed. Today, some assert operations in Iraq and Afghanistan have stressed Army transport helicopters, amplified weaknesses of the Sherpa fleet the Army inherited, and exposed a capability gap within DOD. Some also foresee a persistent need for small tactical airlifters for homeland defense and disaster relief. Table 1 summarizes characteristics for some tactical transport aircraft. In 2004, the DOD began to consider options to meet Army requirements for intra-theater airlift. The Army's Future Cargo Aircraft (FCA) program gained DOD approval in March 2005 with plans for an initial purchase of 33 FCAs. FCA was intended to replace aging C-23s, C-26 Metroliners , and some C-12 Hurons ; reduce reliance on ground convoys in Iraq and Afghanistan; and decrease the heavy workload of the Army's CH-47 Chinook helicopters. A rift over FCA between the Army and Air Force began to surface in 2005. Former Air Force Chief of Staff General John Jumper replied to a reporter's FCA question with, "you don't need to go out and buy yourself an Air Force—we've got one." In September 2005, the Air Force expressed interest in developing a small intra-theater airlifter of its own—the Light Cargo Aircraft (LCA). Air Force interest continued in 2006 with officials envisioning 100-150 LCAs. In December 2005, DOD noted the similarities between the FCA and LCA programs and merged them into the Joint Cargo Aircraft (JCA) program with the Army designated as lead. In June 2006, the Army and Air Force Vice Chiefs of Staff signed an agreement to jointly develop command and control, sustainment, training, and acquisition strategies for the JCA. Industry teams competed four aircraft for the JCA contract: L-3 Communications, Alenia Aeronautica, and Boeing offered the C-27J. Raytheon and European Aeronautic Defence and Space (EADS) Company's CASA North America proposed the C-295 and CN-235. Lockheed Martin competed the C-130J. In November 2006, after the C-130J was eliminated from competition for failing to meet required navigational capabilities, Lockheed Martin protested the decision. Likewise, when the C-27J won the JCA competition in June 2007, Raytheon contested DOD's evaluation of competing aircraft. The Government Accountability Office denied both protests, and subsequently L-3 Communications was awarded a $2.04 billion firm-fixed price contract to build up to 78 C-27Js (54 Army, 24 Air Force). The rift between the Army and Air Force mentioned above reflects differences in their overall approaches to the intra-theater airlift mission, as well as continued debate from many others, including Congress, over the roles and missions of each service. The following sections address these differences. Joint doctrine does allow each service component to maintain a small fleet of aircraft to meet service-specific needs. The Army states that it plans to use JCA for "direct support" of its ground operations by providing "on-demand transport of time-sensitive/mission-critical cargo and key personnel to forward deployed Army units operating in a Joint Operations Area." The Army primarily views JCA as on-call airlift directly tied to the tactical needs of ground commanders, sometimes referred to as transporting cargo the "last tactical mile." In 2005, the Army completed a proposal, validated by the Joint Requirements Oversight Council (JROC), that acknowledged a need for more airlift of time-critical cargo. By April 2007, updates to this JROC approval reflected a joint requirement for up to 75 aircraft. Rand analysts suggested the optimal airlift fleet should be structured to meet "the most serious threats to vital national interest ... and consists of several types of aircraft" with a "variety of operational characteristics," and should avoid specialization that "jeopardizes the ability of the overall force to perform its most critical missions." The Air Force, which is responsible for organizing, training, and equipping to perform airlift, views the JCA mission, including delivery of time-sensitive/mission-critical Army cargo, as its role. The Air Force says it will use JCA to provide "general support" airlift for all users. Joint publications define this as "the airlift service provided on a common basis for all DOD agencies and, as authorized, for other agencies of the U.S. Government" and assigns mission responsibility to U.S. Transportation Command. Under this construct, the Air Force allocates available aircraft to all users in accordance with a Joint Force Commander's (JFC's) priorities; the stated goal is efficient use of every aircraft for multiple tasks. In 2007, Rand conducted an Intra-theater Airlift Force Mix Analysis (IAFMA) for the Air Force to determine the optimum composition of the Air Force's intra-theater airlift fleet. While most details were classified, the study determined that C-27s were an efficient complement to other intra-theater platforms, but were not as cost-effective as operating the same number of C-130Js. The Air Force has requested further study on possible mission activity where the C-27 may be more cost-effective, as well as comparisons to precision airdrop systems (see next section) and recapitalizing CH-47s and/or C-23s. In addition, tactical airlift requirements are part of the Mobility Capability/Requirements Study (MCRS), currently in progress and due for release in 2009. JCA critics state that DOD already has sufficient options for tactical airlift. Some suggest the Air Force could have a more versatile system by diverting funds planned for JCA into procuring larger tactical airlift models such as C-130s and C-17s, a view backed up by the IAFMA results. Others assert that the Army's helicopter modernization program may require a 50% larger budget between 2007-2030 compared with 1986-2005 and suggest the Army could better use JCA dollars by modernizing its helicopter fleet. Accordingly, the services are also pursuing a Joint Heavy Lift program that would replace current large-helicopter fleets and could perform this "last tactical mile" mission. A separate (but related) possibility for accomplishing this mission is a precision airdrop system. Several systems currently in use, or under development, combine cargo platforms, steerable parachutes, and GPS receivers that allow cargo airdrops from high (and relatively safe) altitudes, to deliver supplies and vehicles with pinpoint accuracy and with no runway needed. Some Members have questioned the merit of splitting tactical airlift between the Army and Air Force, while others have expressed strong support for this approach. Historically, the Army has argued for ownership of a small fleet of tactical airlifters. Field commanders often state they need the responsiveness that "direct support" airlift provides to counter unforeseen contingencies. Critics characterize this approach as inefficiently creating "two air forces." Others state that the JCA simply maintains the status quo in roles and missions. For example, it is argued that "direct support" Army transport helicopters, performing time-sensitive or mission-critical movement of passengers and cargo, create a battlefield synergy between efficiency and effectiveness in conducting the joint fight. Further, some point out that the Army is responsible for sustaining soldiers within its Joint Operating Areas and believe the Army should be able to procure and use the most efficient vehicles (truck, helicopter, fixed-wing aircraft) to perform this task. The crux of the roles and missions debate, however, is command and control of these aircraft. Advocates of placing all JCAs into the Air Force point out that presently a JFC can apportion tactical airlift into a "direct support" role whenever it is needed. The Air Force has an extensive command and control architecture already established for the air mobility mission in any theater. Centralized control of all air assets is the primary tenet of this construct. Army commanders, however, normally function in an environment of decentralized control that would allow them to instantly task their own assets, but may leave the aircraft idle when not needed. The Army proposes that its aircraft would be made available to the common-user airlift pool when not needed in a "direct support" role, but it is not clear that it is committed to obtaining the necessary command and control systems architecture mentioned above to ensure the aircraft are both visible and usable by a joint commander. Lastly, critics may question the Air Force's long-term commitment to the "direct support" role, pointing out the Air Force has retired its last four small tactical airlift aircraft without replacement. When asked about his preference in the JCA debate, General Norton Schwartz, then Commander of U.S. Transportation Command, questioned whether the Air Force was willing to support the Army in the manner the Army wants to be supported. For example, he asked, "is the Air Force willing to attach tactical airlifters to an Army brigade commander when required?" The President requested $264.2 million to procure seven C-27Js for the Army, $5.4 million for advanced procurement for the Air Force, $3 million for Army Research, Development, Testing and Evaluation (RDT&E), and $26.8 million for Air Force RDT&E. The 2009 Defense Authorization Act supported the Army portions of the request, but cut all of the advance procurement funds and $10 million of RDT&E funds from the Air Force request. House authorizers ( H.Rept. 110-652 ) pointed to the results of the aforementioned IAFMA as one cause for removing funds and questioned the lack of analysis done to justify Air Force procurement of JCA. Appropriators ( P.L. 110-329 ) also supported the Army funding while removing the Air Force advance procurement funds and $10 million in RDT&E money that was "unexecutable." The President requested $157 million for Army procurement and $42.3 million for Air Force RDT&E. House authorizers ( H.Rept. 110-146 ) supported the request but stipulated that DOD could not obligate funds until requirements analysis was complete. Senate authorizers ( S.Rept. 110-77 ) also supported the funding request, but transferred funds from the Army into the Air Force's procurement account and questioned the Army's need for an organic fixed-wing airlift fleet, stating If there were a pattern of the joint forces air component commander (JFACC) providing support that did not match the priorities of the joint forces land component commander (JFLCC), that would certainly argue for intervention of the joint forces commander to correct the situation. It would not be a persuasive argument that the JFLCC should have his own air force. The 2008 Defense Authorization Act restored Army procurement funds, but directed DOD to conduct a roles and missions review ( P.L. 110-181 ). Appropriators supported the President's request for procurement but cut $21.3 million from RDT&E as an "unjustified request" ( P.L. 110-116 ). The President requested $109.2 million for Army procurement and $15.8 million for Air Force procurement. Authorizers supported the request but transferred procurement funding to the Air Force's account ( P.L. 109-364 ). Appropriators cut funding for Army JCA to $72.2 million and transferred Air Force procurement dollars into the Air Force's RDT&E account ( P.L. 109-289 ). Echoing comments from the 2007 Defense Authorization Bill, Senate appropriators ( S.Rept. 109-292 ) expressed a desire for additional analyses of intra-theater airlift requirements. The President requested $4.9 million for JCA lead procurement, and both authorizers ( P.L. 109-148 ) and appropriators ( P.L. 109-163 ) fully supported the request.
|
Joint Cargo Aircraft (JCA) is a joint acquisition program between the Army and Air Force intended to procure a commercial off-the-shelf aircraft capable of meeting Army and Air Force requirements for intra-theater airlift. The C-27J Spartan, built by L-3 Communications, was awarded the JCA contract in 2007. This is an update of a report by [author name scrubbed] and will be updated as conditions warrant.
|
Fidel Castro ceded provisional control of the government and the Cuban Communist Party (PCC) to his brother Raúl on July 31, 2006, because of poor health. While initially many observers forecast Raúl's assumption of power as temporary, it soon became clear that a permanent succession of political power had occurred. Fidel's health improved in 2007, but his condition remained weak, and most observers believed that he would not resume his role as head of the Cuban government. That proved true when on February 19, 2008, Fidel announced that he would not accept the position of President of the Council of State when Cuba's legislature, the National Assembly of People's Power, was scheduled to meet on February 24, 2008, to select from among its ranks the members of the 31-member Council. Many observers expected Raúl to be selected by the legislature to be the next President, a role that he held provisionally for the previous 19 months. Even before Fidel provisionally stepped down from power in July 2006, a communist successor government under Raúl was viewed as the most likely political scenario. As First Vice President of the Council of State, Raúl had been the officially designated successor pursuant to Article 94 of the Cuban Constitution, and in the past, Fidel publicly endorsed Raúl as his successor as head of the PCC. Moreover, Raúl's position as head of the Revolutionary Armed Forces (FAR), which essentially controls Cuba's security apparatus, made him the most likely candidate to succeed Fidel. So while it was not a surprise to observers for Raúl to succeed his brother officially on February 24, 2008, what was surprising was the selection of José Ramón Machado Ventura as the Council of State's First Vice President. A physician by training, Machado is 77 years old, and is part of the older generation of so-called históricos of the 1959 Cuban revolution. He has been described as a hard-line communist party ideologue, and reportedly has been a close friend and confident of Raúl's for many years. Machado's position is significant because it makes him the official successor to Raúl, according to the Cuban Constitution. Many observers had expected that Carlos Lage, one of five other Vice Presidents on the Council of State, would have been chosen as First Vice President. He was responsible for Cuba's economic reforms in the 1990s, and at 56 years of age, represents a younger generation of Cuban leaders. While not rising to First Vice President, Lage nevertheless retained his position as a Vice President on the Council of State, and also will continue to serve as the Council's Secretary. Several key military officers and confidants of Raúl also became members of the Council, increasing the role of the military in the government. General Julio Casas Regueiro, 72 years of age, who already was on the Council, became one of its five vice presidents. Most significantly, Casas, who had been first vice minister in the FAR, was selected by Raúl as the country's new Minister of the FAR, officially replacing Raúl in that position. Casas also is chairman of GAESA (Grupo de Administracion Empresarial, S.A.), the Cuban military's holding company for its extensive businesses. Two other military appointments to the Council were Gen. Alvaro López Miera, the army's chief of staff, and Gen. Leopoldo Cintra Frías, who commanded the Western army, one of Cuba's three military regions. What is notable about Cuba's political succession from Fidel to Raúl is that it has been characterized by political stability. There has been no apparent evidence of rivalry or schisms within the ruling elite that have posed a threat to Raúl's new position. In the aftermath of Fidel initially stepping down in 2006, Raúl mobilized thousands of reservists and military troops to quell a potential U.S. invasion. He also reportedly dispatched undercover security to likely trouble spots in the capital to deal with any unrest, but the streets remained calm with a sense of normalcy in day-to-day Cuba. As Raúl stepped into his new role as head of government, a number of observers predicted that he would be more open to economic reform than Fidel, pointing to his past support for opening up farmers' markets in Cuba and the role of the Cuban military in successfully operating economic enterprises. Many have speculated that Cuba under Raúl might follow a Chinese or Vietnamese economic model. To date, however, there have not been any significant economic changes to indicate that Cuba is moving in the direction of a Chinese model. Nevertheless, with several minor economic policy changes undertaken by Raúl, there are some signs that more substantial economic changes could be coming. Under Raúl, the Cuban government has paid off its debts to small farmers and raised prices that the state pays producers for milk and meat; customs regulations have been relaxed to allow the importation of home appliances, DVD players, VCRs, game consoles, auto parts, and televisions; and private taxis have been allowed to operate without police interference. In a speech on Cuba's July 26, 2007 revolutionary anniversary, Raúl acknowledged that Cuban salaries were insufficient to satisfy basic needs, and maintained that structural and conceptual changes were necessary in order to increase efficiency and production. He also called for increased foreign investment. For some, Raúl's call for structural changes was significant, and could foreshadow future economic reforms such as allowing more private enterprise and a shift away from state ownership in some sectors. In his first speech as President in February 2008, Raúl promised to make the government smaller and more efficient, to review the potential reevaluation of the Cuban peso, and to eliminate excessive bans and regulations that curb productivity. Cuban public expectations for economic reform have increased. In the aftermath of Raúl's July 2007 speech, thousands of officially-sanctioned meetings were held in workplaces and local Communist Party branches around the country where Cubans were encouraged to air their views and discuss the future direction of the country. Complaints focused on low salaries and housing and transportation problems, and some participants advocated legalization of more private businesses. Raised expectations for economic change in Cuba could increase the chance that government actually will adopt some policy changes. Doing nothing would run the risk of increased public frustration and a potential for social unrest. Increased public frustration was evident in a clandestine video, widely circulated on the Internet in early February, of a meeting between Ricardo Alarcón, the head of Cuba's legislature, and university students in which a student was questioning why Cuban wages are so low and why Cubans are prohibited from visiting tourist hotels or traveling abroad. The video demonstrates the disillusionment of many Cuban youth with the dismal economic situation and repressive environment. Several factors, however, could restrain the magnitude of economic policy change in Cuba. A number of observers believe that as long as Fidel Castro is around, it will be difficult for the government to move forward with any major initiatives that are viewed as deviating from Fidel's orthodox policies. Other observers point to the significant oil subsidies and investment that Cuba now receives from Venezuela that have helped spur Cuba's high economic growth levels over the past several years, and maintain that such support lessens the government's impetus for economic reforms. Another factor that bodes against rapid economic policy reform is the fear that it could spur the momentum for political change. Given that one of the highest priorities for Cuba's government has been maintaining social and political stability, any economic policy changes are likely to be smaller changes introduced over time that do not threaten the state's control. While some degree of economic change under Raúl Castro is likely over the next year, few expect there will be any change to the government's tight control over the political system, which is backed up by a strong security apparatus. Some observers point to the reduced number of political prisoners, from 283 at the end of 2006 to 230 as of mid-February 2008, as evidence of a lessening of repression, but dissidents maintain that the overall situation has not improved. For example, the government arbitrarily detained more than 300 people for short periods in 2007. Of the 75 activists imprisoned in March 2003, 55 remain jailed; four were released on February 16, 2008, but sent into forced exile to Spain. Some observers contend that as the new government of Raúl Castro becomes more confident of ensuring social stability and does not feel threatened, it could move to soften its hard repression, but for now the government is continuing its harsh treatment of the opposition. The selection of José Ramón Machado as First Vice President also appears to be a clear indication that the Cuban government has no intention of easing tight control over the political system. Cuba's peaceful political succession from one communist leader to another raises questions about the future direction of U.S. policy. Current U.S. policy can be described as a dual-track policy of isolating Cuba through comprehensive economic sanctions, including restrictions on trade and financial transactions, while providing support to the Cuban people through such measures as funding for democracy and human rights projects and U.S.-government sponsored broadcasting to Cuba. The Cuban Liberty and Democratic Solidarity Act of 1996 ( P.L. 104-114 ) sets forth a number of conditions for the suspension of the embargo, including that a transition Cuban government: does not include Fidel or Raúl Castro; has legalized all political activity; has released all political prisoners; and is making progress in establishing an independent judiciary and in respecting internationally recognized human rights. The actual termination of the embargo would require additional conditions, including that an elected civilian government is in power. The dilemma for U.S. policy is that the legislative conditions could keep the United States from having any leverage or influence as events unfold in a post-Fidel Cuba and as Cuba moves toward a post-Raúl Cuba. The Bush Administration has made substantial efforts to prepare for a political transition in Cuba. In 2004 and 2006, the Administration's Commission for Assistance to a Free Cuba prepared two reports detailing how the United States could provide support to a Cuban transition government to help it respond to humanitarian needs, conduct free and fair elections, and move toward a market-based economy. A criticism of the reports, however, has been that they presuppose that Cuba will undergo a rapid democratic transition, and do not entertain the possibility of reform or economic change under a communist government. On the basis of these reports, critics maintain that the United States may be unprepared to deal with alternative scenarios of Cuba's political transition. Over the past several years Congress has often debated policy toward Cuba, with one or both houses at times approving legislative provisions that would ease U.S. sanctions on Cuba. President Bush has regularly threatened to veto various appropriations bills if they contained provisions weakening the embargo, and ultimately these provisions have been stripped out of final enacted measures. In 2007, the lack of any significant policy changes in Cuba under Raúl appeared to diminish the impetus in Congress for any major change in policy toward Cuba, although Raúl's official installation as President could alter that. Since assuming power, Raúl Castro has made several public offers to engage in dialogue with the United States that have been rebuffed by U.S. officials who maintain that change in Cuba must precede a change in U.S. policy. In an August 2006 interview, Raúl asserted that Cuba has "always been disposed to normalize relations on an equal plane," but at the same time he expressed strong opposition to current U.S. policy toward Cuba, which he described as "arrogant and interventionist." In response, Assistant Secretary of State for Western Hemisphere Affairs Thomas Shannon reiterated a U.S. offer to Cuba, first articulated by President Bush in May 2002, that the Administration was willing to work with Congress to lift U.S. economic sanctions if Cuba were to begin a political opening and a transition to democracy. According to Shannon, the Bush Administration remains prepared to work with Congress for ways to lift the embargo if Cuba is prepared to free political prisoners, respect human rights, permit the creation of independent organizations, and create a mechanism and pathway toward free and fair elections. Raúl Castro reiterated an offer to negotiate with the United States in a December 2006 speech. He said that "we are willing to resolve at the negotiating table the longstanding dispute between the United States and Cuba, of course, provided they accept, as we have previously said, our condition as a country that will not tolerate any blemishes on its independence, and as long as said resolution is based on the principles of equality, reciprocity, non-interference, and mutual respect." More recently, in his July 26, 2007 speech, Raúl reiterated for the third time an offer to engage in dialogue with the United States, and strongly criticized U.S. economic sanctions on Cuba. This time, Raúl pointed to the future of relations with the next U.S. Administration, and stated that "the new administration will have to decide whether it will keep the absurd, illegal, and failed policies against Cuba, or accept the olive branch that we extended." He asserted that "if the new U.S. authorities put aside arrogance and decide to talk in a civilized manner, they will be welcome. If not, we are willing to deal with their hostile policies, even for another 50 years if necessary." A U.S. State Department spokesman responded that "the only real dialogue that's needed is with the Cuban people." In the aftermath of Fidel's announcement that he would step down as head of government, U.S. officials maintained there would be no change in U.S. policy. In the context of Raúl Castro's succession, there are two broad policy approaches to contend with political change in Cuba: a stay the course or status-quo approach that would maintain the policy of isolating the Cuban government with economic sanctions; and an approach aimed at influencing Cuban government and society through an easing of sanctions and increased contact and engagement. Advocates of continued sanctions argue that the Cuban government under Raúl Castro has not demonstrated any willingness to ease repression or initiate any political or economic openings. Secretary of Commerce Carlos Gutierrez asserts that "the succession from Fidel to Raúl is a preservation of dictatorship" and that "the regime needs to have a dialogue with the Cuban people before it has one with the United States." Other supporters of current policy maintain that easing economic sanctions would prolong the communist regime by increasing money flowing into its state-controlled enterprises, while continued sanctions would keep up the pressure to enact deeper economic reforms. Those advocating an easing of sanctions argue that the United States needs to take advantage of Cuba's political succession to abandon its long-standing sanctions-based policy that they maintain has had no practical effect in changing the policies of the Cuban government. They argue that continuing the status quo would only serve to guarantee many more years of hostility between Cuba and the United States, and reduce the chances for positive change in Cuba by slowing the pace of liberalization and reform. Others argue that the United States should work toward engaging and negotiating with Cuba in order to bring incremental change because even the smallest reforms can help spur popular expectations for additional change.
|
Cuba's political succession from Fidel Castro to his brother Raúl has been characterized by a remarkable degree of stability. On February 24, 2008, Cuba's legislature selected Raúl as President of the 31-member Council of State, a position that officially made him Cuba's head of government and state. Most observers expected this since Raúl already had been heading the Cuban government on a provisional basis since July 2006 when Fidel stepped down as President because of poor health. On February 19, 2008, Fidel had announced that he would not accept the position of President of the Council of State. Cuba's stable political succession from one communist leader to another raises questions about the future direction of U.S. policy, which currently can be described as a sanctions-based policy that ties the easing of sanctions to democratic change in Cuba. For developments in U.S. policy toward Cuba, see CRS Report RL33819, Cuba: Issues for the 110th Congress; and CRS Report RL31139, Cuba: U.S. Restrictions on Travel and Remittances. For background and analysis in the aftermath of Fidel Castro's stepping down from power in July 2006, see CRS Report RL33622, Cuba's Future Political Scenarios and U.S. Policy Approaches.
|
The Bureau of Reclamation (Reclamation), part of the Department of the Interior (DOI), is responsible for the construction and maintenance of many of the large dams and water diversion structures in the 17 states west of the Mississippi River. Reclamation was founded in 1902 to aid in the settlement of the arid American West. Today, Reclamation manages hundreds of dams and diversion projects, including more than 300 storage reservoirs in the 17 western states. These projects provide water to approximately 10 million acres of farmland and 31 million people. Reclamation is the largest wholesale supplier of water in the West and the second-largest hydroelectric power producer in the nation. Reclamation facilities also provide substantial flood control, recreation, and fish and wildlife benefits. Operations of Reclamation facilities often are controversial, particularly for their effects on fish and wildlife species and because of conflicts among competing water users. The multipurpose federal Central Valley Project (CVP) in California is one of Reclamation's largest water-conveyance systems (see Figure 1 ). The CVP extends from the Cascade Range in Northern California to the Kern River in Southern California. In an average year, it delivers approximately 5 million acre-feet of water to farms (including some of the nation's most valuable farmland); 600,000 acre-feet to municipal and industrial users; 410,000 acre-feet to wildlife refuges; and 800,000 acre-feet for other fish and wildlife needs, among other purposes. The project is made up of 20 dams and reservoirs, 11 power plants, and 500 miles of canals, as well as conduits, tunnels, and other storage and distribution facilities. A separate major project operated by the state of California, the State Water Project (SWP), delivers about 70% of its water to urban users (including water for approximately 25 million users in the South Bay [San Francisco Bay], Central Valley, and Southern California); the remaining 30% is used for irrigation. Two federal and state pumping facilities in the southern portion of the Sacramento and San Joaquin Rivers' Delta (Delta) near Tracy, CA, are a hub for water deliveries from both systems. Further complicating water deliveries of the CVP and SWP is a complex system of state water rights, in which some water deliveries are prioritized based on prior agreements with water rights holders that predate the CVP (e.g., Sacramento River Settlement Contractors and San Joaquin River Exchange Contractors). In recent years, parts of the West have been subject to prolonged drought conditions, including a severe drought in California that lasted from 2012 to 2016. Rain and snowstorms in Northern and Central California in the winter of 2016-2017 improved water supply conditions in the state in 2017. According to the U.S. Drought Monitor, as of July 2017, about 1% of the state was classified as suffering from severe drought conditions and more than 75% of the state was drought-free. This figure represents a drastic improvement from July 2016, when 59% of the state was in severe drought conditions, and July 2015, when 94% of the state fell under this designation. Although by most metrics the drought in California has ended, debate regarding the possible detrimental effects of certain federal water supply-related authorities, as well as the federal role in water resources development more broadly, continues. Although some argue that a rollback of existing environmental protections should be only a temporary measure taken during times of drought (if at all), others contend that the drought in California magnified an issue that needs to be addressed, regardless of hydrological conditions. They also note that the need for expedited construction of new surface water storage exists throughout the West. Central to addressing water shortages in California from the federal and state perspective is the coordinated operation of the CVP and the SWP. Whereas the CVP serves mostly agricultural water contractors, the SWP serves largely urban or municipal and industrial contractors; however, both projects serve some contractors of both varieties. The operation of the SWP has been of interest to Congress because there is a federal nexus with respect to the CVP. In considering CVP-related questions, a key point of debate has been the extent to which recent delivery cutbacks have been due to drought, compared to other factors (i.e., environmental restrictions related to state water quality criteria and endangered species, among other things). Recent deliveries to CVP and SWP contractors are shown below in Figure 2 . Dating to the 112 th Congress, several bills were proposed to address drought in California (including operations of the CVP) and elsewhere. The 114 th Congress saw significant drought-related legislation enacted in the form of Subtitle J of the Water Resources Infrastructure Improvements for the Nation Act (WIIN Act; P.L. 114-322 ). The WIIN Act included a number of provisions generally related to Reclamation, as well as several provisions specifically focusing on the operations of the CVP. Some, but not all, of those provision are scheduled to sunset after five years. In the 115 th Congress, multiple proposals (including those that were previously proposed but were not enacted in the WIIN Act) have been consolidated in H.R. 23 , the Gaining Responsibility on Water Act of 2017 (GROW Act). Although some of these provisions cover areas not addressed in the WIIN Act, others appear to overlap with that legislation. The House Rules Committee version of H.R. 23 included seven titles. Titles I-IV are for the most part specific to California. They include directives for the operation of the CVP and amendments to the Central Valley Project Improvement Act (CVPIA; Title XXXIV of P.L. 102-575 ) and the San Joaquin River Restoration Act (Title X of P.L. 111-11 , the Omnibus Public Land Management Act of 2009), among other things. Titles V-VII would be West-wide in their application and would include changes related to water supply development on federal lands and Reclamation's project development process. These titles also would include restrictions on the federal government's abilities to exercise reserved water rights. Supporters of the bill argue that these changes would provide more water to users from existing and new sources while safeguarding existing state water rights. Opponents believe that the bill goes too far in rolling back environmental protections, which, along with the effects of other parts of the legislation (e.g., potential new storage projects), could be detrimental to species and their habitats. Several of the bill's titles have been considered and/or passed by the House in the 115 th or prior congresses. Other titles are new or altered compared to language that has been considered previously. Based on past congressional debates, some provisions (in particular those that would preempt state law and make major changes to CVP operations and the San Joaquin River Restoration Settlement) may be controversial. In considering these provisions, Congress may consider the trade-offs involved in proposed changes. The remainder of this report focuses on the most prominent provisions of H.R. 23 . It is not an exhaustive summary of the bill, but it provides relevant context and background for individual titles and sections. The report also provides a broad discussion of potential issues for Congress in considering this legislation. H.R. 23 was introduced on January 3, 2017. The bill includes a wide range of water-related provisions dealing with management and operations of the CVP, as well as Reclamation policy more broadly. Titles I-IV are for the most part specific to California, whereas Titles V-VII would be West-wide in their application. The provisions included in H.R. 23 are largely a combination of different sections of bills that were considered in recent congresses. In particular, many of H.R. 23 's provisions in Title I appear similar to H.R. 3964 from the 113 th Congress, the Sacramento-San Joaquin Valley Emergency Water Delivery Act. Other parts of Title I and the remainder of the bill appear largely similar to parts of H.R. 2898 in the 114 th Congress, the Western Water and American Food Security Act of 2015. For the most part, provisions in H.R. 23 appear to be those from prior legislation that were not enacted in the WIIN Act. However, some of the proposed language in H.R. 23 appears to overlap with provisions that were enacted in the WIIN Act. This overlap could raise questions as to how these two pieces of legislation would be reconciled if H.R. 23 were enacted. A summary of each title of the bill is provided below. Title I would make numerous changes to the management and operation of the federal CVP, including amendments to CVPIA. Among other things, it would alter CVPIA to broaden the purposes for which water previously dedicated to fish and wildlife can be used (by removing the directive to modify CVP operations to protect fish and wildlife with dedicated fish flows and making this action optional); add to the purposes a provision "to ensure" water dedicated to fish and wildlife purposes is replaced and provided to CVP contactors by the end of 2018 at the lowest "reasonably achievable" cost; change the definitions of fish covered by the act; broaden purposes for which Central Valley Project Restoration Fund (CVPRF) monies can be used; reduce revenues to the CVPRF; mandate that the CVP and SWP be operated under a 1994 interim agreement, the Bay-Delta Accord; and mandate development and implementation of a plan to increase CVP water yield by October 1, 2018. Many of Title I's provisions appear similar to those introduced in previous legislation; in their previous consideration, some of these provisions were controversial. A brief summary of each section of Title I is provided below. Sections 101 and 102 of H.R. 23 would amend the purposes and definitions of CVPIA. Section 101 would make changes to CVPIA's purposes, including an amendment to include replacement water for CVP contractors and expedited water transfers among said purposes of that act. Section 102 would amend the act's definition of anadromous fish to limit coverage to those fish found in the Sacramento and San Joaquin Rivers as of October 30, 1992. The latter amendment would effectively change the baseline for fish protection and restoration and potentially set restoration goals at population levels after some species were already listed as endangered. Section 103 of the bill would amend Section 3404 of CVPIA, which includes certain limitations on contracts for water supply. Among other things, the bill would alter CVPIA's requirement that most water service and repayment contracts be renewed for periods of 25 years and would mandate a renewal period of 40 years. Section 103(2) would direct that existing long-term repayment of water service contracts be administered under the Act of July 2, 1956. The 1956 act provides for contracts to have a provision allowing conversion of water service contracts (9(e) contracts) to repayment contracts (9(d) contracts). It also provides that contractors who have repaid obligations shall have a "first right" to a stated share of project water for irrigation "(to which the rights of the holders of any other type of irrigation water contract shall be subordinate) ... and a permanent right to such share or quantity," subject to state water rights laws and provided "that the right to the use of water acquired under the provisions of this Act shall be appurtenant to the land irrigated and beneficial use shall be the basis, the measure, and the limit of the right." Such a change would appear to give water service contractors long-term certainty over water supplies from the CVP. Finally, this section also would repeal certain authorities for fish and wildlife restoration charges that were authorized under Section 3404 of CVPIA and would direct that parties be charged only for water actually delivered. Currently, some contractors pay for water based on acreage irrigated under contracts with Reclamation, and they must pay for contracted water regardless of whether water is delivered to the entire area (in drought years, this provision can be particularly onerous). Several provisions of Section 104 deal with water transfers. Section 104(1) would amend Section 3405 of CVPIA to direct the Secretary to "take all necessary actions" to facilitate and expedite water transfers in the CVP and would add a provision requiring a determination by reviewing parties as to whether the proposal is "complete" within 45 days. Further, it would add a new section that would prohibit environmental mitigation requirements as a condition to any transfer. Section 104 also would add a new subsection to Section 3405 of CVPIA, which would clarify that water transfers that could have been made before enactment of CVPIA may go forward without being subject to that act's requirements for water transfers. In addition, Section 104 would add language to specify that water use related to the CVP must be measured by contracting district facilities only up to the point where surface water is commingled with other water supplies. It also would eliminate the tiered pricing requirement and other revenue streams that fund fish and wildlife enhancement, restoration, and mitigation under the CVPRF, thus reducing CVPRF revenue collections. A number of provisions in Section 105 address fish, wildlife, and habitat restoration under CVPIA. First, Section 105 would remove the existing mandate that the Secretary of the Interior modify CVP operations to provide flows to protect fish, making this action optional rather than required and stipulating the new term "reasonable water flows" to provide further guidance for this authority. Section 105 would direct that any such flows provided on an optional basis be derived from the 800,000 acre-feet of water for fish and wildlife purposes under Section 3406(b)(2) of the CVPIA (also known as (b)(2) water). Thus, flows in excess of this amount for fish and wildlife purposes would appear not to be authorized under this legislation. The 800,000 acre-feet for fish and wildlife purposes would be a ceiling rather than a floor under this provision. Section 105 also would remove the requirement that the Secretary of the Interior consult with the California Department of Fish and Wildlife regarding modification of CVP operations for fish and wildlife and instead would require consultation with the U.S. Geological Survey. Section 105 of H.R. 23 also would allow (b)(2) flows to be used for purposes other than fish protection. Under this section, fish and wildlife purposes would no longer be the "primary" purpose of such flows. It also would adjust accounting for (b)(2) water by directing that all water used under that section be credited based on a methodology described in the legislation. It appears that state water quality requirements, the Endangered Species Act (ESA; P.L. 93-205 ), and all other contractual requirements could be met via use of the (b)(2) water if the bill is enacted; however, this is not entirely clear in the language. This section also would direct that (b)(2) water be reused. In addition, Section 105 would alter the provisions of CVPIA related to reductions in deliveries for (b)(2) water. It would mandate an automatic 25% reduction of (b)(2) water when Delta Division water supplies are forecast to be reduced by 25% or more from the contracted amounts. Currently under CVPIA, the Secretary is allowed to reduce (b)(2) deliveries by up to 25% when agricultural deliveries of CVP water are reduced. Thus, whereas under CVPIA the reduction was optional and could be up to 25%, under the amended section there would be a mandatory trigger for 25% reductions. Finally, Section 105 would deem pursuit (as opposed to accomplishment) of fish and wildlife programs and activities authorized by the amended Section 3406 as meeting the mitigation, protection, restoration, and enhancement purposes of Section 3402 of CVPIA. This change would not bind managers to meeting goals; rather, it would appear to direct managers to implement conservation activities that aim to meet goals. Section 106(a) would strike the CVPIA directive that not less than 67% of funds made available to the CVPRF be set aside to carry out habitat restoration and related activities. The funds in the CVPRF presumably would be made available for any purposes under the act (i.e., not just habitat restoration). This section also would prohibit the requirement of donations or other payments or any other environmental restoration or mitigation fees to the CVPRF as a condition to providing for the storage or conveyance of non-CVP water, delivery of surplus water, or for any water that is delivered for groundwater recharge. Finally, it would amend Section 3407(c) of CVPIA by not requiring the collection of payments to recover mitigation costs. The Secretary would retain general authority to collect and spend payments as provided for other activities under CVPIA. Section 106(d) of H.R. 23 would set a maximum limit of $4 per megawatt hour for payments made to the CVPRF by CVP power contractors. Historically, these payments have fluctuated. Section 106(d) also would require completion of fish, wildlife, and habitat mitigation and restoration actions by 2020, thus shortening the likely time such payments would be in place and thereby reducing water and power contractor payments into the CVPRF. Currently, the CVPRF payments continue until restoration actions are complete; then, payments are to be cut substantially. Section 106(d) would establish an advisory board responsible for reviewing and recommending CVPRF expenditures. The board would be made up primarily of water and power contractors (10 of 12 members), with the other two members designated at the Secretary's discretion. Section 107 would make a number of changes that address the authority for rates, additional storage, construction, and reporting requirements. These changes include amending the CVPIA to provide the Secretary with authority to use CVP facilities to transfer, impound, or otherwise deliver non-project water for "beneficial purposes." The section also would direct that amounts charged for this water not be provided to the CVPRF. Section 107(c) would require a least-cost plan by the end of FY2017 to increase CVP water supplies by the amount of water dedicated and managed for fish and wildlife purposes under CVPIA, as well as to meet all purposes of the CVP, including contractual obligations. This section also would require implementation of the water plan (including any construction of new water storage facilities that might be included in the plan), beginning on October 1, 2017, in coordination with the state of California. Under the bill, if the plan fails to increase the water supply by 800,000 acre-feet by October 1, 2018, implementation of any nonmandatory action under Section 3406(b)(2) (including the actions made optional under Section 105) would be suspended until the increase is achieved. Section 107(e) would authorize the Secretary to partner with local joint power authorities and others in pursuing storage projects (e.g., Sites Reservoir, Upper San Joaquin Storage, Shasta Dam and Los Vaqueros Dam raises) originally authorized for study under P.L. 108-361 (also known as CALFED) but would prohibit federal funds from being used for financing and constructing the projects. The section would authorize construction of these facilities with no further action, so long as no federal funds are used. Other parts of the bill (e.g., Section 204) appear to address construction of some of these facilities in a different manner (see " Title II—CALFED Storage Feasibility Studies ," below). It is not clear how the two sections are intended to interact. Similarly, it is not clear how these provisions would affect these projects going forward under the WIIN Act. Section 108(a) would direct that the CVP and the SWP be operated "in strict conformance" with a 1994 agreement commonly known as the Bay-Delta Accord. Among other things, the accord set maximum restrictions on water exports from the Delta, which were, in some cases, less restrictive than those in place today. Section 108(a) also states that the Bay-Delta Accord should be implemented "without regard to the [ESA] or any other law pertaining to operation of the [CVP] and [SWP]." Thus, some note that the bill preempts any federal or state laws that conflict with the accord. It is not clear how implementation of the accord would affect implementation of the WIIN Act, which also provided directives for CVP operations. Although the bill does not explicitly repeal portions of WIIN, there does appear to be overlap between the two pieces of legislation. For instance, if the CVP were to be operated "in strict conformance" with the Bay Delta Accord and without regard to ESA, as required under this section, it would appear to negate the changes under the WIIN Act that authorized certain operational parameters based on the current biological opinion (BiOp) for CVP operations. Section 108(b) would prohibit federal or state adherence to any condition restricting the exercise of valid water rights in order to conserve, enhance, recover, or otherwise protect any species that is affected by operations of the CVP or SWP. It also would prohibit the state of California, including any agency or board of the state, from restricting water rights to protect any "public trust value" pursuant to the state's Public Trust Doctrine." Section 108(c) would provide that no costs associated with this section may be imposed on CVP contractors, other than on a voluntary basis. Finally, Section 108(d) would explicitly preempt state law regarding catch limits for non-native fish that prey on native fish species (e.g., striped bass) in the Bay-Delta. Section 109 would mandate that hatchery fish be included in making determinations regarding anadromous fish covered by H.R. 23 under the ESA. Currently, hatchery fish are not included in population estimates of protected species, due largely to their different genetic makeup from wild fish. The inclusion of these fish eventually could lessen some ESA restrictions on water conveyance compared to current levels. Section 110 would deem compliance under the California Environmental Quality Act to suffice for compliance with the National Environmental Policy Act (NEPA, 42 U.S.C. §§4321-4347) for any project related to the CVP or related deliveries, including permits under state law. This provision would allow CVP projects and deliveries that conform to state law to circumvent traditional NEPA requirements. A potential benefit of this approach might be to speed up project-approval processes. A potential downside might be a less thorough—or at least different—assessment of the environmental impacts of the proposed project or action. Under Section 111, if adjustments to operating criteria other than those granted under Section 108 (adherence to the Bay-Delta Accord) are recommended by DOI and the Sacramento Valley Index is 6.5 or lower or the state requests it, no mitigation requirements would be associated with those changes until either the final index is 7.8 or greater, or two years from the date of the state's request. Furthermore, during any years in which mitigation is required, Section 111 also would provide that any mitigation measures that are provided for must be associated with quantitative data that demonstrate harm to species. These provisions would appear to reduce ESA-related mitigation requirements for emergency operational adjustments, both in drought years and in other years. Section 112 would extend to SWP and CVP contractors the rights of applicants for consultation under ESA, in the event that consultation or reconsultation over the operation of the CVP is initiated in the future. Such a change potentially would afford these entities a stronger role in the consideration of project requests by resource agencies and the formulation of related mitigation plans and activities. Related changes were enacted in Section 4004 of the WIIN Act. Although that bill did not formally direct that contractors be designated as applicants under ESA, it afforded them many of the same rights as applicants. Thus, the magnitude of this change, were it to be enacted, is unclear. Section 113 would make multiple changes to the San Joaquin River Restoration Settlement Act (SJRRS; Title X of P.L. 111-11 ), enacted in 2009, and to a related settlement agreement that is currently being implemented by Reclamation (see below text box for additional background). In the past, a number of proposals have been put forward to effectively repeal the SJRRS. Section 113 would not explicitly repeal the settlement, but it would make changes to the settlement's contents by altering the current plan of implementation pursuant to the bill's requirements, among other things. Some argue that the processes set up under this section would result in either repeal or a significant restructuring of the settlement. Section 113 of the bill would amend the SJRRS in a number of ways. Among the changes, key provisions under this section would require that the Secretary of the Interior and the governor of California make a determination, based on a number of factors, as to whether to continue with implementation of the settlement within one year of the bill's enactment. If it is determined that the SJRRS should not be implemented, then the officials are to develop a plan for creating a warm-water fishery downstream of Friant Dam but upstream of Gravelly Ford. If it is determined that the settlement should be implemented, H.R. 23 would establish a new framework for implementation, including priority listing of restoration projects and other conditions and requirements; allow for the release of flows under the SJRRS only if mitigation actions, including actions to mitigate the effects of the San Joaquin River Restoration Settlement on landowners, have been implemented; direct that the settlement may not result in material adverse impacts to third parties, including groundwater seepage or groundwater rising above a threshold of 10 feet below the surface; require that costs for any fish barriers that need to be installed pursuant to ESA will be paid by DOI; forbid the acquisition of land to implement the SJRRS through eminent domain; declare that Sections 5930-5948 of the California Fish and Game Code and other applicable federal laws and the settlement agreement are met through compliance with the bill's provisions; and declare that under conditions in which flows beyond Exhibit B of the SJRRS are recommended, then the authority to implement the settlement would terminate. Unlike other parts of Title I, there has been limited consideration of Section 113's provisions to date. Taken as a whole, it is not clear how such actions would affect the stipulated San Joaquin River Restoration Settlement Agreement or how parties to the settlement agreement or other stakeholders might react to these changes if they were enacted. Many of the provisions in Title I entail trade-offs. For example, Section 102 would limit the scope and definition of fish stocks receiving protection under CVPIA. This change may benefit some stakeholders who might stand to gain from fewer protections (i.e., more water), but it is strongly opposed by others who oppose any drop-off in protections. In addition, other changes to CVPIA, such as broadening the use of water flows and expanding the use of funds for fish and wildlife restoration under Section 105 may provide more water to irrigators or other water users under certain circumstances but may lower conservation efforts for salmon and other fish populations. Similar trade-offs characterize other sections of Title I, such as directing the renewal of existing contracts for 40 year periods under Section 103. Some might contend that this provision attempts to circumvent future NEPA review, but others might suggest that it could streamline the regulatory process to provide more water (and certainty of water supplies) to users. Section 108 of H.R. 23 , which directs the Secretary to operate the CVP and SWP according to principles outlined in the 1994 Bay-Delta Accord (a document no longer in effect), is likely to be among the controversial provisions of the bill. Some oppose this provision due to its potential to preempt state law and prohibit operational restrictions to protect species. They note that such an approach has the potential to alter the distribution of water deliveries associated with the CVP and SWP and could set a negative precedent for other areas. Supporters note that such a change is warranted due to its potential to make more water available to some users than under current law and regulatory restrictions, which they argue are overly stringent and ineffective. Section 113 may be similarly controversial for its changes to the SJRRS. This section would alter ongoing implementation of the SJRRS and declare that the legislation satisfies certain requirements of California state law. Opponents argue that the changes would preempt state law, effectively repeal the implementing legislation, and amount to a significant setback for restoring the San Joaquin river fishery. Proponents of these changes argue that the settlement has fallen short of its goals and has had negative impacts on water users, thus the new strategy is justified. Overall, provisions under this title could be interpreted as weakening environmental protections and restrictions imposed under the CVPIA, ESA, and SJRRS. Whether some or all of these authorities have achieved their goals, and the extent to which they have resulted in unforeseen and/or unjustified effects on CVP and SWP water users, may be key to their consideration. Another outstanding question is how some of the provisions in Title I (e.g., using the Bay-Delta Accord as an operational guide) might be reconciled with what was previously enacted under the WIIN Act, as well as other plans that might eventually impact CVP operations (e.g., the California WaterFix). The provisions under Title I of the bill raise questions regarding CVP water supplies for users and the environment. Selected questions relevant to this title might include the following: Exactly how much more water would be expected to be available to CVP water users under H.R. 23 , under various scenarios? How much more water would be available for export from the Delta, and how would the bill affect reservoir releases? Would more water also be available at desirable times for CVP and SWP contractors in the Sacramento watershed (and if so, how much)? How might the bill affect the viability of listed species, and how much less water would be available for listed species? What effects would the bill have on water quality, recreation, and commercial and sport fishing? H.R. 23 would attempt to expedite work on certain ongoing California surface water storage studies that originally were authorized under the Calfed Bay-Delta Authorization Act (CALFED; Title I of P.L. 108-361 ). To date, only one of the authorized studies (the Shasta Lake Water Resources Investigation) has been completed; the others are in various stages of the study process (see Table 1 ). Similar to bills introduced in previous Congresses, H.R. 23 proposes to establish deadlines to complete the CALFED studies and includes processes to facilitate their construction. Section 201 of H.R. 23 would direct Reclamation to complete ongoing feasibility studies for the new and augmented surface water storage studies in California that were authorized under CALFED. It also would authorize construction of one of these projects, the Temperance Flat Reservoir study, pending a positive feasibility report finding. However, pursuant to Section 204 of the bill, no federal funding could be used to construct this project. Thus, the construction authority would be contingent on 100% nonfederal funding. H.R. 23 also includes a directive in Section 202 for Reclamation to complete the study for Temperance Flat Reservoir; the bill would direct that the Secretary manage any land on the San Joaquin River recommended for designation or designated under the Wild and Scenic Rivers Act (16 U.S.C 1271 et seq.) in a manner that would not impede project activities, including environmental reviews and construction. With consideration to federal involvement in the CALFED surface water storage studies, Congress may evaluate whether to proceed with these projects and may gauge the potential for provisions in H.R. 23 to facilitate the studies' completion. Notably, the ability of the studies themselves to eventually further the goal of new water storage in California is unclear and may depend on a recommendation by the Administration to proceed with construction. Although many support proposed requirements for expedited completion of the studies as an important step toward construction of the projects, the previous Administration noted concerns with these provisions. In October 2015 testimony before the Senate Energy and Natural Resources Committee, Obama Administration Deputy Secretary of the Interior Michael Connor noted that two of these projects (NODOS/Sites Reservoir and Los Vaqueros Reservoir) were dependent on participation and funding by nonfederal partners. The Obama Administration also argued that requiring completion of the remaining ongoing studies (Upper San Joaquin/Temperance Flat and San Luis Low Point Improvement Project) by a specific date could compromise Reclamation's ability to make an informed decision on construction and solicit adequate input from partners. It is unclear whether the Trump Administration shares any of these sentiments and whether the studies would be more or less likely to be completed if deadlines were in place. Notably, the WIIN Act authorized federal funding for these projects (either at the 50% or 25% cost-share level, depending on the project type) and authorized the construction of any projects that met certain thresholds set in that act. It is unclear whether the authority in this Section 204, which authorizes construction of the Temperance Flat Reservoir but only with 100% nonfederal financing, would negate the use of that funding. Additionally, it is not clear whether this authority (which authorizes nonfederal construction of the project, pending a positive feasibility study) or Section 107 of the bill (which authorizes nonfederal construction of all CALFED water storage studies, with or without feasibility studies) would guide implementation of the project. Title III of H.R. 23 includes provisions aimed at protecting certain California water rights priorities under existing law, confirming the obligations of the United States to honor state water rights laws, and operating the CVP in conformance with state law. These sections appear to be identical to legislation considered in previous Congresses (e.g., H.R. 2898 in the 114 th Congress) and have a number of elements in common with (although not identical to) comparable provisions enacted under the WIIN Act. Title III of H.R. 23 includes provisions that aim to protect California water rights priorities under state law, termed area of origin protections . Specifically, Section 301 would stipulate that any changes required under the bill that reduce water supplies to the SWP and increase supplies to the CVP must be offset and that reduced water supplies must be made available to the state. H.R. 23 would require the Secretary of the Interior to notify the state of California if implementation of the salmon and smelt BiOps under the act reduces environmental protections. Section 302 would direct the Secretary of the Interior to "adhere to California's water rights laws governing water rights priorities and to honor water rights senior to those held by the United States for operation of the Central Valley Project, regardless of the source of priority." Title III goes on to list several specific California Water Code sections. Section 303 includes language providing that "involuntary reductions" to contractor water supplies would not be allowed to result from the bill. H.R. 23 would apply only to CVP and SWP contractors. Section 304 would set specific requirements that Reclamation provide "not less than 100 percent of ... contract water quantities" to agriculture water service contractors in the Sacramento River Watershed during wet, above-normal, and below-normal water years and "not less than 50 percent of their contract quantities" in dry years. This section also includes instructions for making allocations in all other types of years. Finally, Section 305 of H.R. 23 states that nothing in Title III shall preempt or modify existing obligations of the United States under Reclamation law to operate the CVP in conformity with state law, including water rights priorities. A potential issue is how the bill might affect water allocations under state and federal law, including CVP water allocation priorities. The bill contains specific directives to operate the CVP; some parties want assurances that maximizing water supplies to CVP and SWP water users south of the Delta—some of which are junior in priority under state law and CVP allocation priorities—will not result in any unintended shortages and would not affect other, more senior water users (or other water users in general). Overall, these protections raise questions including, among other things, how they would be reconciled with operational directives under other sections of the bill, as well as with other existing water rights that are not explicitly protected. Some provisions in Sections 301-304 are similar to those enacted in Section 4005 of the WIIN Act. Given the partial overlap between the provisions in the proposed and enacted bills, it is unclear how these provisions would be reconciled if H.R. 23 were enacted. Additionally, previous Obama Administration officials raised concerns that these provisions, when combined with the operational requirements of H.R. 23 , would make it difficult to meet the multiple authorized purposes of the CVP. It is unclear whether the current Administration shares this position. Title IV includes a number of disparate provisions that are collectively categorized as miscellaneous. A brief description of each section is included below: Section 401 would alter water supply accounting under CVPIA so that any restrictions on CVP water (except for certain releases to the Trinity River) to benefit fisheries since enactment of CVPIA would count toward the quantity of water that the Secretary of the Interior is to dedicate to environmental purposes (known as b(2) water ) under CVPIA. Current law requires that only water for salmon "doubling" is counted toward these purposes. Section 402 would limit releases from Lewiston Dam during operation of the Trinity River Division of the CVP to amounts specified in a December 2000 environmental impact statement for the Trinity River Restoration Program. This limit would effectively bar additional releases for Trinity River fisheries. Such additional releases have been allowed in recent years to prevent fish kills, among other things. Section 403 would require an annual report on the purpose, authority, and environmental benefit of instream flow releases from the CVP and the SWP. Section 404 would stipulate that if there is consultation or reconsultation under Section 7 of the ESA for operations of the Klamath Project (Oregon), Klamath Project contractors would be accorded the rights of applicants in the consultation process. Section 405 states that in carrying out the act, the Secretaries of the Interior and Commerce should note congressional opposition to certain California State Water Resource Control Board proposals having to do with unimpaired flows in the San Joaquin River. Title V, the Water Supply Permitting Act, would establish new procedures and requirements applicable to water storage projects undertaken by nonfederal entities (e.g., state agencies or private parties) in the Reclamation states on lands administered by DOI or the U.S. Department of Agriculture (USDA). A similar bill, H.R. 1654 , the Water Supply Permitting Coordination Act, was passed by the House on June 22, 2017. This title of H.R. 23 would establish Reclamation as the lead agency responsible for coordinating all reviews, analyses, opinions, statements, permits, licenses, or other federal approvals required for new surface water storage projects on lands administered by DOI and USDA. Provisions under Title V would not change existing NEPA requirements associated with permit issuance but would require Reclamation to establish and implement procedures that would be largely similar to those implemented by DOI and USDA as part of those agencies' respective permitting processes. Without explicitly referring to NEPA, provisions in Sections 503, 504, and 505 would establish certain responsibilities and requirements for lead and cooperating agencies that would be largely similar to those established by the White House Council on Environmental Quality in its regulations implementing NEPA. That is, Title V of H.R. 23 would appear to establish a new process that Reclamation would coordinate, but the bill would not eliminate any existing process. Each agency's interpretation and implementation of the directives in this title likely would determine whether, or the extent to which, the agency integrates the Reclamation-led process and the existing process the agency is required to complete to comply with NEPA. Additionally, provisions in Section 504 would require Reclamation to implement a coordination process that involves instituting a new pre-application coordination process; preparing a unified environmental document that would serve as the record on which all cooperating agencies shall base any project-approval decisions; ensuring cooperating agencies make decisions on a given project within deadlines specified in Section 504; and appointing a project manager to facilitate the issuance of the relevant final approvals and to ensure fulfillment of any Reclamation responsibilities. Section 506 would allow DOI to accept funds from a nonfederal project applicant to expedite the evaluation of permits related to the project. No provision in Title V would explicitly waive existing NEPA requirements associated with the issuance of permits or grants of right-of-way for federal land. That is, the title would establish procedures that Reclamation must implement to complete the environmental review process, but it would not explicitly direct DOI or USDA to change its own procedures for implementing NEPA or processing permit applications. Reclamation's interpretation of the directives in Title V would determine how the agency might integrate them with existing DOI and other federal agency procedures and how any new project coordination procedures would differ from the existing NEPA and permitting processes, should the bill be enacted. However, Title V does appear to include some requirements that would add steps to the project-approval process (e.g., the requirements related to the pre-application process, preparation of a unified environmental document, and data monitoring and record keeping). Under Title VI of H.R. 23 , new storage projects potentially would be expedited and authorized for construction by Congress under a reporting process and a number of other changes proposed in Sections 601-606 of the bill. For instance, Section 603 of H.R. 23 would provide that any new studies initiated by the Administration after the date of enactment must be completed within three years, at a cost of no more than $3 million per project study. Section 605 would allow for the Secretary to enter into agreements with the nonfederal sponsor to support the planning, design, and permitting of projects. Section 606 would attempt to expedite construction authorizations of all projects by directing an annual report in which the Administration proposes Reclamation studies and construction projects for congressional authorization, including new projects, enhancements to existing projects, and federal projects proposed by nonfederal entities. This report would be similar to the process authorized for the U.S. Army Corps of Engineers (Corps) under the Water Resources Reform and Development Act of 2014 (WRRDA 2014; P.L. 113-121 ) and referred to in the WIIN Act. Congress would have discretion over whether to authorize some or all of the projects proposed by the Administration. These projects also would be authorized to receive an undetermined amount of financial support. Title VI, which is similar to other legislation proposed in the 115 th Congress, would apply to surface water projects undertaken, funded, or operated by Reclamation. According to previous congressional documents explaining the rationale for similar provisions considered in the 114 th Congress, these provisions are modeled after a similar process established for Corps projects under WRRDA 2014. The provisions are intended to expedite project completion by accelerating the completion of (1) feasibility studies and reports (pursuant to Sections 603 and 604) and (2) environmental reviews for projects that require a feasibility study or an environmental impact statement (EIS; pursuant to Section 605). Currently, Reclamation integrates its feasibility report process with the preparation of the required NEPA analysis (EIS or environmental assessment). With respect to project acceleration, a number of provisions in Section 605 would codify existing regulations that implement NEPA. However, some provisions could add to or change preexisting agency practices or requirements used to demonstrate compliance with NEPA or could change outside agencies' procedures for completing their respective decisionmaking processes. Some examples under the bill include deadlines for comment on a draft EIS that would be shorter than current comment periods; deadlines for outside agencies to make decisions under other federal laws that, if missed, must be reported to Congress; reporting requirements to allow a project's status to be tracked; financial penalty provisions applicable to federal agencies with some jurisdiction over a project if the agencies fail to make a decision within certain deadlines; and a three-year statute of limitations on claims related to a completed project study. Section 607 of Title VI also clarifies that the two sections of the WIIN Act that authorized federal investment in new surface storage and other water supply projects shall not apply to projects under this title of the bill. Title VI creates a new reporting process that attempts to facilitate the proposal and authorization of new projects by Congress (and potentially would allow for a means to authorize these projects). A similar process is used for authorization of Corps studies and construction projects despite congressional moratoria on earmarks. Provisions under Title VI of H.R. 23 also have the potential to provide for a stronger nonfederal role in project implementation, in particular by allowing nonfederal entities to propose and provide financial support for new studies and requiring expedited completion of studies in general. H.R. 23 would provide funding support only for new federal and nonfederal storage based on existing Reclamation law (i.e., up-front costs to be funded through federal appropriations and paid back over time, without interest for irrigation purposes). Previously, the Obama Administration argued against new storage that "perpetuates the historical federal subsidies available for financing water storage projects" and in some cases appeared to prefer projects that were state and locally led. Decisions between new projects using the traditional federal financing model and those adopting new, alternative arrangements could create questions in the discussion of H.R. 23 . The need for and likelihood of authorization for new federal projects, as well as the appropriate split of responsibilities between federal and nonfederal stakeholders for new investments, also may be debated. The WIIN Act included new authorities and authorized new funding to pursue both federally led projects and projects led by nonfederal interests (Section 4007), as well as new water reuse and recycling projects and desalination projects (Section 4009) that built on existing federal authorities. The language in Section 607 of H.R. 23 appears to exclude these projects from the broader processes outlined in Title VI. Thus, the bill appears to propose parallel authorization processes for WIIN Act projects and those carried out under this title. H.R. 23 includes provisions under Title VII, Water Rights Protection, that are largely similar to H.R. 2939 , the Water Rights Protection Act of 2017, a bill introduced in the 115 th Congress that was ordered to be reported by the House Natural Resources Committee on June 27, 2017. Both bills were introduced in part due to concerns related to Forest Service efforts in recent years to require that permittees operating on Forest Service lands transfer their water rights to the federal government as a condition for permit renewal. The provisions under Title VII of H.R. 23 would attempt to prevent this requirement by, among other things, prohibiting the Forest Service and DOI from implementing permit conditions that require the transfer of private water rights to the federal government, as well as by prohibiting any requirements for permittees to apply for a water right in the name of the United States as a condition for their permit approval. It also would prohibit the conditioning or withholding of a permit on surface or groundwater withdrawals on any limitations that are not in accordance with state law. Finally, Title VII would require that federal agency policies recognize state water law and federal agencies coordinate with states to ensure consistency. Some stakeholders previously have argued that language similar to that proposed under Title VII is necessary to protect private property rights from encroachment by the federal government. Others have raised concerns that the prohibitions contained in H.R. 23 are overly broad, internally inconsistent, and would introduce confusion into the current system of water rights and lead to litigation. In particular, some have noted that the directions under Sections 703 and 704 of the bill appear to be inconsistent with the definitions of water rights under Section 702 and the savings clauses under Section 705 of the bill. They question how these parts of the bill would be reconciled by federal agencies in practice and assert that the legislation, if enacted, could result in litigation and, perhaps, could affect established practices and approaches. It is unclear how Title VII would affect federal reserved water rights if the bill were enacted in its current form. The bill contains multiple directives that appear in some cases to conflict with one another. For example, Section 705(d) of the bill states, "Nothing in this Act limits or expands any existing reserved water rights of the Federal Government on land administered by the Secretary." This statement could cause some to argue that major changes to the existing system of federal reserved water rights are not envisioned by the bill. Supporters of similar provisions have noted that they are not against the assertion of federal reserved water rights when those rights are specifically set out in statute or identified by courts. However, in previous testimony before Congress, Reclamation argued that the requirements of H.R. 23 have the potential to impact the ability of DOI agencies, such as the National Park Service and the Fish and Wildlife Service, to exercise water rights associated with their land reservations, including the agencies' ability to protect groundwater-dependent resources located on federal lands. Other witnesses have pointed out that under certain interpretations, the bill has the potential to render less likely the settlement of future Indian Water Rights claims, which in some cases necessitate the federal limitation of state-based rights for tribal water rights that are judged to be senior in status. It appears as though most new federal policies or actions related to reserved water rights would be subject to the bill's requirements, including its requirements for coordination with state laws and authorities. This requirement could lead to some future federal actions and policies attempting to assert reserved water rights being less likely to be implemented and potentially altered as a result of the legislation.
|
In recent years, parts of the American West (i.e., the 17 states west of the Mississippi River) have been subject to prolonged drought conditions, including a severe drought in California that lasted from 2012 to 2016. Dating to the 112th Congress, several bills were proposed to address these conditions. The 114th Congress saw significant drought-related legislation enacted in the form of Subtitle J of the Water Resources Infrastructure Improvements for the Nation Act (WIIN Act; P.L. 114-322). The WIIN Act included a number of provisions generally related to the Bureau of Reclamation (or Reclamation, a bureau within the Department of the Interior), as well as several provisions specifically focusing on the operations of the Central Valley Project (CVP), a large federal water project in California. Some, but not all, of those provisions are scheduled to sunset after five years. Although by most metrics the drought in California has ended, debate continues regarding the possible detrimental effects of certain federal water supply-related authorities and the federal role in water resources development more broadly. Although some argue that rollback of existing environmental protections should be only a temporary measure taken during times of drought (if at all), others contend that the drought in California magnified an issue that needs to be addressed, regardless of hydrological conditions. In the 115th Congress, multiple proposals (including those that were previously proposed but were not enacted in the WIIN Act) have been consolidated in H.R. 23, the Gaining Responsibility on Water Act of 2017 (GROW Act). The House Rules Committee version of H.R. 23 included seven titles. Titles I-IV of the bill are for the most part specific to California and include directives for the operation of the CVP and amendments to the Central Valley Project Improvement Act (CVPIA; Title XXIV of P.L. 102-575) and the San Joaquin River Restoration Act (Title X of P.L. 111-11, the Omnibus Public Land Management Act of 2009), among other things. Titles V-VII would be West-wide in their application and would include changes related to water supply development on federal lands and Reclamation's project-development process. These titles also would include restrictions on the federal government's abilities to exercise reserved water rights. Supporters of the bill argue that these changes would provide more water to users from existing and new sources while safeguarding existing state water rights. Opponents believe that the bill goes too far in rolling back environmental protections, which, along with the effects of other parts of the legislation (e.g., potential new storage projects), could be detrimental to species and their habitat. Several of the bill's titles have been considered and/or passed by the House in the 115th or prior congresses. Other titles are new or altered compared to language that has been considered previously. Based on past congressional debates, some provisions (in particular those that would make major changes to CVP operations and the San Joaquin River Restoration Settlement) may be controversial. In considering these provisions, Congress may consider the trade-offs involved in proposed changes. This report focuses on the most prominent provisions of H.R. 23. It provides relevant context and background for individual titles and sections, as well as a broad discussion of potential issues for Congress in considering this legislation.
|
The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ), which the President signed into law on February 17, 2009, provided $17.15 billion in supplemental FY2009 discretionary appropriations for biomedical research, public health, and other health-related programs within the Department of Health and Human Services (HHS). ARRA also included new authorizing language to promote the widespread adoption of electronic health records and other health information technology (HIT), and established a federal interagency advisory panel to coordinate comparative effectiveness research. This report discusses the health-related programs and activities funded by ARRA and provides details on how the administering HHS agencies and offices are allocating and obligating the funds. ARRA funds were designated as emergency supplemental appropriations for FY2009. Unless otherwise specified in the law, the ARRA funds are to remain available for obligation through the end of FY2010 (i.e., September 30, 2010). Most of the health-related programs and activities for which ARRA provided supplemental funds also receive funding in annual appropriations acts through regular procedures. HHS FY2009 appropriations were included in the Omnibus Appropriations Act, 2009 ( P.L. 111-8 ), which was signed into law on March 11, 2009. The Consolidated Appropriations Act, 2010 ( P.L. 111-117 ), signed on December 16, 2009, included HHS appropriations for FY2010. For more information, see CRS Report RL34577, Labor, Health and Human Services, and Education: FY2009 Appropriations ; and CRS Report R40730, Labor, Health and Human Services, and Education: Highlights of FY2010 Budget and Appropriations . Table 1 summarizes ARRA's discretionary health funding, by HHS agency and office. Figure 1 shows the percentage distribution of the ARRA funds, by HHS agency and office. Two additional tables that appear at the end of this report provide more details on the ARRA funding. Table 4 shows the ARRA health funding, by type of activity funded, and includes a comparison of the amounts provided in ARRA with the regular FY2009 and FY2010 appropriations and the FY2011 budget request. Table 5 shows the obligation of ARRA funds, by type of activity funding, for FY2009 and FY2010. As part of its efforts to ensure transparency and accountability in the use of ARRA funds, the Office of Management and Budget (OMB) issued detailed government-wide guidance for implementing ARRA and established a website, "Recovery.gov," which allows the public to track ARRA spending. The guidance required each federal agency to establish a Recovery page on its existing website, linked to Recovery.gov, on which they must post all agency-specific information related to ARRA. In most cases, ARRA specified that the agency receiving funding had to submit an initial implementation plan before the funds could be obligated. Those plans are posted on the HHS Recovery Plans website. In addition, ARRA required that a report on the actual obligations, expenditures, and unobligated balances for each ARRA-funded activity be submitted by November 1, 2009, and each six months thereafter as long as funding remains available for obligation or expenditure. Each ARRA grant recipient is required to submit to the funding agency a quarterly report that includes the following information: (1) the total amount of ARRA funds received, (2) the amount of ARRA funds received that have been expended on projects and activities, and (3) details about the funded project or activity, including an estimate of the number of jobs created and the number of jobs retained by the project or activity. ARRA requires that the information submitted by grantees be posted on the funding agency's Recovery website. In addition to funding health-related programs and activities, ARRA included discretionary funds for human services programs administered by HHS. It provided $100 million to the Administration on Aging (AoA) for senior nutrition programs authorized under Title III of the Older Americans Act, and gave $5.15 billion to the Administration for Children and Families (ACF) for the Child Care and Development Block Grant, the Community Services Block Grant, and Head Start. For more information on those funds, see CRS Report RL33880, Older Americans Act: Funding ; and CRS Report R40211, Human Services Provisions of the American Recovery and Reinvestment Act . Throughout this report, unless otherwise specified, all references to the Secretary refer to the HHS Secretary. ARRA provided $2 billion to the Health Resources and Services Administration (HRSA) for grants to health centers authorized under section 330 of the Public Health Service (PHS) Act. Of this total, $1.5 billion is for the construction and renovation of health centers and the acquisition of HIT systems. The remaining $500 million is for operating grants to health centers to increase the number of underinsured and uninsured patients who receive health care services at these facilities. The implementation plan for ARRA funding of health center capital projects is available on the HHS Recovery Plans website. For more information on health centers, see CRS Report RL32046, Federal Health Centers Program . HRSA allocated the $1.5 billion for health center infrastructure as follows: $862.5 million for Capital Improvement Program (CIP) grants to support the construction, repair, and renovation of over 1,500 health center sites nationwide, including purchasing HIT and expanding the use of electronic health records (EHRs); $512.5 million for Facility Investment Program (FIP) grants to expand the capacity of health centers to provide primary and preventive health services; and $125 million for HIT systems/networks grants to support electronic health information exchange. Almost 60% of these funds were obligated in FY2009 (see Table 5 ). There is no regular appropriation for health center infrastructure. However, some health centers receive facilities and equipment funds in congressionally directed (i.e., earmarked) spending. Of the $500 million ARRA appropriation for health center operations, HRSA allocated $157 million for New Access Point (NAP) grants to support health centers' new service delivery sites, and $343 million for Increased Demand for Services (IDS) grants to increase health center staffing, extend hours of operations, and expand existing health care services. These funds, which were obligated in FY2009, supplemented the $2.2 billion provided for health centers in FY2009 through regular appropriations (see Table 4 and Table 5 ). HRSA awarded NAP competitive grants to establish 126 new health centers located in 39 states, Puerto Rico, and American Samoa. The award amounts range from $478,000 to $1,300,000. IDS grants were awarded to 1,128 federally qualified health centers in all 50 states, the District of Columbia, Puerto Rico, and the U.S. territories, based on a formula. The project period for all IDS grantees is limited to two years, from March 27, 2009, through March 26, 2011. The IDS funds are projected to create or retain approximately 6,400 jobs and provide care to an estimated additional 2.1 million patients, including 1 million uninsured people. ARRA provided $500 million to HRSA for health workforce programs authorized in the PHS Act. Of this total, $300 million is for the National Health Service Corps (NHSC) recruitment and field activities (PHS Act Title III), $75 million of which is to remain available through September 30, 2011. The remaining $200 million is for the health professions programs authorized in PHS Act Title VII (health professions education) and Title VIII (nursing workforce development). Some of these funds may also be used to develop interstate licensing agreements to promote telemedicine (PHS Act section 330L). The NHSC program provides scholarships and student loan repayments for medical students, nurse practitioners, physician assistants, and others who agree to a period of service as a health care provider in a federally designated health professional shortage area (HPSA). NHSC clinicians may fulfill their service commitments in health centers, rural health clinics, public or nonprofit medical facilities, or within other community-based systems of care. ARRA stipulated that 80% of the NHSC funds be used for scholarships and loan repayments, and the remaining 20% for field operations, including recruitment, placements and assignments, and HPSA designations. In regular appropriations, the NHSC program received $135 million for FY2009 and $142 million for FY2010 (see Table 4 ). For more information, see CRS Report R40533, Health Care Workforce: National Health Service Corps . Health professions programs authorized under Title VII provide grants, scholarships and loans to students and professionals in medicine and allied health professions. Nursing workforce programs authorized under Title VIII provide similar types of assistance to nursing students and professionals. Of the $200 million ARRA appropriation for health workforce programs, $148.4 million has been allocated for programs that target medical and dental professionals in primary care, nurses, disadvantaged students, and others; $50 million is for equipment grants to enhance the training of health professionals; and $1.5 million has been applied toward the development of interstate licensure agreements that promote telemedicine. In regular appropriations, Title VII and Title VIII programs received a total of $392 million for FY2009 and $497 million for FY2010 (see Table 4 ). For more information, see CRS Report RS22438, Health Workforce Programs in the Public Health Service Act (PHSA): Appropriations History, FY2001-FY2010 . ARRA provided $10.0 billion directly to the National Institutes of Health (NIH) for biomedical research and extramural research facilities, plus $400 million more through a transfer from AHRQ for comparative effectiveness research (discussed below). Of the $10.0 billion, the law provided $8.2 billion to the Office of the Director for broad support of NIH scientific research, both extramural and intramural. Most of that funding, $7.4 billion, was transferred to the NIH institutes and centers and the Common Fund in proportion to their regular appropriations. The remaining $800 million is being used at the Director's discretion, with an emphasis on short-term (two-year) projects, including $400 million that may be used under the Director's flexible research authority. Also included in the $10.0 billion total was $1 billion to the National Centers for Research Resources (NCRR) for grants to construct and renovate university research facilities, as well as $300 million to NCRR for grants for shared instrumentation and other capital research equipment at extramural research facilities. Finally, the Buildings and Facilities account received $500 million for construction, repair, and improvement of NIH intramural facilities. NIH received a program level total of $30.3 billion in regular FY2009 appropriations and $30.9 billion in FY2010 appropriations. The additional funds from ARRA, which are being obligated at roughly $5 billion in each of the two years, have therefore boosted NIH resources by about one-sixth each year. The $8.2 billion in ARRA research funding is being used by the institutes and centers and the Director for a wide variety of competitive grant programs, as is the case with the regular appropriations. The intent, however, is to "follow the spirit of the ARRA by funding projects that will stimulate the economy, create or retain jobs, and have the potential for making scientific progress in 2 years." The $1 billion for NCRR construction and renovation grants for extramural research facilities is being spent under a program that has received no regular funding since FY2005, while the $300 million for shared instrumentation grants is several times larger than the usual funding for that program (see Table 4 ). NIH activities with ARRA funding are being tracked on the NIH Recovery website, which includes links to news releases, information on current grant funding opportunities, awards already made, and ARRA-funded job postings at NIH. NIH's ARRA implementation plans for the various funding categories are available on the HHS Recovery Plans website. NIH is focusing activities on (1) funding new and recently peer-reviewed, highly meritorious research grant applications that can be accomplished in two years or less; (2) giving targeted supplemental awards to current grants to push research forward; and (3) supporting a new initiative called the NIH Challenge Grants in Health and Science Research for research on specific topics that would benefit from significant two-year jumpstart funds (grants have budgets under $500,000 per year). Another new program, called Research and Research Infrastructure "Grand Opportunities" (GO) grants, will devote about $200 million to large-scale research projects (budgets over $500,000 per year) that work in areas of specific knowledge gaps, create new technologies, or develop new approaches to multi- and interdisciplinary research teams. On September 30, 2009, President Obama spoke about the nearly $5 billion that NIH had awarded in ARRA funding in FY2009, supporting over 12,000 grants to research institutions in every state (see Table 5 ). A White House press release highlighted examples of research in cancer, heart disease, and autism, particularly over $1 billion in research applying the technology produced by the Human Genome Project. On February 1, 2010, NIH released actual FY2009 spending in 218 major research, disease, and condition categories, including the amounts provided under ARRA. Spending estimates for FY2010, FY2010 ARRA (partial), and FY2011 are also available. ARRA provided $1.1 billion to the Agency for Healthcare Research and Quality (AHRQ) for comparative effectiveness research (CER), also referred to as patient-centered health research. These funds are to be used to support research that (1) compares the clinical outcomes, effectiveness, and appropriateness of preventive, diagnostic, and therapeutic items, services, and procedures; and (2) encourages the development and use of clinical registries, clinical data networks, and other forms of electronic health data that can be used to generate or obtain outcomes data. Of the total amount of funding provided, $300 million is for AHRQ to invest in CER activities, $400 million was transferred to NIH, and $400 million is to be allocated at the discretion of the Secretary. ARRA also stipulated that AHRQ could use no more than 1% of the $300 million under its own discretion for additional FTEs. According to the agency, that amount (i.e., $3 million) provides sufficient funding to hire approximately 15 FTEs (two-year appointments). The $1.1 billion that ARRA provided for CER represents a substantial increase in federal research funding in this area. In its regular appropriations, AHRQ received $50 million in FY2009 for CER, and $21 million in FY2010. The agency's FY2011 budget request includes $286 million for CER (see Table 4 ). AHRQ's research on comparative effectiveness is authorized by Section 1013 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ( P.L. 108-173 ) and is part of the agency's Effective Health Care Program. ARRA instructed the Secretary to contract with the Institute of Medicine (IOM) to produce a report with recommendations on national CER priorities. IOM released its report on June 30, 2009. Reflecting broad stakeholder input, the IOM report identified 100 health topics as high-priority areas for CER. Almost one-quarter of the priority topics address the health care delivery system. They include topics related to dissemination of CER study results; patient decision making; health behavior and care management; comparing settings of care; and utilization of surgical, radiological, and medical procedures. The IOM concluded that the country needs a robust CER infrastructure to sustain the research well into the future, including carrying out the research recommended in the report and studying new topics identified by future priority setting. In addition, ARRA established an interagency advisory panel to help coordinate and support CER. The Federal Coordinating Council for Comparative Effectiveness Research, composed of senior officials from federal agencies with health-related programs, was instructed to submit an initial report describing current federal CER activities and providing recommendations for future research. Thereafter, the council is to prepare an annual report on its activities and include recommendations on infrastructure needs and coordination of federal CER. Importantly, ARRA included language stating that (1) the council may not mandate coverage, reimbursement, or other policies for public and private payers of health care; and (2) council reports and recommendations may not be construed as mandates or clinical guidelines for payment, coverage, or treatment. The council published its initial report on June 30, 2009. The report's recommendations focused on (1) the importance of disseminating CER findings to doctors and patients; (2) targeting CER to the needs of priority populations such as racial and ethnic minorities, and persons with multiple chronic conditions; (3) researching high-impact health arenas such as medical and assistive devices, surgical procedures, and behavioral interventions and prevention; and (4) electronic data networks and exchange. Three implementation plans for ARRA-funded CER—one for funds to be obligated by AHRQ, a second for the NIH funds, and a third for the funds to be allocated at the discretion of the Secretary—are available on the HHS Recovery Plans website. While NIH obligated almost half of its ARRA funds for CER in FY2009, with the remainder to be obligated in FY2010, almost all of the ARRA funds for CER that are to be obligated by AHRQ or at the discretion of the Secretary will be awarded in FY2010 (see Table 5 ). AHRQ has published 11 CER funding announcements for ARRA funds to date; these announcements are available on AHRQ's website. ARRA provided $2 billion to the HHS Office of the National Coordinator for Health Information Technology (ONC) to fund activities and grant programs authorized by the Health Information Technology for Economic and Clinical Health (HITECH) Act, which was incorporated in ARRA. Of that amount, $300 million is to support regional health information exchange networks. In addition, the Secretary was instructed to transfer $20 million to the National Institute of Standards and Technology (NIST) for HIT standards analysis and testing. An implementation plan that discusses ONC's administrative and regulatory responsibilities under ARRA is available on the HHS Recovery Plans website. ONC received $61 million in regular appropriations in both FY2009 and FY2010 (see Table 4 ). Details of the allocation and obligation of ARRA funds for the various HITECH Act grant programs are provided below, following a brief overview of the HITECH Act. The HITECH Act is intended to promote the widespread adoption of HIT for the electronic sharing of clinical data among hospitals, physicians, and other health care providers. To that end, the HITECH Act included the following provisions. First, it codified ONC within the Office of the HHS Secretary. Created by a presidential executive order in 2004, ONC has played an important role directing HIT activities both inside and outside the federal government. It has focused on developing technical standards necessary to achieve interoperability among varying EHR applications; establishing criteria for certifying that HIT products meet those standards; ensuring the privacy and security of electronic health information; and helping facilitate the creation of prototype health information networks. The goal is to develop a national capability to exchange standards-based health care data in a secure computer environment. The HITECH Act required the HHS Secretary, by December 31, 2009, to issue a comprehensive set of interoperability standards and certification criteria for EHRs. Second, the HITECH Act established six grant programs to provide funding for investing in HIT infrastructure, purchasing certified EHRs, training, and disseminating information on best practices, among other things (see below). Third, the HITECH Act authorized HIT incentive payments under the Medicare and Medicaid programs. Beginning in 2011, the Medicare program will begin providing bonus payments to doctors and hospitals that adopt and use certified EHRs in such a way as to improve the quality and coordination of health care. Those incentive payments are phased out over time and replaced by financial penalties for physicians and hospitals that are not using certified EHRs. The HITECH Act also provides for a 100% federal match for payments to certain qualifying Medicaid providers who acquire and use certified EHR technology. Finally, the HITECH Act included a series of privacy and security provisions that amended and expanded the current federal standards under the Health Insurance Portability and Accountability Act (HIPAA). Among other things, it established a breach notification requirement for health information that is not encrypted, strengthened enforcement of the HIPAA standards, placed new restrictions on marketing activities by health plans and providers, and created transparency by allowing patients to request an audit trail showing all disclosures of their electronic health information. For more information, see CRS Report R40161, The Health Information Technology for Economic and Clinical Health (HITECH) Act . As noted above, ARRA included $2 billion in supplemental funding for the new HIT grant programs authorized under the HITECH Act. The allocation of those funds among the various programs and the status of their obligations are briefly summarized below. ONC has allocated $693 million of the ARRA funds for the Health IT Extension Program. Of that amount, $643 million is for cooperative agreements to support approximately 60 to 65 Regional Extension Centers (RECs) each serving a defined geographic area. The RECs will offer technical assistance, training, and other support services to help physicians and other providers in the adoption and meaningful use of EHR systems. The RECs are expected to support at least 100,000 priority primary care providers in rural and other medically underserved areas. In February 2010, ONC announced the first cycle of awards providing $375 million to create 32 RECs. A second round of REC awards is anticipated in April 2010. The remaining $50 million of the funds allocated for the Health IT Extension Program will be used to establish a national Health Information Technology Research Center (HITRC) to foster collaboration among the RECs and with other stakeholders to identify and share best practices in EHR adoption, effective use, and provider support. ONC has allocated $564 million for states and qualified state designated entities (SDEs) to facilitate electronic health information exchange (HIE) through the meaningful use of EHR systems. Legal, financial, and technical support is necessary to enable consistent, secure, statewide HIE across health care provider systems. The State HIE Cooperative Agreement Program will fund efforts at the state level to establish and implement appropriate governance, policies, and network services within the broader national framework to build capacity for connectivity between and among providers. States and SDEs will be required to match grant awards beginning in 2011. The first cycle of state HIE awards, announced in February 2010 along with the initial round of REC awards, provided a total of $386 million to 34 states (or SDEs), the District of Columbia, Puerto Rico, and the U.S. territories to develop HIE capability. In March 2010, a second round of state HIE awards was announced, providing a total of $162 million to the remaining 16 states (or SDEs). ONC has set aside a total of $120 million for the Health IT Workforce Development Program to establish and/or expand education programs for training HIT professionals. The funds will be used to award grants under four separate programs. Award announcements are expected soon. First, the Community College Consortia Program will provide approximately $70 million in assistance through cooperative agreements with about five institutions of higher education to create or expand HIT training programs at about 70 community colleges throughout the nation. Community colleges funded under this initiative will establish intensive, non-degree training programs that can be completed in six months or less by individuals with appropriate prior education and/or experience. ONC expects the participating colleges collectively to establish training programs with the capacity to train at least 10,500 students annually to be part of the HIT workforce. Second, the Curriculum Development Centers Program will provide approximately $10 million in assistance through cooperative agreements with about five non-profit institutions of higher education to develop curriculum and instructional materials to enhance workforce training programs primarily at the community college level. Third, the Competency Examination Program will provide approximately $6 million through a cooperative agreement to an institution of higher education to support the development and initial administration of a set of HIT competency examinations. Finally, the University-Based Training Program will provide approximately $32 million in assistance through cooperative agreements with eight or more institutions of higher education to establish programs for increasing the supply of individuals qualified to serve in specific HIT professional roles requiring university-level training. ONC has allocated a total of $235 million for the Beacon Community Program to strengthen the HIT infrastructure in the United States. Of that amount, $220 will be provided in cooperative agreements with integrated health systems, consortia of health care providers, or government entities to build on existing infrastructure to support electronic HIE. The remaining $15 million will be used to provide technical assistance to the grantees and evaluate the success of the program. Beacon Community awards are expected to be announced soon. Finally, ONC has allocated $60 million for the SHARP Program to fund research in areas where breakthrough advances are needed to address barriers to the widespread adoption of HIT. SHARP grantees will implement a research program in one of the following areas: (1) developing security and risk mitigation policies to build public trust in HIT; (2) harnessing HIT to support clinicians' decision making; (3) developing new applications and platforms for achieving electronic HIE; and (4) enhancing the secondary use of EHR clinical data to improve health care quality. SHARP awards are expected to be announced soon. ARRA provided $1 billion to the Secretary for a Prevention and Wellness Fund , for three specified activities: (1) $300 million to the Centers for Disease Control and Prevention (CDC) for PHS Act "Section 317" immunization grants; (2) $50 million for state activities to reduce health care-associated infections (HAIs); and (3) $650 million for evidence-based clinical and community prevention and wellness programs that address chronic diseases. On April 9, 2009, HHS announced the allocation of $300 million in ARRA funds for the Section 317 immunization program to the existing 64 state, territorial, and municipal public health department grantees. Funds were transferred to CDC, which administers the program, and were to be distributed as follows: $200 million in specified amounts to each grantee; $50 million for program operation grants for grantees to deliver vaccines and strengthen their immunization programs; and $18 million for innovation grants to increase vaccination rates and improve reimbursement practices. The remaining $32 million would be for immunization information, communication, education, and evidence development activities. Funds were to be obligated in both FY2009 and FY2010 (see Table 4 and Table 5 ). Of the $50 million in ARRA funds to reduce HAIs, HHS transferred $40 million to CDC for grants to state health departments to improve hospital infection control practices, and the remaining $10 million to the Centers for Medicare and Medicaid Services (CMS) for state survey agency oversight of infection control practices in ambulatory surgical centers (ASCs). On July 30, 2009, CMS announced that it was awarding $1 million, distributed among 12 states, for onsite reviews of ASCs to ensure that the facilities are following Medicare health and safety standards, and that the remaining $9 million would be available for all states in October 2009. On September 1, 2009, CDC announced plans to distribute the $40 million to health departments in 49 states, the District of Columbia, and Puerto Rico, for the following HAI prevention activities: (1) creating or expanding state and local efforts to implement recommendations in the HHS HAI action plan; (2) increasing health care facilities' and health departments' use of CDC's National Healthcare Safety Network, an HAI surveillance system; (3) hiring and training of public health staff to promote and lead HAI prevention initiatives; and (4) complementing HAI investments from other HHS agencies. Funds were to be obligated in both FY2009 and FY2010 (see Table 5 ). The Administration has noted that ARRA-funded CMS and CDC activities support a broader national strategy and action plan to reduce HAIs, published by HHS in January 2009. Congress provided funding to HHS for a variety of HAI prevention activities in FY2009 and FY2010 appropriations, and HHS requests additional HAI funding for CDC and AHRQ activities for FY2011. However, except for the ARRA funds, HHS has not generally presented comparable agency or departmental budget lines for HAI activities. The majority of the $650 million in ARRA funds for prevention and wellness programs is being administered by CDC. The agency notes that there are four program components, as presented in Table 2 . For each component, funds are to be used by grantees to deliver evidence-based prevention strategies and programs for adults and children, utilizing local resources and strengthening state capacity for chronic disease prevention. Each component is intended to focus on the following prevention and wellness goals: (1) increase levels of physical activity; (2) improve nutrition; (3) decrease obesity rates; and (4) decrease smoking prevalence, teen smoking initiation, and exposure to second-hand smoke. No funds for these activities were obligated in FY2009. As a result, according to the law, all of these funds must be obligated in FY2010 (see Table 5 ). In its budget request for FY2011, HHS did not provide amounts for comparable activities in regular appropriations. The CDC National Center for Chronic Disease Prevention and Health Promotion conducts activities that are somewhat similar. There is a key difference, however, between CDC's annual chronic disease prevention appropriations and the ARRA prevention and wellness funding. Regular appropriations are generally provided for disease-specific activities, whereas the ARRA funding was not designated for specific diseases. As noted earlier, ARRA funding goals instead target disease risk factors—often behavioral or lifestyle-based—that may predispose to multiple chronic conditions. As a result, ARRA prevention and wellness funding is not strictly comparable to activities funded through regular appropriations. Health reform proposals pending in the 111 th Congress would establish mechanisms to provide annual baseline funding for similar prevention and wellness activities. Also, in its FY2011 budget justification, CDC requests new appropriations language that would allow state grantees to reprogram up to 10% of funds from all CDC grants to carry out activities "to address one or more of the top six leading causes of death." These causes are not defined. ARRA provided a total of $500 million for the Indian Health Service (IHS)—$415 million for IHS health facilities-related activities, including maintenance and improvement, and $85 million for HIT activities. Within the health facilities account, IHS received $227 million for health care facilities construction, $100 million for facilities maintenance and improvement, $68 million for sanitation facilities construction, and $20 million for equipment (including HIT). The $85 million IHS received for HIT activities, including funds for telehealth services, were included in the IHS health services account but could also include HIT-related infrastructure activities. These funds were to be allocated at the discretion of the IHS director. As of January 29, 2010, IHS has obligated over 65% of these funds; the remaining funds will be obligated by the end of FY2010. Table 4 compares ARRA funding with regular IHS FY2009-FY2010 appropriations and FY2011-requested appropriations for the same activities. IHS constructs, maintains, and operates hospitals, clinics, and health centers throughout Indian Country, and also funds construction of Indian sanitation facilities. For health care facilities construction, ARRA required that the $227 million be used to complete up to two facilities from IHS's current priority list on which work had already begun. The facilities chosen are the Norton Sound Regional Hospital in Nome, AK, and the hospital and staff quarters at Eagle Butte Health Center in South Dakota. Both projects are expected to be completed by the fourth quarter of FY2012. As of January 29, 2010, approximately $150 million had been obligated, with an estimated 95 jobs created or saved as a result of the construction projects. Funds for facilities maintenance and improvement, sanitation, construction, and medical equipment were to be obligated in FY2009 and FY2010. Obligations for FY2009 through January 29, 2010 are included in Table 3 . The table also includes information on the scheduled completion data of projects and estimates on the number of jobs created or saved as of the end of the first quarter of FY2010 (i.e., end of December 2009). For a list of the IHS construction projects and equipment, organized by state and type of project, see the HHS Recovery website, Tribal Pre-Award Funding by State. IHS has existing HIT operations for both personal health services and public health activities, funded chiefly through the hospital and health clinics budget in IHS's health services account. ARRA directed that the additional $85 million in HIT funds be allocated by the IHS director. IHS distributed the HIT funds for the development of existing management and EHR software, and to telehealth infrastructure and development, with 20% allocated to hardware. IHS identified non-localized HIT projects, with $61.4 million going for EHR development and deployment, $2.45 million for personal health record development, $16.96 million for telehealth and network infrastructure, and $4.0 million for administration. Of the HIT funds, IHS obligated $53.55 million as of January 29, 2010, with the remainder to be obligated by the end of FY2010. Unlike the rest of HHS, IHS received its appropriations under ARRA's title for Interior and Environment appropriations (Title VII). The provision for IHS facilities in Title VII excluded IHS health facilities funds from the Interior and Environment appropriations bill's usual annual spending caps for medical equipment, and also excluded them from ARRA's general provision requiring payment of prevailing wage rates under the Davis-Bacon Act for construction and repair projects. (Separate prevailing wage rate requirements apply to IHS construction activities.) ARRA report language for Title VII allowed agencies covered by the title to expend up to 5% of ARRA funds for administrative and support costs, but also noted that oversight of IHS activities under ARRA was to be included in the general oversight of HHS's ARRA activities funded under ARRA's title for HHS appropriations (Title VIII). Further information on IHS's ARRA expenditures, by project category, with links to more detailed implementation plans, is available on the HHS Recovery website. For more on IHS appropriations in FY2009 and FY2010, see CRS Report R40685, Interior, Environment, and Related Agencies: FY2010 Appropriations . For general information on IHS, see CRS Report RL33022, Indian Health Service: Health Care Delivery, Status, Funding, and Legislative Issues .
|
The American Recovery and Reinvestment Act of 2009 (ARRA), the economic stimulus legislation signed into law on February 17, 2009 (P.L. 111-5), included supplemental FY2009 discretionary appropriations for biomedical research, public health, and other health-related programs within the Department of Health and Human Services (HHS). Generally, the appropriations are to remain available through September 30, 2010. P.L. 111-5 also incorporated new authorizing language to promote health information technology (HIT) and established a federal interagency advisory panel to coordinate comparative effectiveness research. As enacted, ARRA included $17.15 billion for community health centers, health care workforce training, biomedical research, comparative effectiveness research, HIT, disease prevention, and Indian health facilities. This report discusses the health-related programs and activities funded by ARRA and provides details on how the administering HHS agencies and offices are allocating, awarding, and spending the funds. It will be regularly updated as new information becomes available.
|
The Financial Management Service (FMS) is a bureau within the Treasury Department that serves four main purposes: it offers payment services to other federal agencies, operates the federal government's systems for collecting and depositing funds, provides government-wide accounting and reporting services, and manages the collection of delinquent debt owed to a variety of state and federal government agencies. In managing the collection of this debt, the FMS relies on two programs it operates with assistance from several federal agencies. One is known as the Treasury Offset Program (TOP), which is designed to collect various delinquent non-tax debts (including overdue child support payments) by offsetting certain federal payments disbursed by FMS to individuals holding the debt. The second program, the Federal Payment Levy Program (FPLP), employs a procedure known as a continuous levy to collect overdue federal taxes from taxpayers who receive certain federal payments also disbursed by the FMS. This report briefly describes the origins and current status of both programs and discusses legislation being considered in the 110 th Congress to expand their scope. It will be updated to reflect recent developments affecting either program. The FPLP grew out of a provision of the Taxpayer Relief Act of 1997 (TRA97, P.L. 105-34 ), which became Section 6331(h) of the Internal Revenue Code (IRC). In establishing the legal foundation for the program, Congress was hoping to improve the collection of delinquent taxes. IRC Section 6331(h) promotes this aim in two ways. First, it allows the Internal Revenue Service (IRS) to share with the FMS the confidential tax information needed to set up and operate a continuous levy program. Second, IRC Section 6331(h) gives the IRS the exclusive authority to activate a continuous levy on taxpayers with overdue tax debt. Since July 2000, the FMS and IRS have jointly managed the FPLP. Before the passage of TRA97, the IRS lacked the authority to create an automated process for identifying taxpayers with delinquent tax debt who receive federal payments and levying those payments. The FPLP facilitates the collection of overdue federal taxes by imposing a continuous levy on designated federal payments disbursed by the FMS to business and individual taxpayers holding delinquent tax debt. Such a levy remains in effect until the overdue federal taxes are paid in full. Current tax law allows the following payments to be levied (or reduced): federal employee retirement annuities, federal payments to federal contractors, federal employee travel advances or reimbursements, certain Social Security benefits, and some federal salaries. Except for payments to federal contractors, the FMS is authorized to reduce those payments up to 15% to satisfy a delinquent tax debt. By contrast, payments to federal contractors can be reduced by 100%, or the amount of the overdue tax, whichever is lower. A critical component of both the FPLP and TOP is a database of individuals and companies with delinquent federal and state tax and non-tax debts that is maintained by the FMS. Federal and state agencies that collect debts on behalf of other agencies or are owed debts provide and update the information stored in this database. The process of initiating a continuous levy mimics the process of initiating an offset through the TOP. To begin the levy process, the IRS sends an electronic file containing tax debt information to the FMS, which adds it to the TOP database. The FMS then searches for matches between the names and taxpayer identification numbers (TINs) in its database on pending federal payments and the names and TINs in its database on delinquent tax accounts. If a match is found, the FMS notifies the IRS, which in turn notifies the taxpayer in question of its intent to levy certain federal payments to that individual or company until the tax debt is paid in full. If 30 days pass with no reply from the taxpayer, the IRS authorizes the FMS to levy all eligible federal payments to that individual or company. The levy remains in effect until the tax debt is paid in full, or until the taxpayer makes other arrangements with the IRS to pay off the debt. Whenever a payment is levied, the FMS sends a letter to the taxpayer explaining which payment was reduced and by how much, and advising the taxpayer to contact the IRS to resolve the matter. Some federal tax debt cannot be collected through the FPLP, as a matter of law or policy. More specifically, the agency cannot levy the assets of individuals who have filed for bankruptcy, have applied for tax relief as an innocent or injured spouse, have made alternative payment arrangements with the IRS (e.g., an offer-in-compromise), or are suffering from certain hardships (e.g., residing in a federally declared disaster area) to recover overdue taxes. In January 2007, the IRS withheld 57% of the individual and business tax debt in its master file database from collection through the FPLP, down from a share of 60% in January 2006. The IRS activated for continuous levy $63 billion in delinquent tax accounts in FY2007, up from $53 billion in FY2006. But activating such an account for levy does not necessarily mean the overdue tax will be collected immediately. There is typically a huge gap between the total value of tax accounts subjected to the levy process and the total amount of delinquent taxes collected through that process in the same year. Collection of overdue taxes through the FPLP totaled $345 million in FY2007, up from $303 million in FY2006 and $89 million in FY2003. The TOP arose from several provisions of the Debt Collection Improvement Act of 1996, which authorized the Treasury Department to establish a mechanism for withholding or reducing certain federal payments to pay off delinquent federal and state non-tax debt held by individuals. The Internal Revenue Service Restructuring and Reform Act of 1998 enlarged the scope of the TOP when it authorized the collection of state tax debt through the offset of federal income tax refunds. Under the current program, the FMS offsets or lowers a variety of federal payments to satisfy an individual's delinquent federal non-tax debt, child support obligations, or state income tax debt. To be eligible for offset, the debt must be delinquent for a minimum of 180 days. The agency began offsetting payments to collect overdue federal non-tax debt in January 1999 and overdue state income taxes in January 2000. IRC Section 6402(e) and relevant state statutes allow the FMS to undertake this effort. At the present, 39 states and the District of Columbia participate in the offset process. The following federal payments can be continuously offset: retirement payments from the Office of Personnel Management, IRS tax refunds (up to 100%), some vendor payments (up to 100%), federal employee travel payments, some federal salary payments (up to 15%), and Social Security benefit payments (see below). Social Security benefit payments began to be offset in May 2001. The amount of the offset is the lesser of an individual's total debt, 15% of his or her monthly benefit payment, or the amount by which the monthly payment exceeds $750. The FMS offsets these payments on the basis of data on eligible delinquent debt it receives from federal and state agencies that either collect debt on behalf of other government agencies or are owed debts. Before the FMS issues a payment eligible for offset, it compares the information in its database on payment recipients with the information in its database on delinquent debt. If there is a match between the name and TIN of a recipient and the name and TIN of a debtor, the payment is offset to the extent allowed by law. Before a federal agency refers a debt to the FMS for collection through the TOP, it sends the responsible individual three letters over a period of a few months informing him or her of its intent to offset future payments until the debt is paid in full. The final two letters are sent 60 days and 30 days before the initial offset is to take place. Each letter provides the name of the agency receiving the offset payment, along with the name and telephone number of an agency employee who can answer any questions about the overdue debt. The FMS also sends offset notices with the same information to the debtor 60 days and 30 days before the initial offset. Debt collections through the TOP totaled $3.6 billion in FY2007 and $30.8 billion from the program's inception in FY1999 through FY2007. Spurred by heightened concern over the size of the federal budget deficit and the federal tax gap, the 110 th Congress is considering several proposals that would expand the scope of the FPLP. None would affect the operation of the TOP. At the center of congressional debate on the issue is the Medicare Provider Accountability Act, which has been introduced in the House ( H.R. 4287 ) and the Senate ( S. 1307 ). The act would require the Centers for Medicare and Medicaid Services (CMS) to make its payments to health care providers and vendors under Medicare Parts A and B available for screening for delinquent tax debt under the FPLP over two years: 50% of payments would be screened the first year and 100% of payments the following year. In addition, the proposal would subject these CMS payments to screening under TOP in a bid to recover more non-tax debt, such as unpaid child support and student loans. Finally it would implement a recommendation by an interagency federal task force (the Federal Contractor Tax Compliance Task Force, or FCTC) to speed up the process for recovering unpaid taxes through the FPLP. Under current law, the IRS has to send four tax bills and a special levy notice to a taxpayer before the agency can impose a levy on any property held by that individual or company. H.R. 4287 / S. 1307 would streamline the process by enabling the IRS to initiate a levy of eligible federal payments to a tax debtor after what is known as a "notice and demand" for payment has been sent but before any levy notice and appeal proceedings have begun. Congressional interest in the systematic offset of Medicare payments to providers under Parts A and B has grown in response to a report issued by the Government Accountability Office (GAO) at a hearing held by the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations on March 20, 2007. The report found that the CMS had no "mechanism to prevent physicians, health professionals, and suppliers who have tax debts from enrolling in or receiving payments from Medicare." Though the FPLP had been in operation since 1997, the CMS had not participated in it or an interagency task force formed to improve the program's effectiveness. In the view of GAO researchers, this lack of involvement has entailed a significant loss of federal revenue over time. In their estimate, if CMS payments to health-care providers and vendors for Part B alone had been subject to levy through the FPLP, the federal government might have collected between $50 million and $140 million in delinquent taxes in the first nine months of 2005. As of September 30, 2005, according to the report, more than 21,000 physicians, health care providers, and suppliers who received Medicare Part B payments owed over $1 billion in unpaid federal income, payroll, excise, unemployment, and other taxes. Most of these taxpayers were organized for tax purposes as either sole proprietors or limited liability companies. The House passed a bill ( H.R. 4848 ) in February 2008 that included a provision directing CMS to participate in the FPLP. Under the provision, which would amend Title XVII of the Social Security Act, the CMS would be required to do whatever is necessary to ensure that at least 50% of payments under Parts A and B are processed through the program within one year after the passage of the act, at least 75% of such payments are processed through the program within two years, and all such payments are processed through the program by September 30, 2011. In addition, the bill would require the FMS and IRS to assist the CMS in meeting those deadlines. What is more, in late June 2008, the House passed a measure ( H.R. 6275 ) to raise the exemption amounts for individual taxpayers under the alternative minimum tax in 2008. Among the offsets included in the bill is a proposed amendment of IRC Section 6331(h)(2) that would allow the IRS to apply a continuous levy to federal payments to vendors that sell or rent property (as opposed to goods and services) to the federal government and are delinquent in the payment of their federal taxes. In its budget request for FY2009, the Bush Administration expressed support for using the FPLP to screen CMS payments to vendors and providers under Medicare Parts A and B for overdue federal and state taxes. The Administration also proposed eliminating the current 10-year limitation on the collection of delinquent federal non-tax debt through administrative offset. In a related development, the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations held a hearing in November 2007 on the delinquent federal taxes owed by healthcare providers receiving payments under Medicaid and the possibility of collecting those taxes through the FPLP. The hearing was the fifth in a series exploring federal contractors with federal tax debts. It was intended to discuss the main findings of a 2007 report by the GAO that focused on Medicaid providers. According to the study, more than 30,000 Medicaid providers from seven states owed a total of over $1 billion in overdue federal taxes in FY2006. A significant barrier to subjecting federal Medicaid payments to the FPLP has been their legal status. In consultation with the IRS Office of Chief Counsel, the Federal Contractor Tax Compliance Task Force (FCTC) has concluded that such payments do not qualify as "federal payments" under IRC Section 6331(h)(2)(A)—and thus cannot be continuously levied to collect delinquent federal taxes. Instead, according to these officials, federal payments to state Medicaid agencies are "more in the nature of a state entitlement than a federal payment includable in the FPLP." In reaching this conclusion, the task force took into consideration the actual flow of Medicaid funds, the relationship between the federal agency that disburses the funds (CMS) and the state agencies receiving them, and the legal responsibility of CMS and the state Medicaid agencies in the case of a failure to pay providers for their services. Companion bills introduced in the House ( H.R. 5764 ) and the Senate ( S. 2843 ) would remove this barrier by authorizing the IRS to subject "any (federal) payment to any medicaid provider or supplier under a State plan under title XIX of the Social Security Act" to continuous levy under the FPLP in order to pay delinquent federal taxes. The bills do not specify that a particular method be used for implementing such a levy, nor do they provide funds to cover the cost of doing so.
|
One of the numerous functions performed by the Financial Management Service (FMS) at the Treasury Department is the collection of delinquent tax and non-tax debt owed to a variety of state governments and federal agencies. In managing the collection of this debt, the FMS relies on two programs it operates with assistance from several federal agencies: the Treasury Offset Program (TOP) and the Federal Payment Levy Program (FPLP). Both programs allow the FMS to offset or reduce specified federal payments to individuals or companies in order to satisfy qualified tax or non-tax debts. The TOP deals with federal non-tax debts (e.g., delinquent federal student loans) and state tax and non-tax debts, whereas the FPLP is targeted at federal tax debt only. This report describes the origins and current status of both programs and discusses legislative initiatives in the 110th Congress to expand or modify their scope or design. It will be updated to reflect recent developments affecting either program. Two bills passed by the House but not considered by the Senate would expand the list of federal payments subject to continuous levy under the FPLP. In February 2008, the House passed H.R. 4848. One of its provisions would direct the Centers for Medicare and Medicaid Services (CMS) to participate in the FPLP. It would also require CMS to take all necessary steps to ensure that all payments to health care providers under Medicare Parts A and B are processed through the program by the end of September 2011. The FMS and Internal Revenue Service would be required to provide all needed assistance to enable CMS to meet that deadline. In addition, in late June 2008, the House passed a measure (H.R. 6275) to raise the exemption amounts for individual taxpayers under the alternative minimum tax in 2008. Among the offsets included in the bill is an amendment of IRC Section 6331(h)(2) that would allow the FMS to apply a continuous levy to federal payments to vendors that sell or rent property to the federal government and are delinquent in the payment of their federal taxes.
|
Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that have played a central role in mortgage finance. They provide a secondary market for home mortgages—buying mortgages from the original lenders, packaging them into bonds backed by homeowners' interest and principal payments (a process known as "securitization"), and selling these mortgage-backed securities (MBS) to bond investors with a guarantee that interest and principal will be paid on time. Currently, the value of mortgages purchased, securitized, and guaranteed by Fannie and Freddie exceeds $5 trillion, about half of all U.S. single-family residential mortgages. In addition, Fannie and Freddie own about $1.5 trillion in mortgages and MBS, which they hold in their investment portfolios. A healthy secondary market ensures the availability of funds for mortgage borrowing. The source of credit is no longer the local banking industry, which is subject to periodic, cyclical contractions that reduce its ability to lend, but rather the global bond market. Banks are more willing to make mortgage loans if they can sell them into the secondary market rather than bear the risks of long-term lending. It is widely accepted that Fannie and Freddie's operations have made mortgage credit more accessible and affordable. Prior to the financial crisis, there was also a large private securitization market. "Private-label" MBS securitized mortgage loans that Fannie and Freddie's charters prohibited them from purchasing; between 2002 and 2007, private issuers sold more than $3 trillion in MBS. In 2008, that market came to an abrupt halt. Holders of many private-label MBS suffered severe losses as defaults rose and the value of the homes that served as collateral for the underlying mortgages fell. New MBS issues fell dramatically—to only $5.4 billion in 2010. The downturn in the housing market that crippled the private MBS market was also ruinous for Fannie and Freddie. As defaults and foreclosures rose, income from mortgage assets held or securitized diminished, leaving the two firms unable to meet the debt obligations they had incurred to purchase mortgages and MBS in the first place. By September 2008, it was clear that both Fannie and Freddie were insolvent, and the government stepped in to place both firms under conservatorship. As a result, Fannie and Freddie's regulator, the Federal Housing Finance Agency (FHFA), now exercises complete control over their operations. The alternative to conservatorship—to let the firms fail—appeared to pose unacceptable risks to the financial system, which was in deep crisis, and to the housing market. If Fannie and Freddie had ceased operations, mortgage securitization would have dried up, and it is likely that few banks would have been willing to risk making new mortgage loans. Liquidation of Fannie and Freddie would have entailed dumping mortgage assets on the market at a time when many institutions were struggling to cope with losses from MBS and mortgages already on their balance sheets. Prices would almost certainly have plunged, driving up the cost to new mortgage borrowers. Under conservatorship, Fannie and Freddie have continued their MBS issuance and have not significantly reduced the size of their portfolios. Even though both firms are operating at a loss to the government, they are essentially propping up the housing market. Because private capital has not yet returned to the market, over 90% of new mortgages are purchased, guaranteed, and securitized by Fannie, Freddie, or full-faith-and-credit government agencies, such as the Federal Housing Administration (FHA) and the Government National Mortgage Association (Ginnie Mae). Continued support for Fannie and Freddie has been costly. Under the terms of the conservatorship, the Treasury has agreed to inject capital into both firms (in the form of preferred-stock purchases) as necessary to prevent either firm from having a negative net worth. As of the fourth quarter of 2010, these purchases have totaled $90.2 billion for Fannie Mae and $63.7 billion for Freddie Mac. While there are many views on how the housing market should function in the future, and what the government's role should be, there appears to be little support for returning Fannie and Freddie to their pre-conservatorship status. The idea that shareholder-owned firms should use their government-sponsored status to boost profits for the benefit of shareholders, management, and employees in good times, only to shift losses to the taxpayers during bad times, is now generally considered unsatisfactory. In February 2011, the Obama Administration released a report that set out several options for the future of housing finance. "Reforming America's Housing Finance Market: A Report to Congress," the Obama Administration's reform proposal, identifies four principal reasons why Fannie and Freddie failed. 1. Their for-profit structure undermined their public mission, which required them to promote stability in the housing market, as well as provide liquidity to the market. To maximize profits, both firms took on excessive risks. Because of weak regulation, they were not required to hold adequate capital against those risks. 2. Their "government-sponsored" status conferred unfair competitive advantages. Market participants viewed Fannie and Freddie securities as backed by the government, despite the lack of a formal full-faith-and-credit guarantee. As a result, the firms were able to borrow at lower rates and they were able to operate with more leverage and less capital than their private competitors. The growth of their investment portfolios was an aggressive strategy to maximize the monetary value of the implicit government guarantee. 3. Capital standards were unfair and inadequate. Low capital requirements allowed Fannie and Freddie to charge artificially low fees to guarantee mortgages, effectively giving them a monopoly in the conventional mortgage market. 4. Regulation was weak and ineffective. Before the FHFA, Fannie and Freddie's regulator did not have authority to constrain excessive risk taking. Aggressive lobbying by both firms prevented efforts to impose stricter regulation. Rather than address the identified problems through specific legislative or regulatory proposals, the Administration proposes to wind down Fannie and Freddie's participation in the housing market. This would be done by removing their competitive advantages and further restricting the kinds of mortgages that they are allowed to purchase. To accomplish this, the Administration sets out five specific mechanisms: 1. Require Fannie and Freddie to raise their guarantee fees to what those fees would be if they were held to the same capital standards as private banks or financial institutions. This would allow private firms to compete on more even terms, and should reduce Fannie and Freddie's market share over time. 2. Encourage Fannie and Freddie to obtain credit loss protection from private insurers. 3. Reduce the size of investment portfolios, which had the effect of allowing Fannie and Freddie to operate as hedge funds whose losses would fall upon taxpayers. Under the terms of the Treasury support agreement, Fannie and Freddie should reduce the size of their portfolios by 10% per year. 4. Allow the current conforming loan limits to expire. During the crisis, Congress raised the ceiling on the size of mortgages Fannie and Freddie are allowed to purchase. If Congress allows these emergency increases to expire as scheduled on October 1, 2011, the loan limit will fall from $729,750 to $625,500 in "high-cost" housing areas (and lower elsewhere). 5. Gradually increase the size of the required down payment on mortgages purchased by the two firms. The Administration proposes to increase the minimum down payment to 10%, which would reduce the number of mortgages that Fannie and Freddie are allowed to buy. None of the above proposals requires congressional action. The Administration's report does not set out specific timetables, but notes that reducing Fannie and Freddie's role depends on the return of private capital to the housing market. In congressional testimony, Treasury Secretary Timothy Geithner has estimated that the process may take five to seven years. The Administration's report does not discuss the ultimate disposition of Fannie Mae and Freddie Mac. The logic of the proposals suggests that the GSEs should eventually become equal competitors with Wall Street firms in the secondary mortgage market, without any significant advantages conferred by government charters. This presumes that market participants will no longer view the GSE charters as conferring an implicit federal guarantee and that investors will evaluate the riskiness of Fannie and Freddie securities on the same basis as private securities. To revoke Fannie and Freddie's charters and fully privatize the two firms would require an act of Congress. The Administration's report sets out three long-range scenarios for the future government role in the housing market. The options involve tradeoffs among four factors: improving access to mortgage credit (which may expose the government to risk); providing incentives for housing investment (which may divert resources from other productive uses); protecting taxpayer from loss (which may conflict with the two factors above); and financial and economic stability (government responses to crises may create moral hazard and encourage excessive private risk taking). Table 1 below presents the basic components of the Administration's three options. None of the three envisions Fannie and Freddie remaining in their current roles. Roughly speaking, options one through three represent an increasing government presence in housing finance. Option 1 insulates the government from losses during a crisis, unless one assumes that government will respond to political pressure and in some way cover private losses rather than let the mortgage market come to a standstill. The absence of an explicit guarantee shifts risk to the private sector, and one would expect mortgage lenders, guarantors, and insurers to charge more to cover that risk or to reduce the supply of mortgage credit to borrowers perceived as risky. Option 3 exposes government to more risk than the first two, and has more potential to distort private economic decisions than option 1 or option 2. The regulated mortgage insurers to whom the government would provide mortgage reinsurance may be subject to some of the same conflicts and incentive problems that afflicted Fannie and Freddie. At the same time, the presence of an explicit government backstop should encourage investors to buy MBS, thus providing a more dependable flow of funds into the mortgage market. Other proposals for housing finance reform have taken different approaches, but they may be categorized according to the continuum of tradeoffs among the Administration's three options. That is, the basic policy choice is between the extent to which taxpayers are protected from loss and the amount of support and liquidity government provides to the mortgage market. (For a broader survey of options for restructuring Fannie and Freddie, see CRS Report R40800, GSEs and the Government's Role in Housing Finance: Issues for the 112 th Congress , by [author name scrubbed].) There have been calls to stem taxpayer losses by bringing Treasury support for Fannie and Freddie to a speedier end—a frequent criticism of the Dodd-Frank Act was that it failed to address the GSE problem. Legislation before the 112 th Congress— H.R. 1182 (Representative Hensarling)—proposes to set a term certain for ending the conservatorship and government assistance. Introducing the bill, Representative Hensarling noted that "the GSEs are on track to be the nation's biggest bailout, more than AIG and GM and all the big banks combined. It's time to enact fundamental reform of Fannie and Freddie before these companies go from 'too big to fail' to 'too late to fix.'" Under H.R. 1182 , the conservatorship would end two years after enactment. If the FHFA determines at that point that either Fannie or Freddie is financially viable, the firm(s) will continue to operate under new regulations, and the GSE charter would be set to expire in three years. If either GSE did not appear to be financially viable, the FHFA would place the enterprise into receivership and liquidate it. This raises the prospect that bondholders might not be paid in full, as is normally the case in a commercial bankruptcy. The FHFA would be authorized to extend the two-year period by six months if necessary to avoid an adverse effect on the housing markets. If a GSE came out of conservatorship, it would face new requirements and restrictions. The value of assets in the investment portfolio would have to shrink to no more than $250 billion within three years of the end of conservatorship. Minimum capital requirements would be increased, as would the guarantee fees charged by Fannie and Freddie. The emergency increases in the conforming loan limit would be repealed, the GSEs would be prohibited from purchasing mortgages that exceeded the median area home price, and minimum down payments would be imposed. The affordable housing goals that set targets for GSE purchases of medium- and low-income mortgages would also be repealed. In addition, several current features of the GSE charter—exemption from state and local taxation and exemption from certain registration and disclosure provisions of federal securities laws—would be repealed. In summary, at the end of the three years following the end of conservatorship, there would be little substantive difference between Fannie or Freddie and private mortgage securitizers, and their government charters would expire. In the interim, because they would arguably be subject to more stringent regulation that private MBS issuers, their GSE status might constitute a competitive disadvantage. Proponents of a quick end to Fannie and Freddie argue that uncertainty about their ultimate fate is slowing the return of private capital into the secondary market. On the other hand, if assistance to Fannie and Freddie ends before private capital can take up the slack, the result could be a further shock to the housing market. It is worth noting that several provisions of H.R. 1182 —including expiration of the conforming loan limits, raising the guarantee fees, and higher down payments—are supported by the Administration's report. Under the Administration's plan, the end-game for Fannie and Freddie might be generally similar to what H.R. 1182 proposes, but would take effect over a longer time frame. There are other proposals that would have the government play a larger role in housing finance than any of the options set forth by the Administration. For example, the Mortgage Bankers Association (MBA) and the Center for American Progress (CAP) have published position papers that would preserve more of the functions currently performed by Fannie and Freddie in government-chartered or regulated entities. These two proposals, though different in the details, essentially would take the regulated, private mortgage insurers in the Administration's third option and make them operate more like Fannie and Freddie. Under the CAP proposal, "chartered mortgage institutions" would guarantee MBS that met certain quality standards. These institutions would be required to purchase all qualifying mortgages that lenders wished to sell. In addition, these entities would be subject to housing goals, that is, they would be required to provide support in specific areas of concern, such as small multi-family, rural, and moderate-income housing, or housing in natural disaster areas. Under the MBA proposal, a small number of privately owned "mortgage creditor-guarantor entities" would provide credit risk insurance to securitizations of "core" mortgages—loans with characteristics that presented low risk of default. The risks these entities could take would be highly regulated, and they would not be allowed to hold large investment portfolios of mortgage assets. Like the Administration's third option, both the CAP and MBA proposals include an explicit federal guarantee for qualifying MBS, which would be either securitizations of low-risk "core" mortgages or mortgages that carried a government guarantee (such as those backed by the FHA or the Department of Veterans Affairs). The MBA suggests that the insurance premiums could provide a source of funds to support affordable housing programs. One interpretation of these proposals is that they make an implicit case that the basic GSE concept remains sound despite Fannie and Freddie's collapse, provided that certain excesses are eliminated and regulation improved. There is some support for this view in the Administration's report: The losses that the federal government has covered at Fannie Mae and Freddie Mac... are virtually all attributable to bad loans that those firms took on during the height of the housing bubble. Over the last two years, Fannie Mae and Freddie Mac have implemented stricter underwriting standards and increased their pricing. As a result, the new loans being guaranteed by Fannie Mae and Freddie Mac today are of much higher quality than in the past and are unlikely to pose a significant risk of loss to taxpayers. However, given the size of the losses, the Administration does not appear willing to expose the taxpayer to the pre-crisis level of mortgage risk, even though that risk—if managed properly over the long-term—could make mortgage credit more available and affordable to American households. This is arguably the basic trade-off facing Congress as it considers GSE reform.
|
In February 2011, the Obama Administration released a report, "Reforming America's Housing Finance Market," setting out several options for the future of housing finance. In the past, the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac have played a crucial role in government support for the mortgage market. In 2008, however, both firms were taken over by the government and have received government life support since then. Fannie and Freddie continue to provide funds for mortgage lending, at a time when private capital has largely exited the market and not yet returned, but the expense to the government has been high: through the end of 2010, the Treasury has contributed $90.2 billion to Fannie and $63.7 billion to Freddie. The Administration's report argues that Fannie and Freddie's failures expose basic flaws in the GSE model. Poor regulation, excessive risk-taking, and an implicit government guarantee of Fannie and Freddie debt contributed to a situation in which GSE profits went to private management and shareholders, but losses fell to the taxpayers. The Administration proposes to shrink Fannie and Freddie's role in housing markets as private capital returns. No specific timetable is set out in the report, but Treasury Secretary Timothy Geithner has estimated that the process of winding down Fannie and Freddie may take five to seven years. The Administration proposes to raise the fees Fannie and Freddie charge for guaranteeing mortgage debt, limit the types of mortgages they can buy, and reduce the size of their investment portfolios. These steps can occur without congressional action—the effect would be to remove the GSEs' competitive advantages and allow private firms to compete on a more equal footing. For the long-term, the report sets out three options: (1) a private system of housing finance, with government intervention only to support homeownership among specific groups, such as veterans or low-income families; (2) a private system with a federal backstop that would only operate in a crisis; and (3) a system of regulated private mortgage insurers backed by a federal reinsurance system, with premiums set high enough that taxpayers would bear losses only after significant amounts of private capital had been wiped out. In general, option 1 implies less risk for taxpayers, but more expensive or less available mortgage credit. Option 3 would provide the most support to the broad mortgage market, but would expose taxpayers to more risk and also have more potential to distort market incentives and private investment decisions. Other proposals would lie on either end of the continuum represented by the Administration's three options. H.R. 1182 (Representative Hensarling) seeks to stem taxpayer losses by setting a two-year limit for the conservatorships of Fannie Mae and Freddie Mac and providing conditions for the continued operation of the firms or for the dissolution of the GSEs if they are judged to be not financially viable. Proposals from the Mortgage Bankers Association and the Center for American Progress envision a more active federal role in the housing market, with new government-chartered entities taking on some of Fannie and Freddie's functions, but with additional regulation and safeguards. In short, in reforming the GSEs, Congress faces a trade-off between placing the taxpayer at risk to downturns in the mortgage market and reducing that risk, which could make mortgage credit less available and affordable to American households. For a broader discussion of GSE reform, see CRS Report R40800, GSEs and the Government's Role in Housing Finance: Issues for the 112th Congress, by [author name scrubbed].
|
The Emergency Economic Stabilization Act of 2008 (EESA) empowers the Secretary of the Treasury to act to restore liquidity and stability to the financial system of the United States, and authorizes funds on a graduated scale that the Secretary may use for this purpose. The act immediately authorizes the Secretary to have up to $250 billion outstanding at any one time under the program. This authorized maximum will automatically increase to $350 billion outstanding upon the President's submission to Congress of a certification of need. Should the Secretary of the Treasury wish to have in excess of $350 billion outstanding at any one time under the program, the President must submit a written report to Congress detailing the Secretary's plan to exercise this additional authority. The submission of this report triggers a 15-calendar day period during which Congress may enact a joint resolution disapproving the request. The act further establishes special "fast track" parliamentary procedures for congressional consideration of this joint resolution. Should Congress either choose not to, or be unable to successfully, enact a disapproval resolution by the expiration of this 15-day period, the Secretary's authority would automatically increase up to $700 billion in outstanding purchases at one time. Section 115(c) of EESA establishes a set of expedited parliamentary procedures by which Congress may consider a joint resolution rejecting the Secretary's plan. Statutes that contain provisions establishing expedited procedures regulating the consideration of particular legislation are frequently called "rulemaking statutes," because their procedures have the same force and effect of standing rules of the House or Senate. These expedited legislative procedures were created by Congress to ensure that it could promptly consider and act on the Secretary's proposal within the 15-day time frame. The procedures accomplish this goal by exempting the joint resolution of disapproval from many of the ordinary time-consuming steps and legislative obstacles that apply to most other measures Congress considers. In short, the resolution is considered not under the ordinary parliamentary procedures of the House and Senate, which are, by design, slow and uncertain, but on a special parliamentary "fast track." These procedures address: Should Congress receive a report from the President detailing the Secretary of the Treasury's desire to have more than $350 billion outstanding under the troubled assets purchase program, EESA directs the Speaker, if the House has adjourned, to notify Members that the chamber will reconvene not later than the second calendar day thereafter. Likewise, if the Senate has adjourned or recessed for more than two days, the Senate majority leader, after consultation with the minority leader, is to notify Senators that the body will reconvene. Under modern practice, when one or both chambers adjourn for more than three days, the adjournment resolution adopted by the House and Senate grants its leaders discretionary authority to recall the chambers in the event of an emergency or if the public interest warrants. Interestingly, EESA seems to make Congress's reconvening mandatory—even if one or both chambers does not wish to disapprove the plan. Unlike bills, joint resolutions often include a preamble. The joint resolution of disapproval under EESA, however, may not contain a preamble. The title of the joint resolution is specified by the statute: " Joint resolution relating to the disapproval of obligations under the Emergency Economic Stabilization Act of 2008 ." Its text is mandated as well: " That Congress disapproves the obligation of any amount exceeding the amounts obligated as described in paragraphs (1) and (2) of section 115(a) of the Emergency Economic Stabilization Act of 2008 ." It is arguably necessary for the statute to specify the precise text of the joint resolution because, unless it is clear which measure Congress intends to be considered under expedited terms, unrelated measures or provisions might "hitch a ride" on the special parliamentary privilege that is afforded the joint resolution, shortcutting the regular legislative process and the rights of all Members. In the regular order of business, a Member of Congress may introduce legislation at any time their chamber is in session during the two-year Congress. EESA, however, establishes a far narrower window in which Members may introduce a qualifying joint resolution of disapproval. In order to qualify for the expedited procedures outlined in the act, a joint disapproval resolution must be introduced not later than three calendar days after the date on which the President's report detailing the Secretary's plan is received by Congress. Although the statute is silent on the question, joint resolutions may conceivably be introduced by any Member in either chamber. Because the mandatory recall provisions described above, however, make it possible that the House or Senate may not reconvene until two calendar days after the report's submission, it is possible (even likely) that Members will have only a single calendar day in which to introduce a qualifying joint resolution of disapproval. EESA is silent on the referral process for a joint resolution of disapproval introduced in the House of Representatives, and the Speaker would presumably refer the measure to committee in keeping with regular practice and her authority under chamber rules. In the Senate, when a joint resolution is introduced, under the terms of EESA, it is not referred to committee at all, but is instead placed directly on the Senate Calendar of Business. Under normal Senate practice, when legislation is introduced, it is referred to committee based on the subject matter that predominates in it. Under Senate Rule XIV, a measure might be placed directly on the Senate Calendar of Business upon introduction via a process of objecting to the first two readings of the measure, which technically must occur on different legislative days. Under EESA, referring the joint resolution to Senate committee, rather than placing it directly on the calendar, would seem to require unanimous consent. With certain exceptions—for example, when time limits are placed on the sequential referral of a bill by the Speaker of the House—Congress generally does not mandate that a legislative committee act on legislation referred to it within a specified time frame or at all. The EESA expedited procedure, however, requires a committee of referral to act and creates parliamentary mechanisms to take the resolution away from it should it fail to do so. Under EESA, if a House committee has not reported the joint resolution of disapproval within five days after Congress's receipt of the President's report, the committee is automatically discharged from its further consideration and the measure is placed directly on the appropriate calendar. These expediting provisions theoretically make it impossible for a joint resolution of disapproval to be long delayed or killed outright by the inaction of a legislative committee. The statute is silent on whether a committee may amend the resolution, but because (as has been noted) the precise text of the joint resolution is specified by the act, any attempt to alter it by amendment would likely be interpreted as destroying the special parliamentary status it enjoys. Additionally, because the procedure precludes the consideration of amendments to the joint resolution on the House floor (discussed below), committee amendments would also be barred. A House committee would presumably still have the option of reporting a measure to the chamber favorably, adversely, or without recommendation. As enacted, EESA dictated that after each House committee of referral had reported or been discharged from the further consideration of the joint resolution of disapproval, it would be in order, not later than the sixth day following the submission of the President's report, for any Member to make a non-debatable motion to proceed to its consideration. The House subsequently altered this procedure with the adoption on January 15, 2009 of H.Res. 62 (111 th Congress), which stipulated that the motion to proceed under section 115 of the Emergency Economic Stabilization Act of 2008 would only be in order if made by the House Majority Leader or his designee. H.Res. 62 further established that the motion to proceed could be offered even following the sixth day described in the statute, but not later than the legislative day of January 22, 2009. Such a motion cannot be repeated after one has already been disposed of, and the vote on the motion may not be reconsidered. In the Senate, under most circumstances, a motion to proceed to the consideration of a measure is fully debatable. The motion to proceed to the consideration of the joint resolution of disapproval under EESA, however, is not debatable or amendable, and it cannot be postponed. The motion is in order in the Senate at any time during the period beginning on the fourth day after the date on which Congress receives the President's report and ending on the sixth day after receipt. In the Senate, the motion to proceed is permitted even if a previous motion to the same effect has been defeated. If a motion to proceed is agreed to, the chamber immediately proceeds to consider the joint resolution without intervening motion, order, or business. Having chosen to take up the disapproval resolution by adopting the motion to proceed, consideration of the measure is, in a sense, "locked in." The joint resolution remains the unfinished business of the chamber until the chamber disposes of it. In the absence of a special rule dictating otherwise, the House of Representatives ordinarily debates measures under the one hour rule or under other procedures which establish specific periods for debate, such as the suspension of the rules procedure. In keeping with its expediting nature, EESA limits the amount of time for House floor consideration of the joint resolution of disapproval. Debate in the House on the joint resolution, and all debatable motions and appeals connected with it, is limited to not more than two hours, equally divided between a proponent and an opponent. In the Senate, debate is ordinarily unlimited unless it has been structured by unanimous consent or limited by the invocation of cloture under Senate Rule XXII. Under EESA, however, Senate debate on the joint disapproval resolution, and on all debatable motions and appeals in connection therewith, is limited to not more than 10 hours, divided equally between the majority and minority leaders or their designees. A non-debatable motion to further limit debate is in order. Using this device, the Senate could, by majority vote, reduce debate time below 10 hours. EESA includes provisions which make it difficult to delay or set the joint resolution aside without a vote, for example, by returning it to legislative committee or the calendar. Amendments to the joint resolution of disapproval are not in order in either chamber. In the House, all points of order against the joint resolution and its consideration are waived, and the previous question is considered to be ordered to its final passage without any intervening motion, including a motion to recommit. Thus, at the conclusion of debate, the House would automatically vote on adoption of the measure. In the Senate, the joint resolution is not subject to a motion to postpone, to recommit, or a motion to proceed to the consideration of other business. A motion to reconsider the vote by which the joint resolution is agreed to or disagreed to is also not in order. After the conclusion of debate and a single quorum call (if requested), the chamber immediately would vote on final passage of the joint resolution. Appeals from the decision of the chair relating to consideration of the joint resolution are to be decided without debate. The EESA also includes provisions to facilitate the exchange of legislation between the House and Senate. If, before voting upon its own joint resolution, a chamber receives a joint resolution passed by the other chamber, that engrossed joint resolution is not referred to committee. The second chamber will proceed to consider its own joint resolution in the fashion laid out in the statute, until the point of final disposition, when the vote taken will be on the engrossed resolution passed by the first chamber. The purpose of this provision is to avoid the need to expend time choosing whether ultimately to act upon the House or Senate vehicle. EESA includes a number of additional provisions intended to expedite consideration of the joint resolution of disapproval. For example, if one chamber fails to introduce or consider a joint resolution under EESA, the resolution of the other House is entitled to "fast track" consideration in the other chamber. If, following passage of the joint resolution in the Senate, it then receives a companion measure from the House, that companion measure is not debatable. EESA includes provisions stating that if Congress passes a joint resolution, the period beginning on the date the President is presented with the enrolled joint resolution, and ending on the date he takes action on it, is disregarded in computing the 15-calendar day period before an increase in the Secretary's authorization automatically goes into effect. Likewise, if the President vetoes the measure, the period beginning on the date of the veto, and ending on the date Congress receives the veto message, is not calculated. These provisions are included to ensure that the President cannot simply "run out" the 15-day time clock once the joint resolution is presented to him for signature. Finally, in the event of a Presidential veto, debate on a veto message in the Senate is limited to one hour equally divided between the majority and minority leaders or their designees. Under ordinary circumstances, such a veto message would be fully debatable. The act is silent on House consideration of a veto message. Under the terms of EESA, a joint resolution must be enacted in order to disapprove the Treasury Secretary's plan. This means that not only would it have to pass both chambers, but it must also be signed by the President, or enacted over his veto by supermajority vote, to take effect. For this reason, some Members have argued that resolutions of disapproval of this type generally put Congress at an institutional disadvantage relative to the Executive, in that a President is almost certain to veto the resolution and Congress would have to muster significant super majorities for a successful override. During debate over the enactment of a different rulemaking statute which included a joint disapproval resolution, one Member voiced this view of the power relationship between the branches, stating, A veto would, of course, be likely since the resolution would be disapproving what the executive has proposed. Then it would take two-thirds majorities in both Houses of Congress to effectuate the Congress' expression of disapproval. In other words, a resolution of disapproval would allow as few as 34 Senators, working with one Chief Executive, to block the will of ... Members of Congress. Conversely, others have argued that resolutions of disapproval give the President necessary flexibility to act, while still reserving the prerogative of Congress to overrule him and influence important policy questions. The fact that an expedited procedure like that of EESA is contained in a rulemaking statute does not mean that another law must be passed in order to alter it. It is sufficient that a majority of Members of either chamber agree to ignore or alter the expedited procedure in order to change the way in which its features apply in that chamber at a given time. Because Article I, Section 5 of the Constitution gives each chamber of Congress the power to determine the rules of its proceedings, expedited procedure statutes like those contained in EESA can (like all rules of the House or Senate) be set aside, altered, or amended by either chamber at any time. These changes can be accomplished by the House through the adoption of a special rule reported by Committee on Rules, by suspension of the rules, or by unanimous consent. In fact, prior practice suggests that the House of Representatives routinely supplants the terms of rulemaking statutes by adopting special rules by majority vote. As is discussed above, the House chose to alter some features of the expedited procedure as it relates to the motion to proceed with the adoption on January 15, 2009, of H.Res. 62 (111 th Congress). Although the same Constitutional authority to determine its own rules resides equally in both houses of Congress, expedited procedures are, in a sense, more binding on the Senate than they are on the House. The Senate operates largely under terms achieved by the unanimous consent of all Senators. If that consent can not be achieved, altering an established rulemaking statute would, in all likelihood, require either the 3/5ths of Senators chosen and sworn (60 if there are no vacancies) necessary to invoke cloture or the concurrence of two-thirds present and voting (67 if all Senators vote) necessary to suspend the rules. Motions to suspend the rules also require written notice one calendar day in advance, and are fully debatable. On January 12, 2009, the President transmitted to Congress a report detailing a plan to exercise the authority under 115(a)(3) of the Emergency Economic Stabilization Act of 2008 to access additional EESA funds. Based on a submission date of January 12, 2009, and the deadlines in the statute, the table below estimates deadlines relating to the introduction and consideration under expedited parliamentary procedures of a joint resolution of disapproval under the EESA. It is important to note that the dates included below are only estimates calculated by CRS. The House and Senate Parliamentarians are the sole definitive authorities on questions relating to the rules of the respective chambers (including statutory rules such as those in the EESA), and should be consulted for a formal opinion on any specific question about deadlines under the act.
|
The Emergency Economic Stabilization Act of 2008 (EESA, Division A of H.R. 1424, P.L. 110-343) empowers the Secretary of the Treasury to act to stabilize the economy. Should the Secretary wish to have more than $350 billion outstanding under the program, the President must submit a written report to Congress detailing the Secretary's request and his plan to implement it. The receipt of this report triggers a 15-day period during which Congress may reject the Secretary's request by enacting a joint resolution of disapproval. This disapproval resolution would be considered in the House and Senate under "fast track" parliamentary procedures which are intended to ensure an opportunity to consider and vote on the measure. This report examines these procedures and explains how they differ from the regular parliamentary mechanisms of the House and Senate. It also estimates certain deadlines under the act based on the recent submission of the President's report. It will be updated as needed.
|
The failed attempt by Dubai Ports World (DP World) to operate marine terminals at some U.S. ports raises the issue of whether foreign marine terminal operators pose a threat to U.S. homeland security. DP World is a terminal operating company that operates as a commercial entity, but is owned by the Government of Dubai in the United Arab Emirates. In March 2006, DP World purchased a competitor, the British-owned Peninsular & Oriental Steam Navigation Company (P&O). P&O leased marine terminals around the world, including at five U.S. ports – New York and New Jersey, Philadelphia, Baltimore, Miami, and New Orleans, and was involved in other cargo handling operations at other East and Gulf Coast ports, as well as a cruise terminal in New York City. As part of DP World's purchase of P&O, DP World acquired P&O's terminal leases or concessions at these U.S. ports. However, as a result of Congressional opposition, DP World announced on March 9, 2006 that it would sell its stake in the U.S. portion of P&O's operations to a U.S. entity and on March 16, 2007, DP World sold its stake to AIG Global Investment Group. Notwithstanding the sale of U.S. terminal operations by DP World to a U.S. entity, the underlying issues remain: Is the ownership of a terminal operating company relevant to the security of a U.S. port? Does foreign takeover of terminal operating leases potentially pose a threat to U.S. security? Should companies owned by foreign governments be precluded from operating U.S. port terminals? These policy questions remain an issue because (1) many U.S. marine terminals are operated by foreign-based companies, and (2) given the global nature of the shipping business, similar transactions may occur in the future. The purpose of this report is to provide information relevant in answering these questions. It begins by explaining how ports work and what marine terminal operators do. It then reviews the extent of foreign involvement that already exists in U.S. ports. The next section describes the responsibility of terminal operators in providing security at U.S. ports and how their role fits in with the larger task of securing the entire maritime supply chain. The report concludes by examining port security issues for Congress. The debate over the DP World transaction often confused the terms "port," "port authority," and "terminal." Most major U.S. ports are publicly owned by a "port authority," which is a public or quasi-public organization associated with a city, county, regional, or state government. A port authority is responsible for the overall administration of the property, terminals, and other facilities on the port complex. A marine terminal is an assigned area with equipment for loading and unloading ships, and space for staging cargo until it is loaded on the ship or transferred to overland modes of transport. Some port authorities operate all or some of their marine terminals themselves, but most ports are "landlord" ports because they lease their facilities to terminal operating companies (the tenants). These leases are typically long-term – in the range of 10 to 30 years. Either the port authority or the terminal operator will supply the cranes and other cargo handling equipment. It depends on the lease agreement between the port authority and each terminal operator. As one port authority suggests, one can think of a public port like a shopping mall. The port authority owns the entire mall property while the stores are leased to individual retail companies. A large port could contain 15 to 20 marine terminals of various types. Some of the terminals could handle containers (which are truck-trailers without the wheels), others may handle dry bulk cargo (such as coal, grain, or sugar), liquid bulk cargo (such as petroleum or chemicals), breakbulk cargo (such as steel coils, pipes, or large machinery), or automobiles and trucks. A typical container terminal may be 100 to 300 acres in size, while the entire port complex of a major port may be 2,000 to over 3,000 acres in size. While the above model applies to the marine terminals involved in the DP World transaction, it does not apply to all marine terminals. Public port authorities only own approximately one-third of the deep-draft marine terminal facilities in the United States. Many of the privately owned marine terminals are associated with the oil, gas, and chemical industries. In these cases, the waterside terminal may be a component of a larger industrial complex on land. For instance, at the Port of Houston, the Port of Houston Authority only owns or leases 12 marine terminals while there are 138 private terminals that are owned by either U.S.-based, foreign-based, or multi-national corporations that handle approximately 85% of the cargo that moves through the Port of Houston. Terminal operators (a.k.a. stevedores) contract with longshoremen unions to provide cargo handling services on the docks. Longshoremen are hired by and report directly to a union hiring hall. Terminal operators also employ a management team who are hired by and report directly to the terminal operating company. Longshoremen, called "dockworkers," operate cranes that physically move the cargo from ship to dock and vice versa. Longshoremen, called "checkers," perform clerk functions in an office in or near the port. At a container terminal, the checkers are responsible for directing the container traffic within the terminal area – they tell the dockworkers where containers need to be moved. The ocean carrier provides a stowage plan which tells the terminal operator where the containers need to be loaded on the ship. In the case of inbound shipments, the terminal operator separates those containers to be picked up by truck from those that will move by rail (if there is an "on-dock" railroad at the terminal). Longshoremen also staff the gates where trucks enter to pick-up and drop-off containers. Longshoremen do not know the contents of containers except for containers carrying hazardous material, which require special handling and storage requirements. The terminal operator is not concerned with the origin and final destination of the shipment. The only cargo information relevant to the terminal operator in performing its function is the weight of the container (for ship loading purposes), whether or not it has been released by Customs (for imported cargo), the bill of lading number (or booking number for export cargo), seal number, and container number. While DP World would have been the first Middle Eastern based company to operate container terminals in U.S. ports, most container terminals are operated by other foreign-based companies. A survey by the U.S. Maritime Administration found that at the seventeen largest U.S. container ports, 45 terminals (66%) were operated by a foreign based company, 5 terminals (7%) were operated by a joint venture between a domestic and foreign based company, and 18 terminals (26%) were operated by a purely domestic terminal operating company. The survey found that several of the ports have no U.S.-based container terminal operators: Baltimore, Jacksonville, New Orleans, Houston, Los Angeles, and Tacoma. At the combined Ports of Los Angeles and Long Beach, the largest container port complex in the United States, only three of the fifteen container terminals are operated by U.S.-based companies. At the Port of New York and New Jersey, the second largest container port, only two of the six container terminals are operated by U.S.-based companies. At the Port of Norfolk and the Port of Savannah, the port authority operates the terminals rather than leasing them to private terminal operators. The Port of Portland (Oregon) leases its container terminal to a U.S. based operator. Most of the foreign terminal operators are based in Hong Kong, Japan, South Korea, Taiwan, Singapore, China, the United Kingdom, and Denmark. A handful of terminal operators are partially owned by the governments of Singapore, Taiwan, and China. Most U.S. container terminals are managed by foreign companies because almost all of the container shipping lines are owned by foreign companies. Typically, a foreign container shipping line creates a U.S. subsidiary or a U.S. affiliate to operate the terminals at its busiest U.S. ports to better ensure service quality and control costs. Two large U.S.-based container lines and their terminal operations were sold to foreign interests in the late 1990s. In 1997, American President Lines was sold to Neptune Orient Lines, which is partially owned by the government of Singapore. In 1999, Sea-Land Service, the U.S. company that pioneered container shipping in the late 1950s, was sold to Maersk Lines, a Danish carrier. The president of the World Shipping Council (WSC) who is also a former executive of Sea-Land believes that U.S. investors have avoided the container shipping industry because of its high capital investment requirements, "boom and bust" cycles, intense competition, and because foreign tax laws are more favorable to shipping. While many terminal operators are affiliated with a steamship line, independent terminal operating companies also exist. DP World and P&O are two of several global terminal operating companies. Other global stevedores are Hutchison Port Holdings, based in Hong Kong; PSA, based in Singapore; and SSA Marine, based in Seattle. One estimate is that the four largest global terminal operators handle about 80% of the containers being shipped worldwide. Some U.S. independent terminal operators only operate in the United States, such as Maher Terminals and American Stevedores in New York, and Transbay and Marine Terminals Corporation in Oakland. Foreign involvement in U.S. port terminal operations is an extension of an industry driven by globalization. The largest container shipping lines have extended their services around the globe because their biggest customers, such as big box retailers and auto, electronics, and clothing manufactures, have extended their supply lines and distribution networks around the globe. In turn, global independent terminal operators, such as DP World or P&O, seek to follow their customers, the shipping lines. The shipping business is capable of scanning the globe for low-cost inputs. For instance, it is not improbable that a ship calling at a U.S. port could have been built in South Korea, registered in Panama, owned by a Greek company, operated by a Japanese ocean carrier, captained by a German, and crewed by Filipinos. Terminal operators are responsible for maintaining security on the property they rent from the port authority. Coast Guard regulations and Customs and Border Protection (CBP) security guidelines require terminal operators to provide basic security infrastructure and follow certain security practices when handling cargo. These requirements are reviewed in some detail below because they indicate the specific responsibilities of a terminal operator in providing security at a port. The Coast Guard is in charge of the security of port facilities and vessels, under the terms of the Ports and Waterways Safety Act of 1972 (P.L. 92-340) and the Maritime Transportation Security Act of 2002 (MTSA , P.L. 107-295 ). Each terminal operator in a port area is required to conduct a security assessment of their facility as well as write a security plan and submit it to the Coast Guard for review and approval. The Coast Guard does not mandate specific security equipment or procedures that the terminal operators must adopt but rather calls for "performance-based" criteria to be used to ensure the security of the facility. The security plan provides some leeway for the terminal operators to tailor their security measures to their particular type of cargo terminal. In the facility security plan, the terminal owner or operator must specify how it will address the security vulnerabilities identified in its security assessment. For instance, it must restrict access to its facility with fences and a system to identify unauthorized personnel. The operator must specify how it will monitor activity at the facility through the use of some combination of security guards, water-borne patrols, alarm systems, surveillance equipment, and lighting. In the case of container facilities, the operator must specify how it will check container seals and verify that arriving trucks have legitimate business at the facility. The facility operator must conduct periodic security drills and exercises. It is required to designate a Facility Security Officer (FSO) who is responsible for ensuring that the facility is in compliance with Coast Guard regulations and serves as the point of contact for notifying security threat level changes. The FSO is also required to keep records for two years and make them available to the Coast Guard regarding security training sessions, drills and exercises, security incidents and breaches, changes in security threat levels, maintenance of security equipment, and other records regarding security procedures at the terminal. The Coast Guard inspects terminals for compliance with security requirements. July 1, 2004 was the deadline for port facilities to begin operating under their security plans. Between then and January 1, 2005, the Coast Guard conducted initial on-site inspections at approximately 3,150 port facilities in more than 300 U.S. ports to check on compliance with the security plans. The Coast Guard plans to conduct annual compliance inspections at port facilities but the Coast Guard Captain of the Port, which is the lead federal official in charge of a port area, can also verify continued compliance at the facilities in his or her area at any time. To ensure that inspections reflect the normal course of business at a terminal, the Coast Guard has indicated that it is using unscheduled or unannounced spot checks to check on compliance. The Coast Guard reports that since July 2004, it has required corrective action on more than 700 violations of the MTSA security regulations and that of those 700 plus violations, 44 resulted in major control actions, such as closure of the terminal until corrective action was taken. Similar to terminal operators, vessel owners must also submit for Coast Guard approval a security assessment and security plan for their ships. Because of the close interface between vessels and facilities (when the vessel is in port), vessel and facility owners are required to coordinate their security measures and procedures and submit evidence of this coordination in a document called a "Declaration of Security." Facility and vessel owners are required to update and resubmit their security plans to the Coast Guard every five years or whenever a substantial change is made to their facility or vessel. CBP is in charge of cargo security. When CBP inspects cargo shipments arriving from overseas, the terminal operator's role is to set those shipments aside as CBP directs. CBP is the primary federal agency tasked with ensuring the security of the nation's borders. CBP's port security mission is to prevent terrorists and instruments of terror from entering the United States. Like the Coast Guard, CBP faces the difficult challenge of achieving a sufficient level of security while not jeopardizing the efficient flow of commercial goods at the nation's ports of entry (POE). Generally, every shipment, whether it arrives via maritime, truck, rail, or air cargo container, must be released by CBP before it may enter the commerce of the United States. CBP is not only responsible for ensuring the security of the containers (in terms of preventing their subversion by terrorists and other criminals), but is also responsible for ensuring that the cargo does not violate any commercial laws of the United States. The Customs-Trade Partnership Against Terrorism (C-TPAT) was initiated in April 2002 as a voluntary program offering importers expedited processing of cargo and other benefits if they comply with CBP requirements for securing their entire supply chain. Currently, C-TPAT is open to importers, carriers, freight forwarders, customs brokers, U.S. port authorities, terminal operators, and Mexican and other CBP-invited foreign manufacturers. In order to participate in the C-TPAT, applicants must sign an agreement that commits them to assessing the security of their supply chains, submit a security questionnaire to CBP, implement a security program in accordance with C-TPAT guidelines, and extend their security program to other companies involved in their supply chain. Once the applicant company has conducted the security self-assessment and submitted the security profile, CBP reviews the security profile to develop an understanding of the company's security practices. CBP also reviews information regarding the company's trade compliance history and any past criminal investigations. Based upon the results of these reviews, CBP will work with the applicant to address any security concerns discovered during the review, or will certify the applicant as a C-TPAT certified member. CBP also conducts what is called a 'validation' of a C-TPAT certified members' security arrangements. The validation process is an on-site review of the supply chain security measures outlined by the C-TPAT participant in the security profile it submitted to CBP. CBP has created Supply Chain Security Specialists (SCSS), who conduct the validation. During the validation process, the SCSS will meet with company representatives and potentially visit selected domestic and foreign sites in the C-TPAT participant's supply chain. C-TPAT security guidelines differ depending on the type of business the applicant is engaged in. For instance, importers have a different set of security guidelines than carriers, or port or terminal operators; and C-TPAT guidelines recognize that terminals, for example, vary according to the type of cargo they handle. As with other C-TPAT participants, U.S. Marine or Port Terminal Operators (MPTO) must conduct a comprehensive assessment of their international supply chain (conveyances, foreign facilities, domestic warehouses, etc.) and work with their business partners to ensure that the appropriate security measures are adhered to throughout their supply chain. The security guidelines that MPTO must commit to implementing and maintaining throughout their supply chains in order to become a member of C-TPAT include the following categories: conveyance security (to prevent unauthorized access or tampering); business partner requirements and security procedures (to ensure that partners commit to C-TPAT guidelines); container security (procedures for ensuring proper sealing and container integrity, along with procedures to report any problems to CBP); physical access controls (identification badges, visitor and vendor controls, mail screening etc.); procedural security; personnel security (background checks and investigations, etc.); physical security (fences, gates, cameras, alarms systems, etc.); and information technology security. As the above discussion indicates, C-TPAT requirements for Port Authorities and Terminal Operators are similar to the Coast Guard's security requirements. Whether the terminal operator or the port authority is responsible for providing basic security infrastructure, such as perimeter fencing, security gates, lighting, monitoring equipment, or alarm systems, is likely to be addressed in the terms and conditions of the lease agreement between the port authority and the terminal operator. The geography of a port complex is one factor that could determine infrastructure security arrangements. For instance, if there are a group of terminals that abut one another, then the port authority may be the party that provides perimeter fencing and a perimeter security gate for access to all the grouped terminals. On the other hand, if a particular terminal is isolated from other terminals in a port complex, then the terminal operator may be responsible for providing security infrastructure. The federal government has provided funding directly to ports for security infrastructure. Since September 11, 2001, the federal government has provided about $876 million in six rounds of grants to port authorities and individual terminal operators for security infrastructure. Either the port authority or the terminal operator hires security guards. Within the grounds of a terminal, there may be security guard and "port watchmen" positions defined in the contract between the longshoremen's union and the terminal operator. A few of the largest port authorities have their own police force. The port authority police force could include both waterside and landside patrols, and police assigned to port gates. Other port authorities rely on the police force of the government with which they are associated, such as city, county, or state police. A key issue in port security is the trustworthiness of the people who work in them. As per MTSA (46 USC 70105), DHS is responsible for determining whether a port worker poses a potential terrorism security risk. The Coast Guard is assisting the Transportation Security Administration (TSA) in developing a worker identification card (Transportation Worker Identification Credential, TWIC) that will be used to limit access to secure areas of a port or vessel. MTSA requires that the card use biometric technology and that the card be issued to only those port workers who are not deemed a terrorism security risk as determined by the Secretary of DHS. TSA's initial deadline for issuing TWIC cards was August 2004. The GAO investigated why TSA missed its initial deadline and found that delays were due to difficulty in obtaining DHS approval to proceed with the prototype phase, extra time needed to collect data for a cost-benefit analysis, and additional work required to assess card technologies. The agencies tested a prototype worker card at various ports in 2005 and implementation of the card is to begin in 2007. A contentious issue, among several, is deciding what criminal offenses might disqualify a worker from obtaining a card. Most port authorities are awaiting the deployment of the TWIC card to provide an ID system for port workers. However, a couple of port authorities have an ID card system already in place. The Port Authority of New York and New Jersey has had an ID system for dockworkers since 1953. The Waterfront Commission of New York Harbor performs background checks on all longshoremen at the port, who must be registered and licensed. The Commission was created in 1953 to fight corruption at the port. The Port of Miami introduced an ID system a few years ago. Three port authorities in Florida have begun implementing a state-wide ID system to fulfill requirements of a Florida state law on port security. The Florida law requires a fingerprint-based criminal history check of port workers. As long and difficult as it has been to develop a background check and ID system for U.S. port workers, this effort concerns only one node in the maritime transportation system. The United States has no jurisdiction over transportation workers in overseas ports, as well as the truck drivers, rail workers, and others who directly handle the cargo on its way to the overseas port. One of the criteria for C-TPAT participants is to conduct background checks on their employees. However, it is not known how or if CBP validates these checks. While background checks can provide some level of assurance as to the trustworthiness of a worker, experience has shown that individuals, who have undergone much greater scrutiny, such as high level security clearances, have occasionally proven untrustworthy. Port security involves much more than the measures put in place within the immediate vicinity of a U.S. port complex. Securing the cargo and ships in transit to U.S. ports is arguably more critical and consequently the bulk of security activity takes place before cargo is unloaded at U.S. ports. While U.S. ports are an acceptable place to interdict illegal drugs and enforce trade laws, not finding a terrorist weapon until after it reaches a U.S. port could be too late to prevent a potentially catastrophic event. In response to this reality, the Coast Guard and CBP have adopted a strategy of "pushing the borders out" with a layered system of security measures. Key elements in this layered strategy are CBP's scrutiny of U.S. bound cargo at the overseas port of loading and the Coast Guard's scrutiny of ships before they enter U.S. harbors. Thus, with respect to anti-terrorism measures, U.S. ports are viewed as the last line of defense rather than the first. Recognizing the international nature of the shipping industry, the Coast Guard has sought to raise global standards for maritime security. Through the International Maritime Organization (IMO), a United Nations body that establishes shipping standards, the Coast Guard assisted in the development of a new international code for maritime security: the International Ship and Port Facility Security Code (ISPS), which went into effect on July 1, 2004. The ISPS contains security-related requirements for Governments, port authorities, and ship owners. The host government is responsible for enforcing the code. The ISPS largely parallels MTSA with respect to the security requirements of ports and ships. The Coast Guard also actively assesses the security of foreign ports that trade with the United States. The Coast Guard is visiting all of the 140 countries that trade with the United States to assess the effectiveness of anti-terrorism measures at their ports. To counter the terrorist threat in part, the Coast Guard has sought to improve the quality and advance the timing of information submitted to them by vessels so that they can better evaluate the terrorism risk posed by ships, crews, and cargo bound for U.S. ports. After September 11, 2001, the Coast Guard instituted new reporting requirements for ships entering or leaving U.S. harbors. The former 24-hour advance Notice of Arrival (NOA) was extended to a 96-hour NOA. The NOA includes detailed information on the crew, cargo, and the vessel itself. The Coast Guard evaluates this information and other intelligence to determine what action it may take, if any, regarding the vessel. It could board and inspect the ship in the open ocean, at an anchorage near shore, at the dock, and it may escort the ship into (and out of) the port to enforce a security zone around the ship. The Coast Guard is also deploying a vessel tracking system (the Automatic Identification System that has a range of 20-30 miles) to monitor ship traffic in U.S. harbors. This capability currently exists at 12 U.S. ports and the agency plans to extend this capability nationwide. The Coast Guard is also pursuing a long-range vessel tracking system that will have a range of about 2,000 nautical miles. The Container Security Initiative (CSI), one of a series of initiatives aimed at improving the security of cargo destined for the United States, was initiated by the U.S. Customs Service (now CBP) in January of 2002 to prevent terrorists from exploiting containers entering into the United States. CSI is based on four core elements: (1) identifying high-risk containers; (2) pre-screening high-risk containers at the earliest possible point in the supply chain; (3) using technology to pre-screen high risk containers quickly; and (4) developing and using smart and secure containers. Under the CSI program, CBP officers are sent to participating ports where they collaborate with host country customs officers to identify and pre-screen high-risk containers using non-intrusive inspection technology before the containers are loaded on U.S.-bound ships. CSI ports provide CBP an opportunity, in cooperation with host country officials, to screen and potentially inspect cargo containers before they arrive at U.S. seaports. CBP continues to expand CSI to additional foreign ports. By the end of 2007, CBP hopes to expand CSI to 58 ports, covering approximately 85% of the volume of maritime containers shipped to the United States. As of September 2006, CSI was operational at 50 foreign ports, covering approximately 82% of the volume of maritime containers destined for the United States. The port of Dubai, United Arab Emirates, became the 35 th operational CSI port on March 26, 2005. CBP's cargo inspections are dependent on receiving accurate information in a timely manner in order to execute risk assessment and targeting procedures before shipments arrive at U.S. Ports of Entry. To give inspectors adequate information and time to perform a risk assessment on arriving cargo shipments, the legacy Customs Service published a rule (known as the 24-hour rule) requiring the submission of certain cargo manifest information to Customs 24 hours in advance of the vessel cargo being laden at the foreign port. The Trade Act of 2002 ( P.L. 107-210 ), as amended, required CBP to develop rules requiring the mandatory electronic submission of cargo manifest data for all modes of entry. The final rule maintained the 24-hour rule, which applies to all U.S.-bound vessel cargo. The 24-hour rule applies to all U.S.-bound vessel cargo, regardless of whether or not the cargo passes through a CSI port. CBP is also exploring the acquisition of additional data that would provide CBP access to data covering the entire movement of a container: from point of packing to final destination. CBP has established a program called the Advance Trade Data Initiative (ATDI) as the prototype for the acquisition of this data. CBP uses the Automated Targeting System (ATS) in order to identify high-risk containers requiring additional inspection. ATS uses electronically filed entry information to automatically flag high-risk shipments. ATS standardizes manifest, bill of lading, entry, and entry summary data and creates integrated records called "shipments." These shipments are then evaluated and scored by ATS using weighted rules derived from the targeting methods of experienced personnel. The higher the score, the more attention the shipment requires, and the greater the chance it will be targeted for additional enforcement actions (non-intrusive scans or physical inspection). When CBP asserts that it screens 100% of U.S.-bound cargo, it is referring to the use of the ATS system to identify high-risk containers. The port security debate surrounding the DP World purchase of P&O has raised a number of issues for Congress. Among them are the degree to which ownership is relevant to security and what potential threats to security may stem from such ownership; the federal presence on port grounds that is necessary to insure the security of a port; and the identification and mitigation of vulnerabilities in the maritime supply chain. At issue for policymakers is how to ensure and verify compliance with agreed-upon security standards in an environment in which terminal ownership is subject to change and frequently is foreign-based. DHS seeks a security regime which requires terminal operating companies to comply with federal security measures regardless of ownership. The Coast Guard checks for compliance with physical security requirements at the terminal. CBP, through its C-TPAT program, requires terminal operators to adhere to similar security measures. CBP is also in charge of deciding which cargo to physically inspect, with the terminal operator's role merely to set that cargo aside as CBP directs. TSA will be in charge of screening terminal workers when the TWIC card is implemented. One could argue that these measures apply equally to all terminal operators and that therefore the ownership of the terminal operating company is irrelevant to the security of a port. However, the credibility of these federal security requirements also depends on how much of an actual presence port businesses perceive federal authorities have in the port. In exercising its oversight role, Congress is likely to consider whether the Coast Guard and CBP have enough inspectors to verify compliance with agreed upon security measures. If one believes that stevedore ownership is relevant to security, then a subsequent question is whether foreign ownership poses more of a security risk than domestic ownership. In evaluating whether foreign terminal operators should be excluded from U.S. ports, more information as to how many U.S. marine facilities are actually operated or owned by foreign-based companies would be useful. As indicated above, most container terminals in the United States are operated by foreign companies but container terminals account for only one type of marine facility. It is probable that in some cases, other types of marine terminals are not only operated but also owned by foreign interests. While the Maritime Administration has compiled information on the ownership of container terminals at the largest U.S. container ports, similar information regarding other types of marine terminals is not readily available. It is important to pinpoint exactly what advantage a terrorist group would have if it had some kind of connection with a terminal operator. Foreign terminal operators would gain intimate knowledge of the day-to-day security procedures at the U.S. terminals they operate and theoretically could pass this knowledge on to a terrorist group. However, U.S.-based terminal operators would have the same knowledge and a terrorist group could infiltrate them also. Because foreign terminal operators hire mostly Americans to work in their terminals, they may pose no more security risk than a U.S.-based company. One could view foreign companies like DP World as mostly the financiers behind the terminal operation with little or no involvement in the day-to-day running of the terminals. Defining the potential threat posed by foreign terminal operators is important because there are also drawbacks to banning them from U.S. ports. Cargo security policy is about striking an appropriate balance between security and commerce. It also involves balancing security and capital investment. Port facilities depend on large capital investments. The piers, wharfs, cranes, and elevators needed to load and unload ships; the storage yards, warehouses, or tank farms needed to store cargo; the dredging of shipping channels and berths; and landside connections to interstate highways and transcontinental railroads are all expensive infrastructure. Thus, the issue of foreign terminal operators involves guaranteeing security while remaining attractive to sources of capital. Because it could be too late if a terrorist weapon is discovered after it arrives at a U.S. port, the security of U.S. ports necessarily relies on the cooperation of shippers, carriers, ports, terminal operators, and border agencies in the country of origin to begin the screening process. Key policy questions are: Should the United States trust these foreign entities? Should they be treated as partners and allies in securing maritime commerce? Because there are two ends to America's supply line, the answer to both may be a qualified "yes." For instance, although DP World will not be handling any U.S. cargo in U.S. ports, it will be handling U.S. cargo at ports of origin in China, Hong Kong, Europe, Southeast Asia, the Middle East, and elsewhere. In evaluating the DP World transaction or others like it, it is appropriate to consider the extent to which the United States depends on foreign entities to secure its supply chain. CSI depends on the cooperation of the host government of the overseas port of loading to inspect U.S. bound cargo. C-TPAT depends on the cooperation of overseas manufacturers and overland carriers to protect U.S. bound shipments from terrorist infiltration. ISPS relies on the cooperation of foreign governments and foreign-flag carriers to enforce port and vessel security codes. As one maritime industry spokesperson stated: This is an international business with an international problem. The only way it's going to be addressed effectively is through international efforts, which means the U.S. isn't going to do it all, nor can it do it all. While the DP World issue spotlighted the role of terminal operators in port security, the initial debate about who should be operating U.S. ports quickly broadened into a debate about whether U.S. ports are secure. The DP World controversy refueled debate about whether the nation is doing enough, doing it with enough urgency, and spending enough on U.S. port and maritime security. Members of Congress have referred to ports as the "soft underbelly" in U.S. homeland security, to the shipping container as a modern day "Trojan horse," and have argued that there are still "massive blind spots" in the maritime security regime. While no one asserts that enough has already been done to strengthen security, post-9/11 initiatives like CSI, ATS, C-TPAT, MTSA, and ISPS have, most acknowledge, created a framework for building a maritime security regime. An issue of likely interest to Congress is the effectiveness of these maritime security initiatives. GAO has issued a number of reports addressing post-9/11 security initiatives. GAO has reported several factors limiting CSI, including staffing imbalances and lack of technical requirements for NII equipment used at foreign ports. A number of concerns have also been raised by GAO regarding the C-TPAT program including the scope of effort and level of rigor applied to the validation process; how many and the types of validations that are necessary to manage security risk; and various staffing issues. The ATS system and CBP's targeting strategy more generally have been scrutinized by GAO in reports that criticize the strategy for not incorporating all the key elements of a risk management framework, and not being entirely consistent with recognized modeling practices. Also, the DHS Inspector General published the results of an audit of CBP's targeting procedures, and concluded that improvements were needed regarding the data used by ATS, examination results should be used to refine ATS targeting rules, and physical controls over containers could be improved. The DHS Inspector General has also raised concerns about the effectiveness of port security grants. The GAO has also identified difficulties in deploying radiation scanners at U.S. ports and it has reviewed the Coast Guard's ability to use risk management to guide its port security mission. The CBP and Coast Guard have begun implementing many of the GAO's and OIG's recommendations. A major concern for policymakers is assessing what is most at risk in the maritime domain and allocating the nation's resources accordingly. Three significant security issues in the container supply chain have been identified: (1) the integrity of the container packing process at the overseas factory or warehouse, (2) the integrity of the subsequent truck movement from the factory or warehouse to the overseas port of loading, and (3) the integrity of the manifest information that CBP uses, in part, to target high risk shipments for inspection. Because there is no fool-proof way to address these vulnerabilities, some security experts call for greatly increasing the percentage of containers that are physically inspected. Others question whether a determined terrorist would not be able to find an inexpensive solution to circumvent screening technology. While the threat of a shipping container being used as a "Trojan horse" by terrorists has received much attention, debate persists about the likelihood that terrorists would use them for such purpose. The GAO reports that while shipping containers are vulnerable, an extensive body of work by the FBI, academic, think tank, and business organizations concluded that the likelihood of such use to smuggle a weapon is considered low. Some contend that a more likely tactic is that terrorists would attempt to smuggle a weapon using private watercraft and land at a public marina because they could remain in control of the weapon and avoid the scrutiny that occurs at official ports of entry. Terrorists could also smuggle a weapon in other types of cargo, such as motor vehicles or breakbulk cargo. They could repeat the attack method used against the USS Cole or the Limberg in which terrorists rammed a small boat packed with explosives into the hulls of these ships. They could employ this tactic against a cruise ship, a ferry, or a ship carrying hazardous cargo. The issue for Congress is how to protect U.S. ports and the supply chains on which the U.S. economy depends. Congress faces pressing questions about the overall security of ports and maritime commerce; the amount of funding that will be required to secure the maritime transportation system; and the amount of federal presence in ports that is necessary to prevent or deter terrorist use of ports as a destination or transit point for attacks on the United States.
|
The failed attempt by Dubai Ports World (DP World) to operate marine terminals at some U.S. ports raises the issue of whether foreign marine terminal operators pose a threat to U.S. homeland security. Notwithstanding the sale of U.S. terminal operations by DP World to a U.S. entity, the underlying issue remains because many U.S. marine terminals are operated by foreign-based companies and a similar transaction could occur in the future, given the global nature of the shipping industry. Evaluating the potential security ramifications of foreign-based terminal operators requires first understanding how ports work and who is in charge of their security. Most major U.S. ports are publicly owned by a "port authority," which is a public organization associated with a city, county, regional, or state government. A port typically contains many terminals that are each designed to handle different types of cargo. Some port authorities operate all or some of their marine terminals, but most ports lease their facilities to several different terminal operating companies. All of the cargo handling that takes place on a marine terminal is performed by members of a longshoremen's union. The Coast Guard is in charge of the security of port facilities and vessels, and Customs and Border Protection (CBP) is in charge of the security of cargo. Coast Guard regulations and CBP security guidelines require terminal operators to provide basic security infrastructure, such as fences, gates, and surveillance cameras, and follow certain security practices when handling cargo. The Transportation Security Administration (TSA) is developing a credentialing process for screening port workers. However, port security involves much more than the measures put in place within the immediate vicinity of a U.S. port complex. Not finding a terrorist-placed weapon until after it reaches a U.S. port could be too late to prevent a potentially catastrophic event. Thus, securing the cargo and ships in transit to U.S. ports is critical and consequently the bulk of federal security activity takes place before cargo is unloaded at U.S. ports. Key layers of security are CBP's scrutiny of U.S.-bound cargo at the overseas port of loading and the Coast Guard's scrutiny of ships before they enter U.S. harbors. The necessity of pushing the border out to counter the terrorist threat requires the cooperation of shippers, carriers, ports, and border agencies in the country of origin to take security precautions with U.S.-bound cargo. Global terminal operators like DP World may handle U.S. cargo at the overseas loading port, even if they do not handle it at a U.S. port. Thus, a key issue for policymakers is deciding under what conditions the United States should trust foreign cargo-handling entities and whether they should be treated as partners in securing U.S. supply lines. The DP World controversy refueled debate about whether the nation is doing enough, with sufficient urgency, to secure U.S. ports. In its oversight role, Congress is assessing the effectiveness of Coast Guard and CBP maritime security initiatives and faces pressing questions about the overall security of ports and maritime commerce.
|
Various federal officials have spoken in favor of extending the Federal Communication Commission's indecency restriction, which currently applies to broadcast television and radio, to cable and satellite television. This report examines whether such an extension would violate the First Amendment's guarantee of freedom of speech. The FCC's indecency restriction was enacted pursuant to a federal statute that, insofar as it was found constitutional, requires the FCC to promulgate regulations to prohibit the broadcast of indecent programming from 6 a.m. to 10 p.m. The FCC has found that, for material to be "indecent," it "must describe or depict sexual or excretory organs or activities," and "must be patently offensive as measured by contemporary community standards for the broadcast medium." Another federal statute makes it a crime to utter "any obscene, indecent, or profane language by means of radio communication." This statute has been applied to pictures as well as words and to broadcast television as well as radio. In Federal Communications Commission v. Pacifica Foundation , the Supreme Court held that the statute does not violate the First Amendment when enforced during hours when children are likely to be in the audience. The Court in Pacifica explained: [O]f all forms of communication, it is broadcasting that has received the most limited First Amendment protection. Thus, although other speakers cannot be licensed except under laws that carefully define and narrow official discretion, a broadcaster may be deprived of his license and his forum if the Commission decides that such an action would serve "the public interest, convenience, and necessity." Similarly, although the First Amendment protects newspaper publishers from being required to print the replies of those whom they criticize, Miami Herald Publishing Co. v. Tornillo , 418 U.S. 241, it affords no such protection to broadcasters; on the contrary, they must give free time to the victims of their criticism. Red Lion Broadcasting Co. v. FCC , 395 U.S. 367. The reasons for these distinctions are complex, but two have relevance to the present case. First, the broadcast media have established a uniquely pervasive presence in the lives of all Americans. Patently offensive, indecent material presented over the airwaves confronts the citizen, not only in public, but in the privacy of the home, where the individual's right to be left alone plainly outweighs the First Amendment rights of an intruder. . . . To say that one may avoid further offense by turning off the radio when he hears indecent language is like saying that the remedy for an assault is to run away after the first blow. Second, broadcasting is uniquely accessible to children, even those too young to read. . . . Bookstores and motion picture theaters, for example, may be prohibited from making indecent material available to children. We held in Ginsberg v. New York , 390 U.S. 629, that the government's interest in the "well-being of its youth" and in supporting "parents' claim to authority in their own household" justified the regulation of otherwise protected expression. . . . In sum, the Court held that, because broadcast radio and television have a "uniquely pervasive presence" and are "uniquely accessible to children," the government may, during certain times of day, prohibit "[p]atently offensive, indecent material" on these media, as such material threatens the well-being of minors and their parents' authority in their own household. Since 1978, however, when the Court decided Pacifica , cable television has become more pervasive, thereby rendering broadcast media a less "uniquely pervasive presence." In Denver Area Educational Telecommunications Consortium, Inc. v. Federal Communications Commission , a Supreme Court plurality held that, with respect to "how pervasive and intrusive [television] programming is . . . cable and broadcast television differ little, if at all." If cable and broadcast television differ little, if at all, then, one might argue, they should be treated alike with regard to indecency restrictions. But does this mean, if one accepts that argument, that cable should be treated like broadcast or that broadcast should be treated like cable? In other words, should cable be made subject to the FCC's indecency restriction, or should broadcast no longer be subject to them? This report will consider these questions from a constitutional standpoint, not from a policy standpoint. Although one might argue that the fact that broadcast media is no longer uniquely pervasive should render Pacifica invalid, no court has found that to be the case, and the Supreme Court has cited Pacifica with approval in recent years. The FCC's indecency restriction, therefore, appears to remain constitutional as applied to broadcast media. But would it be constitutional to apply the indecency restriction to cable? In United States v. Playboy Entertainment Group, Inc., the Supreme Court held that a content-based speech restriction on cable television "can stand only if it satisfies strict scrutiny. If a statute regulates speech based on its content, it must be narrowly tailored to promote a compelling Government interest. If a less restrictive alternative would serve the Government's purpose, the legislature must use that alternative. To do otherwise would be to restrict speech without an adequate justification, a course the First Amendment does not permit. . . . It is rare that a regulation restricting speech because of its content will ever be permissible." The indecency restriction is content-based; therefore, for its application to cable television to be constitutional, it must meet "strict scrutiny," which means that it must promote a compelling governmental interest and be the least restrictive means to do so. This is the same standard that the Supreme Court applies to speech in newspapers, the Internet, and every other medium except broadcast radio and television. The Court does not apply strict scrutiny to broadcast media because, as noted in the above quotation from Pacifica , the Court holds that broadcast media have less First Amendment protection than other media. The Court, therefore, did not apply strict scrutiny in Pacifica , and the fact that in Pacifica it upheld the constitutionality of the indecency restriction as applied to broadcast media does not imply that it would uphold its constitutionality as applied to cable. Playboy concerned federal restrictions on a type of "indecent" material on cable television: "signal bleed," which refers to images or sounds that come through to non-subscribers, even though cable operators have "used scrambling in the regular course of business, so that only paying customers had access to certain programs." These restrictions, which are found in section 505 of the Communications Decency Act of 1996, require operators of cable channels "primarily dedicated to sexually-oriented programming" to implement more effective scrambling—to fully scramble or otherwise fully block programming so that non-subscribers do not receive it—or to "time channel," which, under an FCC regulation meant to transmit the programming only from 10 p.m. to 6 a.m. "To comply with the statute," the Court noted, "the majority of cable operators adopted the second, or 'time channeling,' approach. The effect . . . was to eliminate altogether the transmission of the targeted programming outside the safe harbor period [6 a.m. to 10 p.m.] in affected cable service areas. In other words, for two-thirds of the day no household in those service areas could receive the programming, whether or not the household or the viewer wanted to do so." The Court also noted that "[t]he speech in question was not thought by Congress to be so harmful that all channels were subject to restriction. Instead, the statutory disability applies only to channels 'primarily dedicated to sexually-oriented programming.'" The Court then applied strict scrutiny to section 505. It did not explicitly say that shielding children from sexually oriented signal bleed was a compelling interest, but it would "not discount the possibility that a graphic image could have a negative impact on a young child." This suggests the possibility that, even if shielding young children from seeing graphic images on cable television is a compelling governmental interest, the Court might not find that shielding older children from such images is a compelling governmental interest. In addition, the Court rejected another interest as compelling: "Even upon the assumption that the Government has an interest in substituting itself for informed and empowered parents, its interest is not sufficiently compelling to justify this widespread restriction on speech." In any case, it was not necessary for the Court to make an explicit finding of a compelling governmental interest, because it held the statute unconstitutional for not constituting the least restrictive means to advance any such interest. The Court noted that there is "a key difference between cable television and the broadcasting media, which is the point on which this case turns: Cable systems have the capacity to block unwanted channels on a household-by-household basis. . . . [T]argeted blocking enables the Government to support parental authority without affecting the First Amendment interests of speakers and willing listeners . . . ." Furthermore, targeted blocking is already required—by section 504 of the Communications Decency Act, which requires cable operators, upon request by a cable service subscriber, to, without charge, fully scramble or otherwise fully block audio and video programming that the subscriber does not wish to receive. "When a plausible, less restrictive alternative is offered to a content-based speech restriction, it is the Government's obligation to prove that the alternative will be ineffective to achieve its goal. The Government has not met that burden here." The Court concluded, therefore, that section 504, with adequate publicity to parents of their rights under it, constituted a less restrictive alternative to section 505. We now consider how a court might apply strict scrutiny in determining whether applying the FCC's indecency restriction to cable television would be constitutional. We consider first whether a court would find that applying the restriction to cable television would serve a compelling governmental interest, and then, on the assumption that it would, we consider whether a court would find it the least restrictive means to advance that interest. When the Court considers the constitutionality of a restriction on speech, it ordinarily—even when the speech that is restricted lacks full First Amendment protection and the Court applies less than strict scrutiny—requires the government to "demonstrate that the recited harms are real, not merely conjectural, and that the regulation will in fact alleviate these harms in a direct and material way." With respect to restrictions designed to deny minors access to sexually explicit material, by contrast, the courts appear to assume, without requiring evidence, that such material is harmful to minors, or to consider it "obscene as to minors," even if it is not obscene as to adults, and therefore not entitled to First Amendment protection with respect to minors, whether it is harmful to them or not. In Pacifica , as quoted above, the Court implied that making "indecent" material unavailable to children serves their "well-being." This is not to say with certainty that the Supreme Court would find a compelling governmental interest in denying minors access to "indecent" material. It might, for example, distinguish among different types of "indecent" material, and, even if it found a compelling governmental interest in denying minors access to sexually explicit material, it might find otherwise with respect to four-letter words, in light of the fact that minors generally hear such words elsewhere than on cable television, and in light of the fact that such words may be used as adjectives or expletives, arguably with no sexual or excretory connotation. The Court might also distinguish among minors of different ages, even with respect to access to sexually explicit material. As noted above, in Playboy the Court seemed to leave open the possibility that it might not find a compelling governmental interest in shielding older children from sexually oriented material. In addition, when the Court struck down the portion of the Communications Decency Act of 1996 that prohibited "indecent" material on the Internet, the Court would "neither accept nor reject the Government's submission that the First Amendment does not forbid a blanket prohibition on all 'indecent' and 'patently offensive' messages communicated to a 17-year-old—no matter how much value the message may have and regardless of parental approval. It is at least clear that the strength of the Government's interest in protecting minors is not equally strong throughout the coverage of this broad statute." The Supreme Court has cited another governmental interest that might be asserted to justify applying the FCC's indecency restriction to cable, but the Court has not stated whether it is "compelling": it is the interest "in supporting 'parents' claim to authority in their own household.'" A dissenting judge has argued that "a law that effectively bans all indecent programming . . . does not facilitate parental supervision. In my view, my right as a parent has been preempted, not facilitated, if I am told that certain programming will be banned from my . . . television. Congress cannot take away my right to decide what my children watch, absent some showing that my children are in fact at risk of harm from exposure to indecent programming." Perhaps, however, the Supreme Court would take the approach it did in Playboy and focus on the second aspect of strict scrutiny: whether the FCC's indecency restriction is the least restrictive means available to advance the government's interest. Assuming for the sake of argument that applying the FCC's indecency restriction to cable television would serve a compelling governmental interest, is there a less restrictive means by which that interest could be served? If so, then applying the FCC's indecency restriction to cable television would be unconstitutional. The Court in Playboy , as quoted above, noted that there is "a key difference between cable television and the broadcasting media, which is the point on which this case turns: Cable systems have the capacity to block unwanted channels on a household-by-household basis. . . . [T]argeted blocking enables the Government to support parental authority without affecting the First Amendment interests of speakers and willing listeners . . . ." The targeted blocking, however, that the Court in Playboy found to be a less restrictive means to keep signal bleed from viewers who object to it, would not seem as feasible to keep "indecent" material from viewers who object to it. In the case of signal bleed, a viewer could request blocking of channels that he knows to present pornography. By contrast, in order for targeted blocking to keep "indecent" programming from viewers who object to it, viewers would have to know what channels would ever, between 6 a.m. and 10 p.m., allow on any program the utterance of a four-letter word or the exposure of a woman's breast, among other things. For viewers to know this would seem to entail that every channel be required to state whether it will refrain from transmitting "indecent" material on all future programming, and, if a channel stated that it would, to be bound by that statement. This requirement would appear to burden freedom of speech to the extent that it might well violate the First Amendment. It might even be viewed as a prior restraint, and prior restraints are almost always unconstitutional. To the extent that technology allows viewers to block particular programs as opposed to entire channels, the same First Amendment difficulties would apparently arise. For such blocking to be effective, producers who did not wish to be blocked for transmitting "indecent" programming would have to agree to refrain from ever allowing the utterance of a four-letter word on a program, even if the program ordinarily contained nothing deemed "indecent." Thus, there may be no less restrictive means that would be constitutional to keep "indecent" material off cable television during certain hours than to apply the FCC's indecency restrictions. This, however, would not necessarily mean that to apply them to cable television would be constitutional. Two federal courts of appeals have written that "[t]he State may not regulate at all if it turns out that even the least restrictive means of regulation is still unreasonable when its limitations on freedom of speech are balanced against the benefits gained from those limitations." The more recent of these cases affirmed a preliminary injunction against the enforcement of the Child Online Protection Act, which banned material that is "harmful to minors" from the Internet. The older case upheld FCC regulations that implemented a statute that restricted minors' access to obscene "dial-a-porn" services. It appears that a strong case may be made that applying the FCC's indecency restriction to cable television would be "unreasonable" under the above court of appeals' formulation. This is because, as the Supreme Court wrote when it struck down the ban on "indecent" material on the Internet, "the Government may not 'reduc[e] the adult population . . . to . . . only what is fit for children.' '[R]egardless of the strength of the government's interest' in protecting children, '[t]he level of discourse reaching a mailbox simply cannot be limited to that which would be suitable for a sandbox.'" One might reply that to apply the FCC's indecency restriction to cable would limit the adult population's discourse only from 6 a.m. to 10 p.m. But the fact the Supreme Court in Pacifica upheld such a limitation on broadcast media does not mean that it would uphold it on cable television. In Pacifica , as noted, the Court did not apply strict scrutiny. In Playboy , where the Court did apply strict scrutiny to a speech restriction on cable television, it held the speech restriction unconstitutional, in part because, as quoted above, "for two-thirds of the day no household in those service areas could receive the programming, whether or not the household or the viewer wanted to do so." In addition, the Court struck down the ban in the Communications Decency Act of 1996 on "indecent" material on the Internet, notwithstanding that such material is available to adults in other media. It seems clear that governmental restrictions of fully protected speech, including "indecent" material on cable television, are unconstitutional unless they pass strict scrutiny, even if they do not close all outlets for such speech. In 1978, in Pacifica , the Supreme Court held that, because broadcast radio and television have a "uniquely pervasive presence" and are "uniquely accessible to children," the government may, during certain times of day, prohibit "[p]atently offensive, indecent material" on these media. In 1996, however, in Denver Area Consortium, a Supreme Court plurality held that, with respect to "how pervasive and intrusive [television] programming is . . . cable and broadcast television differ little, if at all." The fact that a plurality of the Court views cable and broadcast television as differing little with respect to their pervasiveness and intrusiveness might suggest that the Court would apply the First Amendment to both media in the same way. The Court, however, continues to cite Pacifica with approval, but, in Playboy , it held that governmental restrictions on cable television are, unlike those on broadcast media, entitled to strict scrutiny. Thus, whereas, in Pacifica , the Court upheld a restriction on "indecent" material on broadcast media without applying strict scrutiny, the Court apparently would not uphold a comparable restriction on "indecent" material on cable television unless the restriction served a compelling governmental interest by the least restrictive means. It seems uncertain whether the Court would find that denying minors access to "indecent" material on cable television would constitute a compelling governmental interest. Although the Court has held that denying minors access to sexually explicit material constitutes a compelling governmental interest, not all "indecent" material is sexually explicit. In addition, the Court has suggested that it may not view minors of all ages identically for First Amendment purposes. Assuming for the sake of argument that the Court would find a compelling governmental interest in denying minors access to "indecent" material on cable television, there does not appear to be a less restrictive means than the FCC's restrictions to advance this interest, other than banning "indecent" material for fewer hours per day. The lack of a less restrictive means, however, would not necessarily mean that to apply the FCC's restrictions to cable television would be constitutional. This is because, as two federal courts of appeals have written, "[t]he State may not regulate at all if it turns out that even the least restrictive means of regulation is still unreasonable when its limitations on freedom of speech are balanced against the benefits gained from those limitations." The Supreme Court has not spoken on this proposition, however. It appears that a strong case may be made that applying the FCC's indecency restriction to cable television would be "unreasonable" under this formulation. This is because, as the Supreme Court wrote when it struck down the ban on "indecent" material in the Internet, "the Government may not 'reduc[e] the adult population . . . to . . . only what is fit for children.'" In Playboy , the Court, applying strict scrutiny, struck down a speech restriction on cable television, in part because "for two-thirds of the day no household in those service areas could receive the programming, whether or not the household or the viewer wanted to do so." Thus, it appears likely that a court would find that to apply the FCC's indecency restriction to cable television would be unconstitutional.
|
Various federal officials have spoken in favor of extending the Federal Communication Commission's indecency restriction, which currently applies to broadcast television and radio, to cable and satellite television. This report examines whether such an extension would violate the First Amendment's guarantee of freedom of speech. The FCC's indecency restriction was enacted pursuant to a federal statute that, insofar as it was found constitutional, requires the FCC to promulgate regulations to prohibit the broadcast of indecent programming from 6 a.m. to 10 p.m. The FCC has found that, for material to be "indecent," it "must describe or depict sexual or excretory organs or activities," and "must be patently offensive as measured by contemporary community standards for the broadcast medium." In 1978, in Pacifica, the Supreme Court held that, because broadcast radio and television have a "uniquely pervasive presence" and are "uniquely accessible to children," the government may, during certain times of day, prohibit "[p]atently offensive, indecent material" on these media. In 1996, however, a Supreme Court plurality held that, with respect to "how pervasive and intrusive [television] programming is . . . cable and broadcast television differ little, if at all." Then, in 2000, the Court held that governmental restrictions on speech on cable television are, unlike those on broadcast media, entitled to strict scrutiny. Thus, whereas, in Pacifica, the Court upheld a restriction on "indecent" material on broadcast media without applying strict scrutiny, the Court apparently would not uphold a comparable restriction on "indecent" material on cable television unless the restriction served a compelling governmental interest by the least restrictive means. It seems uncertain whether the Court would find that denying minors access to "indecent" material on cable television would constitute a compelling governmental interest. Assuming that it would, then, whether or not there is a less restrictive means than a 6 a.m.-to-10 p.m. ban by which to deny minors access to "indecent" material on cable television, it appears that a strong case may be made that applying the FCC's indecency restrictions to cable television would violate the First Amendment. This is because, as the Supreme Court wrote when it struck down the ban on "indecent" material on the Internet, "the Government may not 'reduc[e] the adult population . . . to . . . only what is fit for children.'" In addition, the Court, in the 2000 case mentioned above, struck down a speech restriction on cable television, in part because "for two-thirds of the day no household in those service areas could receive the programming, whether or not the household or the viewer wanted to do so."
|
Some Members of Congress and policy experts allege that U.S. producers and U.S. jobs have been adversely affected by the exchange rate policies adopted by China, Japan, and a number of other countries. They maintain that some countries are purposefully using various policies to weaken the value of their currency to boost exports and create jobs, but that these policies come at the expense of other countries, including the United States. During the global financial crisis, some political leaders and policy experts argued that there was a "currency war" in the global economy, as countries competed against each other to weaken the value of their currencies and boost exports. Even as the global financial crisis has faded, some policymakers continue to express concerns that other countries are using exchange rate policies to gain an unfair trade advantage against the United States. Some economists are skeptical about "currency manipulation" and whether it is a significant problem. They raise questions about whether government policies have long-term effects on exchange rates; whether it is possible to differentiate between "manipulation" and legitimate central bank activities; and the net effect of alleged currency manipulation on the U.S. economy. Some Members of Congress have proposed taking additional measures to address concerns about the exchange rate policies of other countries, while other Members have cautioned against aggressive measures that could trigger retaliation, among other concerns. During the 114 th Congress, two major pieces of legislation were enacted that contain provisions on currency. TPA legislation signed into law in June 2015 ( P.L. 114-26 ) includes principal negotiating objectives addressing currency manipulation. Provisions to combat currency manipulation were also included in the Trade Facilitation and Trade Enforcement Act ( P.L. 114-125 ), signed into law in February 2016. In the 115 th Congress, debates about currency manipulation have surfaced in the context of renegotiations of the North American Free Trade Agreement (NAFTA) and modifications to the U.S.-South Korea Free Trade Agreement (KORUS FTA). This report provides information on current debates over exchange rates in the global economy. It offers an overview of how exchange rates work; analyzes specific disagreements and debates; and examines existing frameworks for potentially addressing currency disputes. It also lays out some policy options available to Congress, should Members want to take action on exchange rate issues. An exchange rate is the price of a country's currency relative to other currencies. In other words, it is the rate at which one currency can be converted into another currency. For example, at the beginning of January 2018, one U.S. dollar could be exchanged for 0.83 euros (€), 112 Japanese yen (¥), or 0.74 British pounds (£). Exchange rates are expressed in terms of dollars per foreign currency, or expressed in terms of foreign currency per dollar. The exchange rate between dollars and euros in early January 2016 can be quoted as 1.21 dollars per euro ($/€) or, equivalently, 0.83 euros per dollar (€/$). Consumers use exchange rates to calculate the cost of goods produced in other countries. For example, U.S. consumers use exchange rates to calculate how much a bottle of French or Australian wine costs in U.S. dollars. Likewise, French and Australian consumers use exchange rates to calculate how much a bottle of U.S. wine costs in euros or Australian dollars. How much a currency is worth in relation to another currency is determined by the supply and demand for currencies in the foreign exchange market (the market in which foreign currencies are traded). The foreign exchange market is substantial, and has expanded in recent years. Trading in foreign exchange markets averaged $5.1 trillion per day in April 2016 (latest data available), up from $3.3 trillion in April 2007. The relative demand for currencies reflects the underlying demand for goods and assets denominated in that currency, and large international capital flows can have a strong influence on the demand for various currencies. The government, typically the central bank, can use policies to shape the supply of its currency in international capital markets. Exchange rates affect the price of every export leaving a country and every import entering a country. As a result, changes in the exchange rate can impact trade flows. When the value of a country's currency falls, or depreciates, relative to another currency, its exports become less expensive to foreigners and imports from overseas become more expensive to domestic consumers. These changes in relative prices can cause the level of exports to rise and the level of imports to fall. For example, if the dollar depreciates against the British pound, U.S. exports become cheaper to UK consumers, and imports from the UK become more expensive to U.S. consumers. As a result, U.S. exports to the UK may rise, and U.S. imports from the UK may fall. Likewise, when the value of a currency rises, or appreciates, the country's exports become more expensive to foreigners and imports become less expensive to domestic consumers. This can cause exports to fall and imports to rise. For example, if the dollar appreciates against the Australian dollar, U.S. exports become more expensive to Australian consumers, and imports from Australia become less expensive to U.S. consumers. Changes in prices may cause U.S. exports to Australia to fall and U.S. imports from Australia to rise. Exchange rates impact international investment in two ways. First, exchange rates determine the value of existing overseas investments. When a currency depreciates, the value of investments denominated in that currency falls for overseas investors. Likewise, when a currency appreciates, the value of investments denominated in that currency rises for overseas investors. For example, if a U.S. investor holds a German government bond denominated in euros, and the euro depreciates, the value of the bond in U.S. dollars falls, making the investment worth less to the U.S. investor. In contrast, if the euro appreciates, the value of the German bond in U.S. dollars rises, and the investment is worth more to the U.S. investor. Second, exchange rates impact the flow of investment across borders. Changes in the value of a currency today can shape investors' future expectations about the value of the currency, which can have substantial impacts on capital flows. If investors expect a currency to depreciate, overseas investors may be reluctant to invest in assets denominated in that currency and may want to sell assets denominated in the currency, in fear that their investments will become less valuable over time. Likewise, if a currency is expected to rise over time, assets denominated in that currency become more attractive to overseas investors. For example, a depreciating euro may deter U.S. investment in the Eurozone, while an appreciating euro may increase U.S. investment in the Eurozone. There are two major types of exchange rate policies. First, some governments "float" their currencies. This means they allow the price of their currency to fluctuate depending on supply and demand for currencies in foreign exchange markets. Governments with floating exchange rates do not take policy actions to influence the value of their currencies. Second, some countries "fix" or "peg" their exchange rate. This means they fix the value of their currency to another currency (such as the U.S. dollar or euro), a group (or "basket") of currencies, or a commodity, such as gold. The government (typically the central bank) then uses various policies to control the supply and demand for the currency in foreign exchange markets to maintain the set price for the currency. Often, central banks maintain exchange rate pegs by buying and selling currency in foreign exchange markets, or "intervening" in foreign exchange markets. There are pros and cons to having a floating or fixed exchange rate. Fixed exchange rates provide more certainty in international transactions, but they can make it more difficult for the economy to adjust to economic shocks and can make the currency more susceptible to speculative attacks. Floating exchange rates introduce more unpredictability in international transactions and may deter international trade and investment, but make it easier for the economy to adjust to changes in economic conditions. In order to take advantage of the benefits of both fixed and floating exchange rates, many countries do not adopt a purely fixed or floating exchange rate, but choose a hybrid policy: they let the currency's value fluctuate but take action to keep the exchange rate from deviating too far from a target value or zone. The degree to which they float or peg varies. The optimal choice for any given country will depend on its characteristics, including its size and interconnectedness to the country to which it would peg its currency. Between the end of World War II and the early 1970s, most countries, including the United States, had fixed exchange rates. In the early 1970s, when international capital flows increased, the United States abandoned its peg to gold and floated the dollar. Other countries' currencies were pegged to the dollar, and after the dollar floated, some other countries decided to float their currencies as well. In 2016 (latest data available), 36% of countries had floating currencies . This includes several major currencies, such as the U.S. dollar, the euro, the Japanese yen, and the British pound, whose economies together account for half of global GDP. Many countries use policies to manage the value of their currencies, although some manage it more than others. This includes many small countries, such as Panama and Hong Kong, as well as a few larger economies, such as China and Saudi Arabia. In 2014, 42% of countries used a "soft" peg, which let the exchange rate fluctuate within a desired range, and 13% of countries used a "hard" peg, which anchors the currency's value more strictly, including the formal adoption of a foreign currency to use as a domestic currency (for example, Ecuador has adopted the U.S. dollar as its national currency). No large country uses a hard peg. Figure 1 depicts the exchange rate policies adopted by different countries. Many economists believe that exchange rate levels can differ from the underlying "fundamental" or "equilibrium" value of the exchange rate. When an actual exchange rate differs from its fundamental or equilibrium value, the currency is said to be misaligned. More specifically, when the actual exchange rate is too high, the currency is said to be overvalued; when the actual rate is too low, the currency is said to be undervalued. Considerable debate exists about what the fundamental or equilibrium value of a currency is and how to define or calculate currency misalignment. For example, some economists believe that a currency is misaligned when the exchange rate set by the government, or the official rate, differs from what would be set by the market if the currency were allowed to float. By this reasoning, governments that take policy actions to sustain an exchange rate peg, such as intervening in currency markets, most likely have misaligned currencies. Additionally, this view suggests that floating currencies, by definition, cannot be misaligned, since their values are determined by market forces. For other economists, a currency can be misaligned even if it is a floating rate. This is the case if the exchange rate differs from its long-term equilibrium value, which is based on economic fundamentals and eliminates short-term factors that can cause the exchange rate to fluctuate. Defining or estimating an equilibrium exchange rate is not a straightforward process and is complex. Economists disagree on the factors that determine an equilibrium exchange rate, and whether the concept is a valid one, particularly when applied to countries with floating exchange rates. Economists have developed a number of models for calculating differences between actual exchange rates and equilibrium exchange rates. Estimates of whether a currency is misaligned, and if so, by how much, can vary widely depending on the model used. Amid heightened concerns about slow growth and high unemployment in many countries, disagreements over exchange rate policies broadened following the global financial crisis. In 2010, Brazil's finance minister, Guido Mantega, declared that a "currency war" had broken out in the global economy. Even as the global economy has recovered, many concerns about exchange rates persist. At the heart of disagreements is whether or not countries are using policies to intentionally push down the value of their currency in order to gain a trade advantage at the expense of other countries. A weak currency makes exports cheaper to foreigners and imports more expensive to domestic consumers. This can lead to higher production of exports and import-competing goods, which could help spur export-led growth and job creation in the export sector. However, if one country weakens its currency, there can be negative implications for certain sectors in other countries. In general, a weaker currency in one country can hurt exporters in other countries, since their exports become relatively more expensive and may fall as a result. Additionally, domestic firms producing import-competing goods may find it harder to compete with imports from countries with weak currencies, since weak currencies lower the cost of imports. Under certain circumstances, policies used to drive down the value of a currency in one country can cause other countries to run persistent trade deficits (imports exceed exports) that can be difficult to adjust and can be associated with the build-up of debt. For these reasons, some economists view efforts to boost exports through a weaker exchange rate as "unfair" to other countries and a type of "beggar-thy-neighbor" policy—the benefit the country gets from the policy comes at the expense of other countries. These views are particularly rooted in the experience in the 1930s, during which, some economists argue, countries devalued their currencies to boost exports, in response to widespread high unemployment and negative economic conditions. The devaluations in the 1930s are referred to as "competitive devaluations," since a devaluation in one country was often offset by a devaluation in another country, making it difficult for any country to gain a lasting advantage. Some economists view the competitive devaluations of the 1930s as detrimental to international trade, and, in addition to protectionist trade policies, as exacerbating the Great Depression. Some economists disagree that "currency wars" and competitive devaluations characterized the period following the global financial crisis of 2008-2009, and if they did, whether they are necessarily bad for the global economy. Because currency devaluations can often involve printing domestic currency, or implementing expansionary monetary policies, they can stimulate short-term economic growth. If enough countries engage in currency interventions, then there may be no net change in relative exchange rate levels and the simultaneous currency interventions may help reflate the global economy and boost global economic growth. Economists of this viewpoint argue that competitive devaluations of the 1930s did not cause the Great Depression and, in fact, actually helped end it. Additionally, a weak currency in one country does not have an unambiguous negative effect on other countries. Instead, consumers and certain sectors may benefit when other countries have weak currencies. In particular, consumers that purchase imports from abroad benefit when other countries have weak currencies, because imports become cheaper. Businesses that rely on inputs from overseas also benefit when other countries have weak currencies, by lowering the costs of inputs and thus the overall cost of production. In current debates about exchange rates and whether countries are engaged in unfair currency policies to weaken their currencies, two major types of concerns have been raised: first, concerns about countries engaged in interventions in foreign currency markets, and second, concerns about the effects of expansionary monetary policies in some developed countries on exchange rate levels. Governments have various mechanisms they can use to weaken, or devalue, their currency, or sustain a lower exchange rate than would exist in the absence of government intervention. One way is intervening in foreign exchange markets or, more specifically, selling domestic currency in exchange for foreign currency. These interventions increase the supply of domestic currency relative to other currencies in foreign exchange markets, pushing the price of the currency down. The foreign currency is typically then invested in foreign assets, most commonly government bonds. Concerns about currency interventions are not new. For nearly a decade, various policymakers and analysts have raised concerns about China's interventions in foreign exchange markets to maintain, in their view, an undervalued currency relative to the U.S. dollar. Since the global financial crisis, however, concerns about currency interventions have become more widespread, as more countries, including Switzerland and others, intervened in foreign exchange markets, in the view of some analysts, to lower the value of their currency. Over the past decade, the Chinese government has tightly managed the value of its currency, the renminbi (RMB) or yuan, against the U.S. dollar. Some policymakers and analysts have argued that China's currency policies keep the RMB undervalued relative to the U.S. dollar, giving Chinese exports an "unfair" trade advantage against U.S. exports and contributing to the U.S. trade deficit with China. However, recent developments in exchange rate markets have led some economists to argue that China's currency is no longer undervalued against the U.S. dollar. In 1994, China began to peg its currency to the U.S. dollar and kept it pegged to the U.S. dollar at a constant rate through 2005. In July 2005, it moved to a managed peg system, in which the government allowed the currency to fluctuate within a range, and the currency began to appreciate. In 2008, China halted appreciation of the RMB, due to concerns about the effects of the global financial crisis on Chinese exports. In 2012, China again allowed more flexibility in the value of the RMB against the U.S. dollar, and widened the trading band for the currency in 2014. Between 2005 and the end of 2015, the RMB appreciated by more than 20% against the dollar ( Figure 2 ). The Chinese government used various policies to manage this appreciation of the RMB against the U.S. dollar. It printed yuan and sold it for U.S. currency and assets denominated in U.S. dollars, usually U.S. government bonds. It also manages the value of its exchange rate through capital controls that limit buying and selling of RMB. As China has engaged in currency interventions, its holdings of foreign exchange reserves increased, from $659 billion in the first quarter of 2005 to a peak of $3.9 trillion in the first quarter of 2014 ( Figure 2 ). Some economists view the sustained, substantial increase in foreign exchange reserves as evidence that the Chinese government kept the value of the RMB below what it would be if the RMB were allowed to float freely. With the gradual appreciation of the RMB against the dollar in recent years, some policymakers and analysts have questioned whether the yuan is still undervalued against the U.S. dollar when adjusting for differences in price levels (the real exchange rate), and if so, by how much, particularly as inflation has increased in China. In May 2015, the IMF stated that the currency is "no longer undervalued." In August 2015, the Chinese central bank announced that the daily RMB parity values would become more "market-orientated." China has also been selling foreign exchange reserves to prevent further depreciation of the currency, amid concerns about slower growth rates in China. China's currency depreciated in 2015 and 2016, although it resumed some appreciation in 2017. Although China does not disclose interventions in its foreign exchange market, the Treasury Department estimates that Chinese authorities significantly curtailed interventions in the second half of 2017 that they had been undertaking to support the value of the RMB. Other examples of interventions to weaken currencies in recent years include, among others, the following: Japan , which sold yen in foreign exchange markets in 2010 and 2011. Japan's interventions in March 2011 were unusual in that they were supported with corresponding interventions by the other G-7 countries to weaken the yen. A crisis in Japan (earthquake, tsunami, and threat of nuclear crisis) in March 2011 had sparked a sharp appreciation of the yen, which some feared would throw the world's third-largest economy back into recession, prompting the coordinated interventions; New Zealand , whose central bank revealed in May 2013 that it had intervened in currency markets to stem appreciation of its currency, the New Zealand dollar (nicknamed the kiwi); South Korea , which is believed to have intervened in currency markets to hold down the value of the won at various points in recent years, including estimated net purchases of $9 billion in 2017; Switzerland , which intervened to limit appreciation of the Swiss franc between September 2011 and January 2015, as a result of increased demand for the currency as a "safe haven" during the Eurozone crisis. In January 2015, the central bank of Switzerland (the Swiss National Bank) resumed its previous policy of allowing the Swiss franc to float freely; and Taiwan , which Treasury believes intervenes on both sides of the market but, on net, intervenes more frequently to resist appreciation of its currency, the new Taiwan dollar. More generally, according to a June 2017 study by economists at the Peterson Institute of International Economics (PIIE), 20 countries intervened aggressively in at least one of the 11 years from 2003 to 2013 to keep their currencies undervalued, including Algeria, China, Hong Kong, Israel, Japan, Kuwait, Libya, Macao, Malaysia, Norway, Oman, Russia, Singapore, South Korea, Sweden, Switzerland, Taiwan, Thailand, Trinidad and Tobago, and the United Arab Emirates. A number of countries are actively intervening, or have recently intervened, in foreign exchange markets to lower the value of their currencies, and there are different views among economists about the consequences of these interventions for other countries. Some economists argue that currency interventions have helped countries give their exports a boost at the expense of other countries. A December 2012 study by economists at the PIIE estimates that currency interventions have caused the U.S. trade deficit to increase by $200 billion to $500 billion per year and the U.S. economy to lose between 1 million and 5 million jobs. Their updated study in 2017 found that that manipulation cost the United States 1 million jobs between 2009 and 2014, exacerbating the recovery from the global financial crisis. Other economists are skeptical that one country's interventions in foreign exchange markets have had adverse consequences for other countries. For example, some economists argue that interventions in foreign exchange markets by other countries change the composition of output in the United States (particularly the size of the export- and domestic-oriented sectors), but do not reduce the overall employment or output levels in the U.S. economy. Some economists also question whether currency interventions have long-lasting effects on exchange rate levels, particularly for countries with floating currencies. They argue that the large size of international capital flows overwhelms, in the long term, government purchases and sales of foreign currencies, and that other economic fundamentals, such as interest rates, inflation rates, and overall economic performance, have much greater effects on exchange rate levels. Still other economists argue that it is hard to make generalizations about the effects of currency interventions, and that, depending on the specific circumstances, currency interventions may or may not be "fair" policies. For example, they argue that relevant factors can include the following: Does the government i ntervene in currency markets to sometimes strengthen and sometimes weaken its currency, or does it always intervene to weaken its currency? "Two-way" interventions (sometimes strengthening the currency, sometimes weakening the currency) may be evidence that the country is using currency interventions to sustain a pegged exchange rate that is close to its long-term fundamental or equilibrium value. Some economists argue that "one-way" interventions (always selling domestic currency) may be evidence that the government is using interventions to sustain a currency that is below the currency's fundamental or equilibrium value. Does the government intervene periodically, or on a continual basis? Periodic interventions may smooth potentially disruptive short-term fluctuations in the exchange rate and help the country build foreign exchange reserves, which can help it guard against economic crises. Sustained, or long-term, interventions may create negative distortions in the global economy. Does the government allow the intervention to increase its domestic money supply, or does the government "sterilize" the intervention to prevent an increase in its domestic money supply? When some governments intervene in currency markets by selling domestic currency, they allow the domestic money supply to increase. This is called an unsterilized intervention. When other countries (such as China) intervene, they do not allow their money supply to increase. Instead, when they sell domestic currency in exchange for foreign currency, they then sell a corresponding quantity of domestic government bonds to remove the extra domestic currency from circulation. This is called a sterilized intervention. It may matter to other countries whether the intervening country sterilizes the intervention or not. For example, increasing the money supply may help increase domestic demand, which in certain circumstances can cause consumers to buy more, not fewer, imports from other countries. Additionally, an increase in the money supply may cause prices to rise in the medium term. This may mean that the exchange rate adjusted for inflation (the real exchange rate) may not change in the medium term (after prices adjust), even if the nominal exchange rate (the exchange rate not adjusted for inflation) falls. In addition to intervening directly in foreign exchange markets, governments can weaken the value of their currency through expansionary monetary policies. Monetary policy is the process by which a government (usually the central bank) controls the supply of money in an economy, such as by changing the interest rates through buying and selling government bonds. Changes in the money supply can impact the value of the currency. For example, increasing the supply of British pounds can cause the price of the pound to fall. Some emerging markets, particularly Brazil, were critical of the expansionary monetary policies adopted by the United States, the United Kingdom, and the Eurozone in response to the global financial crisis of 2008-2009. Some U.S. policymakers also raised concerns about Japan's monetary policies, following a major policy shift in late 2012 and early 2013. The United States, the United Kingdom, and, to a lesser extent, the Eurozone adopted expansionary monetary policies to respond to the economic recession following the global financial crisis of 2008-2009. In addition to cutting interest rates, the Federal Reserve, the Bank of England, and the European Central Bank (ECB) used quantitative easing to provide further monetary stimulus. Quantitative easing is an unconventional form of monetary policy that expands the money supply through government purchases of assets, usually government bonds. Quantitative easing is typically used when more conventional monetary policy tools are no longer feasible, for example, when short-term interest rates cannot be cut because they are already near zero. Some emerging markets have argued that because the U.S. dollar, the British pound, and the euro are floating currencies, expansionary policies in these countries have caused these currencies to depreciate against the currencies of emerging markets. For example, Brazil has argued that quantitative easing in developed countries was a key factor in causing its currency (the real) to appreciate by more than 25% against the dollar between the start of 2009 and the end of the third quarter of 2010 ( Figure 3 ), when Brazil's finance minister, Guido Mantega, declared that a currency "war" had broken out in the global economy. Brazil imposed some short-term controls on inflows of capital into Brazil (capital controls) to stem appreciation of the real. In response to the concerns of emerging markets, many policymakers and analysts have argued that the Federal Reserve, the Bank of England, and the ECB adopted expansionary monetary policies for domestic purposes (combatting the recession), and that any effect on their currencies was a side effect or by-product of the policy. For example, during a Senate Banking Committee hearing in February 2013, the Chairman of the Federal Reserve, Ben Bernanke, stressed that the Federal Reserve is not engaged in a currency war or targeting the value of the U.S. dollar. Instead, he emphasized that monetary policy is being used to achieve domestic economic objectives (high employment and price stability). He also stressed that monetary policies to strengthen aggregate demand in the United States are not "zero-sum," because they raise the demand for the exports of other countries. The concerns of emerging markets about the effects of quantitative easing have subsided. As developed countries have started rolling back expansionary monetary policies, the real has weakened substantially against the U.S. dollar ( Figure 3 ). Brazil's government, in fact, has started expressing concerns about the real becoming too weak, and in August 2013, intervened in foreign currency markets to strengthen its currency. The concerns of emerging-market economies about the potential rollback of quantitative easing policies in developed countries, including the United States, were a major topic of discussion at the September 2013 G-20 summit in St. Petersburg, Russia. Concerns have also been recently raised about major changes in Japan's monetary policy and their effects on the value of the yen. Elected in December 2012, Prime Minister Shinzo Abe has made it a priority of his administration to grow Japan's economy and eliminate deflation (falling prices), which has plagued Japan for many years. His economic plan, nicknamed "Abenomics," relies on three major economic policies: expansionary monetary policies, fiscal stimulus, and structural reforms. To promote expansionary monetary policy, Japan's central bank (the Bank of Japan) unveiled a host of new measures in the first half of 2013, including goals to double the monetary base (commercial bank reserves plus currency circulating in the public) and to double its holdings of Japanese government bonds. By buying government bonds in exchange for yen, the Bank of Japan can increase Japan's money supply. Japan's central bank has had relatively loose monetary policy since 2013, although some believe it could tighten in early 2019. Expansionary monetary policies in Japan may have also contributed to a relatively sharp depreciation of the yen, which fell by almost 50% against the U.S. dollar between mid-2012 and the end of 2015 ( Figure 4 ) to its 2007 level, even as Japan has not directly intervened in currency markets since 2011. Several countries expressed their concerns about a weakening of the yen. In 2013, an official from the Russian central bank reportedly warned that "Japan is weakening the yen and other countries may follow," and that "the world is on the brink of a fresh currency war." Additionally, the president of China's sovereign wealth fund reportedly warned Japan against using its neighbors as a "garbage bin" by deliberately devaluing the yen, and South Korea's finance minister argued that Japan's weakening yen hurts his country's economy more than threats from North Korea. Movements in Japan's currency have also created concerns for some Members of Congress, with concerns being raised about the currency policies in the context of the proposed TPP, where Japan is one of the negotiating parties. Others argue that a weakening yen partially offset the slow, but continued, appreciation of the yen in the preceding several years ( Figure 4 ). For example, in January 2012, the IMF estimated that the Japanese yen was "moderately overvalued from a medium-term perspective." Some also argue that, rather than targeting the value of the currency, Japan's monetary policies are targeting domestic objectives, namely, beating deflation that has plagued the economy for many years. Japan's finance minister, Taro Aso, reportedly stated that "monetary easing is aimed at pulling Japan out of deflation quickly. It is not accurate at all to criticize (us) for manipulating currencies." In 2016 and 2017, controversy surrounding Japan's exchange rate policies dissipated, as the yen started to strengthen and the government has not directly intervened in foreign exchange markets in over six years. There is debate over whether the expansionary monetary policies, including quantitative easing, implemented by some developed economies have been "beggar-thy-neighbor" policies. Some argue that expansionary monetary policies have unfairly caused the currencies of developed countries to depreciate against other countries, giving the exports of developed countries an "unfair" export boost. However, most economists agree that the expansionary policies in the United States, the UK, the Eurozone, and Japan have been designed to stimulate their domestic economies and will, in the medium term, cause prices to rise. As a result, they argue that there will be little effect on the real exchange rate (the exchange rate adjusted for differences in prices across countries) in the medium term (as prices increase), even if the nominal exchange rate (the exchange rate not adjusted for differences in prices across countries) falls in the short term. However, it should be noted that inflation in all these countries remains very low, to date. Additionally, some argue that the expansionary policies stimulate domestic consumption and investment, which ordinarily leads to higher, not lower, imports from other countries, all else being equal. They argue that the net effect of quantitative easing and similar policies on trading partners is not necessarily negative and could be positive in some instances. For example, the IMF estimated that the first round of quantitative easing in the United States resulted in substantial output gains for the rest of the world, and that the second round generated modest output gains for the rest of the world. For some economists, then, a key question to evaluate whether expansionary monetary policies are "fair" or "unfair" in the context of claims about "currency wars" is as follows: Is it appropriate for countries to adopt expansionary monetary policies to combat a domestic economic recession, even if some sectors in other countries may be adversely affected in the short run ?: Some economists argue that countries should use expansionary monetary policies to respond to economic recessions. Moreover, most central banks, including the Fed, are pursuing statutory mandates that do not include foreign exchange rate requirements and responsibilities. Other economists argue that countries have a number of policy tools to respond to economic recessions, not just monetary policy, and that in today's globalized economy, a country should consider the potential negative spillover effects on other countries in its decisionmaking process. Some Members' concerns about currency manipulation and its impact on U.S. producers and workers have led to legislation over the past several decades. Key legislation seeking to address currency manipulation that has been signed into law is described below. In 1988, Congress enacted the "Exchange Rates and International Economic Policy Coordination Act of 1988" as part of the Omnibus Trade and Competitiveness Act of 1988 (the 1988 Trade Act), when many policymakers were concerned about the appreciation of the U.S. dollar and large U.S. trade deficits. A key component of this act requires the department to analyze on an annual basis the exchange rate policies of foreign countries, in consultation with the International Monetary Fund (IMF), and "consider whether countries manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade." If "manipulation" is occurring with respect to countries that have (1) global currency account surpluses and (2) significant bilateral trade surpluses with the United States, the Secretary of the Treasury is to initiate negotiations, through the IMF or bilaterally, to ensure adjustment in the exchange rate and eliminate the "unfair" trade advantage. The Secretary of the Treasury is not required to start negotiations in cases where they would have a serious detrimental impact on vital U.S. economic and security interests. Additionally, the act requires the Treasury Secretary to submit a report annually to the Senate and House Banking Committees, on or before October 15, with written six-month updates, and the Secretary is expected to testify on the reports as requested. The reports are to address a host of issues related to exchange rate policies of major U.S. trade competitors, such as currency market developments; currency interventions undertaken to adjust the exchange rate of the dollar; the impact of the exchange rate on U.S. competitiveness; and the outcomes of Treasury negotiations on currency issues, among others. Since the 1988 Trade Act was enacted, the Department of the Treasury has identified three countries as manipulating their currencies under the Trade Act's terms: China, Taiwan, and South Korea. These designations occurred in the late 1980s and early 1990s; Treasury has not determined that currency manipulation has occurred under the terms of the 1988 Trade Act since it last cited China in 1994. Given the impact that exchange rates can have on trade flows, Congress has sought to address currency manipulation in trade promotion authority (TPA) legislation. TPA is the authority Congress grants to the President to enter into certain reciprocal trade agreements and to have their implementing bills considered under expedited legislative procedures when certain conditions have been met. For example: The Omnibus Trade and Competitiveness Act of 1988 ( P.L. 100-418 ), which granted "fast track" authority (a precursor to TPA) to the President, required the Administration, among other things, to submit a report to Congress with supporting information after entering a trade agreement. One part of this report was "describing the efforts made by the President to obtain international exchange rate equilibrium." The Trade Act of 2002 ( P.L. 107-210 ), which renewed TPA in 2002, included exchange rate issues as a priority that the Administration should promote. The legislation stipulated that the Administration should "seek to establish consultative mechanisms among parties to trade agreements to examine the trade consequences of significant and unanticipated currency movements and to scrutinize whether a foreign government engaged in a pattern of manipulating its currency to promote a competitive advantage in international trade." While a number of free trade agreements (FTAs) were negotiated under the 2002 version of TPA, with Congress approving implementing legislation for FTAs with Chile, Singapore, Australia, Morocco, the Dominican Republic and the Central American countries (CAFTA-DR), Bahrain, Oman, Peru, Colombia, Panama, and South Korea, it is not clear to what extent currency issues were salient issues in the negotiations or in the final agreements. The Bipartisan Congressional Trade Priorities and Accountability Act of 2015 ( P.L. 114-26 ), the most recent TPA legislation signed into law in June 2015, includes for the first time principal negotiating objectives addressing currency manipulation. The first states that it is a principal negotiating objective of the United States that parties to trade agreements should avoid manipulating their exchange rates over other parties to the agreement, with multiple possible remedies "as appropriate," such as cooperative mechanisms, enforceable rules, reporting, monitoring, transparency, or other means. The second states that it is a principal negotiating objective of the United States to establish accountability against unfair currency practices through multiple possible means, and particularly to address protracted, large-sale intervention in one direction in foreign exchange markets. The principal negotiating objectives on currency likely led to a side agreement on exchange rates among the parties negotiating the Trans-Pacific Partnership (TPP), discussed in greater detail below. Currency manipulation is addressed in the Trade Facilitation and Trade Enforcement Act ( P.L. 114-125 ), which was signed by the President in February 2016. Two sections of the law address currency manipulation. The first section outlines provisions to enhance engagement on exchange rate and economic policies with certain major trading partners of the United States. In particular, the law stipulates new reporting requirements for Treasury on the macroeconomic and currency exchange rate policies for major trading partners of the United States. If a country has a significant bilateral trade surplus with the United States, has a current account surplus, and has engaged in persistent one-sided intervention in foreign exchange markets, the Treasury Secretary is under certain circumstances to start bilateral engagement with the country on the issue, including urging implementation of policy reforms, among other measures. If a country has failed to adopt appropriate policies to correct the currency undervaluation and surplus after a year of enhanced bilateral engagement, the President is to take one or more of the following actions: Prohibit the Overseas Private Investment Corporation (OPIC) from approving any new financing for a project in that country; Prohibit the federal government from procuring goods or services from that country, as long as it can be done in a manner that is consistent with U.S. obligations under international agreements and would not impose an unreasonable cost on U.S. taxpayers; Instruct the U.S. Executive Director of the IMF to call for additional rigorous surveillance of the macroeconomic and exchange rate policies of that country and, as appropriate, formal consultations on findings of currency manipulation; and/or Instruct the U.S. Trade Representative to take into account the extent to which the country has failed to adopt appropriate policies to correct undervaluation and surpluses in assessing whether to enter into bilateral or regional trade agreement with that country or participate in negotiations with respect to a bilateral or regional trade agreement with that country. The requirement for the President to take remedial action is waived if it would have an adverse impact on the U.S. economy greater than the benefits of taking remedial action or would cause serious harm to U.S. national security. To date, Treasury has not found a country that meets all three criteria. However, it has developed a new "Monitoring List," which includes major trading partners that meet two of the three criteria currently or in the past year. The Monitoring List for April 2018 includes China, Japan, Germany, South Korea, Switzerland, and India. The second section on currency establishes a new Advisory Committee on International Exchange Rate Policy, responsible for advising the Treasury Secretary on the impact of international exchange rates and financial policies on the U.S. economy. The committee is to be composed of nine members all appointed by the President, none of which are federal government employees. Three are to be appointed upon the recommendation of the Senate Banking Committee, and three are appointed upon the recommendation of the House Ways and Means Committee. The committee is to terminate after two years, unless renewed by the President. In addition to provisions in U.S. law that address currency manipulation, the United States is party to a number of international agreements and discussions that address exchange rate policies and currency manipulation. With a nearly universal membership of 188 countries, the IMF is focused on promoting international monetary stability. The IMF has engaged on the exchange rate policies of its member countries as part of its mandate, arguably motivated by the experience of competitive devaluations in the 1930s. Its role on exchange rates has evolved over time. Currently, members of the IMF, including the United States, have made commitments to refrain from manipulating their exchange rates to gain an unfair trade advantage. Specifically, IMF member countries have agreed to several obligations on exchange rates in the IMF's Articles of Agreement, the document that lays out the rules governing the IMF and establishes a "code of conduct" for IMF member countries. The Articles state that countries can use whatever exchange rate system they wish—fixed or floating—so long as they follow certain guidelines; that countries should seek, in their foreign exchange and monetary policies, to promote orderly economic growth and financial stability; and that the IMF should engage in "firm" surveillance over the exchange rate policies of its members. The Articles also state that IMF member countries are to "avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair advantage over other members." An IMF Decision, issued in 1977 and updated in 2007 and 2012, provides further guidance that, among other things, "a member will only be considered to be manipulating exchange rates in order to gain an unfair competitive advantage over other members if the Fund determines both that: (a) the member is engaged in these policies for the purposes of securing fundamental exchange rate misalignment in the form of an undervalued exchange rate; and (b) the purpose of securing such misalignment is to increase net exports." If a member country were to be found to be in violation of its obligations to the IMF, under the rules laid out in the Articles, it could be punished through restrictions on its access to IMF funding, suspension of its voting rights at the IMF, or, ultimately, expulsion from the IMF. To date, the IMF has never publicly cited a member country for currency manipulation. The United States has also participated in more informal forums to coordinate economic policies, including exchange rate policies. For example, in 1985, France, West Germany, Japan, the United States, and the United Kingdom (the Group of 5, or G-5) signed the Plaza Accord, in which countries agreed to intervene in currency markets to depreciate the U.S. dollar in relation to the Japanese yen and the German deutsche mark to address the U.S. trade deficit. In 1987, six countries (the G-5, plus Canada) signed the Louvre Accord, in which they agreed to halt the depreciation of the U.S. dollar through a host of different policy measures, including taxes, public spending, and interest rates. Additionally, small groups of countries have executed coordinated interventions in foreign exchange markets to shape the relative value of currencies. For example, the G-7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) have coordinated interventions a number of times: in 1995, to halt the dollar's fall against the yen; in 2000, to support the value of the euro after its introduction; and in 2011, to stem appreciation of the yen following a major crisis in Japan. This coordination has occurred on an ad hoc, voluntary basis. It is not based on any specific set of rules or commitments on exchange rates, and has been limited to a small group of advanced economies. More recently, exchange rate policies have also been discussed at G-7 and G-20 meetings. During meetings in February 2013, for example, the G-7 nations reaffirmed their "long-standing commitment to market-determined exchange rates" and to "not target exchange rates." The G-20 countries pledged to "refrain from competitive devaluation" in February 2013, which was again reiterated in subsequent G-20 meetings. G-7 and G-20 commitments are nonbinding, although other enforcement mechanisms, including peer pressure, have been used to ensure compliance in the past. Given the relationship between exchange rates and trade, some analysts and lawyers have examined whether World Trade Organization (WTO) provisions allow for recourse against countries that are unfairly undervaluing their currency. With 159 member countries, the WTO is the principal international organization governing world trade. It was established in 1995 as a successor institution to the General Agreement on Tariffs and Trade (GATT), a post-World War II institution intended to liberalize and promote nondiscrimination in trade among countries. Unique among the major international trade and finance organizations, the WTO has a mechanism for enforcing its rules through a dispute settlement process. However, there is a lot of debate about the extent to which WTO agreements address currency manipulation. One aspect of the debate is whether the WTO agreement on export subsidies applies to countries with undervalued currencies. The WTO Agreement on Subsidies and Countervailing Measures specifies that countries may not provide subsidies to help promote their national exports, and countries are entitled to levy countervailing duties on imported products that receive subsidies from their national government if such imports cause or threaten to cause material injury to U.S. producers. Some economists maintain that an undervalued currency is an indirect subsidy that lowers a firm's cost of production relative to world prices and therefore helps encourage exports. Some argue, then, that an undervalued currency should count as an export subsidy in countervailing measures. It is not clear, however, whether intentional undervaluation of a country's currency is an export subsidy under the WTO's specific definition of the term, and thus is eligible for recourse through countervailing duties under WTO agreements, because currencies and exchange rates are not mentioned in the WTO agreement on subsidies. Additionally, the subsidy must be, among other things, specific to an industry and not provided generally to all producers. Intentional undervaluation of a currency may not be industry specific because it applies to all producers. Another aspect of the debate relates to a provision in the General Agreement on Tariffs and Trade (GATT, the WTO agreement on international trade in goods), which states that member countries "shall not, by exchange action, frustrate intent of the provisions" of the agreement. Some analysts argue that policies to undervalue a currency are protectionist policies, and thus should count as an exchange rate action that frustrates the intent of the GATT. Others argue that the language is too vague to apply to undervalued currencies. Specifically, they argue that the language was written to apply to an international system of exchange rates that no longer exists (the system of fixed exchange rates, combined with capital controls, that prevailed from the end of World War II to the early 1970s). No dispute over exchange rates has been brought before the WTO, and whether currency disputes fall under the WTO's jurisdiction remains a contested issue. In some cases, the United States has started exploring addressing concerns about currency manipulation in free trade agreement (FTA) negotiations. Provisions relating to currency were first formally explored in the Trans Pacific Partnership (TPP), a proposed FTA among the United States and 11 other Asia-Pacific countries. Largely in response to the TPA legislation passed by Congress in 2015, the monetary authorities from the 12 TPP countries initiated negotiations and in November 2015 released a joint declaration to address unfair currency practices. While the declaration was released concurrently with the text of the TPP, it was a separate agreement from the TPP. The declaration focused on commitments to avoid manipulation, transparency and reporting about interventions in foreign exchange markets, and multilateral dialogue on exchange rates. It did not include enforceable rules against currency manipulation. The joint declaration was to take effect when TPP entered into force and was to apply to countries that accede to the TPP in the future, subject to additional transparency or other conditions determined by the existing TPP countries. President Trump withdrew the United States from the TPP in January 2017. The other 11 TPP countries forged ahead with a trade agreement (the Comprehensive and Progressive Agreement on Trans-Pacific Partnership, CPTPP) in March 2018, without the side agreement on currencies. In the renegotiation of the North American Free Trade Agreement (NAFTA), the Trump Administration has identified combatting currency manipulation as a negotiating objective. Although negotiations continue, news reports suggest that the countries are working on a nonbinding side agreement that pledges to avoid currency devaluation for competitive purposes. Concerns raised by U.S. policymakers about currency manipulation do not focus on Mexico and Canada, both of which have floating exchange rates, but the side agreement could send a signal globally and set precedent for provisions on currencies in future trade agreements with other countries. In March 2018, the Administration announced that, through negotiating modifications to the U.S.-South Korea Free Trade Agreement (KORUS FTA), the Treasury Department was finalizing a side agreement on currency with South Korea. South Korea has periodically intervened in foreign exchange markets to weaken its currency. Likely in response to these negotiations, the South Korean government has indicated it will disclose more information about its interventions in foreign exchange markets. Concerns about the exchange rate policies of other countries persist. During the 2016 presidential campaign, combatting currency manipulation, particularly by China, was a key issue for Donald Trump. Since assuming office, President Trump has continued to express concerns about the exchange rate policies of other countries, although the Treasury Department has not formally labeled a country as a currency manipulator. Some Members of Congress have also proposed taking more assertive action on currency. There are a number of options for doing so, some of which Members have pursued through legislation. Policy options could include the following, among others: Even though there may be concerns about supporting U.S. producers and jobs from "unfair" exchange rate policies adopted by other countries, some Members and policy experts have laid out a number of reasons to refrain from taking action on exchange rate dispute, such as the following: There is debate among economists on how to calculate a currency's "equilibrium" or "fundamental" long-term value, making the classification of currencies as undervalued or overvalued complex and subject to much discussion, with different models at times yielding very different results. Although an undervalued currency could harm certain U.S. import-sensitive firms and exporters, it benefits other parts of the economy. U.S. imports from trading partners with weak currencies are less expensive than they would be otherwise. Lower-cost imports may benefit U.S. businesses that purchase inputs from abroad and U.S. consumers. Plus, some countries that may "manipulate" buy U.S. public debt, which may make U.S. borrowing costs cheaper than they might otherwise be. Unilaterally labeling a country as a currency manipulator ("naming and shaming") or leading a multilateral charge against currency manipulation could trigger retaliation by other countries. This could lead to a trade war or higher borrowing costs for the U.S. government. Some analysts have argued that stricter international rules on currency manipulation could place constraints on U.S. monetary policy, because monetary policy can indirectly impact the value of the U.S. dollar against other currencies. Others argue that the constraints could be minimized, depending on the precise definition of currency manipulation. Some argue that the United States should treat currency manipulation as an actionable subsidy under U.S. law. This means that the United States could apply countervailing duties on imports from countries that are found to be manipulating their exchange rates. In the 115 th Congress, legislation has been introduced (the Currency Reform for Fair Trade Act, H.R. 2039 ) that would apply U.S. countervailing laws to imports from countries whose currencies are determined to be "fundamentally undervalued." In the 114 th Congress, a similar bill ( S. 433 ) was amended to the Senate version of the Trade Facilitation and Trade Enforcement Act of 2015 ( S. 1269 ) during the Senate Finance Committee markup of the bill. However, it was not included in the final version of the legislation ( P.L. 114-125 ). Similar legislation has been introduced and considered in previous Congresses. Applying countervailing duties on imports from countries that manipulate their currencies may be attractive because it would be a unilateral action that the United States could take that could apply to all countries. Others argue that it could be difficult to reach consensus on whether, and if so, by how much, a currency is undervalued or misaligned and thus how to measure the subsidy conferred through currency manipulation. There are also questions about whether such legislation if implemented would violate WTO rules and make the United States subject to recourse under the WTO's dispute resolution. Most analysts agree that the primary way countries "manipulate" the value of their currency is by intervening in foreign exchange markets, by selling domestic currency in exchange for foreign currency. These interventions increase the supply of domestic currency relative to other currencies in foreign exchange markets, pushing the price of the currency down. Congress could direct the Department of the Treasury and/or the Federal Reserve to conduct "countervailing currency interventions," that would effectively undo interventions by other countries in foreign currency markets. For example, if a country sells its domestic currency in exchange for 1 billion dollars in foreign exchange markets, this could have the effect of keeping its currency relatively weak and the dollar relatively strong. To offset the impact on the exchange rate, the United States could buy 1 billion dollars' worth of the other country's domestic currency in exchange for 1 billion U.S. dollars. So-called "countervailing interventions" or "remedial interventions" have been previously proposed in legislation, for example S. 1619 in the 112 th Congress, which passed the Senate. Some experts also argue they could be implemented under existing law. Countervailing currency interventions may be an attractive policy option, because they seek to address concerns about exchange rate policies directly through exchange rate channels. These interventions in foreign exchange markets are unlikely to raise questions about WTO-compatibility that other policy options (particularly countervailing duties) might raise, and proponents argue there would be no budgetary costs to countervailing interventions. However, countervailing interventions would be less feasible for countries like China that restrict access to assets denominated in their domestic currency. If the United States were unable to purchase enough assets denominated in the other country's currency, it may not fully offset the other country's interventions in foreign exchange markets. Also, some countries do not publish data on their currency interventions, which could make countervailing interventions difficult. In 2015, Congress actively debated whether to require enforceable provisions on currency in trade agreements in the context of the TPA. While the final 2015 TPA legislation lists enforceable provisions as one of the possible remedies U.S. negotiators should seek against currency manipulation in trade agreements, the legislation does not require it. However, Members of Congress could continue to urge the Administration to negotiate and include enforceable provisions in its trade negotiations with other countries, including NAFTA and KORUS negotiations. Including enforceable provisions in trade agreements could be complicated, however, as there may be disagreement over how exchange rate disputes would be adjudicated and they would only apply to negotiating parties to the agreement, not to countries in the global economy more broadly. The IMF and the WTO are typically identified as the international institutions best suited for dealing with exchange rate disputes, because the IMF has the clearest set of commitments relating to currency manipulation, and the WTO is unique among international institutions in that it has a clear enforcement mechanism. Congress could ask the Administration to push for action on currency issues at the IMF and WTO, as well as seek changes to IMF and/or WTO rules to allow currency disputes to be addressed more clearly under these organizations. For example in the 110 th Congress, H.R. 2942 would have required, among other measures, the Administration to raise the issue at the IMF and the WTO. Addressing currency disputes in formal international institutions may provide broad, multilateral support for decisions that are reached and would apply to their broad memberships. However, addressing disputes over exchange rates at the IMF and WTO may run into obstacles. For example, the IMF Executive Board may find it too politically sensitive to publicly cite a country for currency manipulation. Changes to IMF and/or WTO policies could be a complicated process that would require multilateral consensus. Exchange rates are important prices in the global economy, and changes in exchange rates have potentially substantial implications for international trade and investment flows across countries. Following the global financial crisis of 2008-2009, tensions among countries over exchange rate policies arguably broadened. Some policymakers and analysts have expressed concerns that some governments are pursuing exchange rate policies to gain a trade advantage. Concerns have focused on both government interventions in currency markets in a number of other countries, including China, and expansionary monetary policies in some developed economies. However, some economists argue that the effects of exchange rate policies are nuanced, creating winners and losers, and that it is hard to make generalized claims about the negative effects of "currency wars." To date, the most formal response to current tensions over exchange rates has been through discussions at G-7 and G-20 meetings. Although frameworks have been set up for addressing currency "manipulation" at the IMF and through U.S. law, neither the IMF nor the U.S. Department of the Treasury has taken formal action on current disputes over exchange rates. There are debates about why formal action has not been taken at these institutions. One general complicating factor in addressing currency disputes is that estimating a currency's "fundamental" or "true" value is extremely complex and subject to debate among economists. The 114 th Congress addressed currency manipulation through TPA and customs legislation. Members that continue to have concerns about currency manipulation may want to weigh the pros and cons of taking action on exchange rate disputes. If policymakers do want to take action, there are a number of policy options to consider, including countervailing duties, countervailing interventions in foreign exchange markets, provisions in trade agreements, and urging the Administration to press the issue more forcefully at international institutions.
|
Exchange rates are among the most important prices in the global economy. They affect the price of every country's imports and exports, as well as the value of every overseas investment. Over the past decade, some Members of Congress have been concerned that foreign countries are using exchange rate policies to gain an unfair trade advantage against other countries, or "manipulating" their currencies. Congressional concerns have focused on China's foreign exchange interventions over the past decade to weaken its currency against the U.S. dollar, although concerns have also been raised about a number of other countries pursuing similar policies. At the heart of disagreements is whether or not countries are using policies to undermine free markets and intentionally push down the value of their currency. A weak currency makes exports cheaper to foreigners, which can lead to higher exports and job creation in the export sector. There can also be implications for other countries. From the U.S. perspective, U.S exporters and U.S. firms producing import-sensitive goods may find it harder to compete in global markets. However, U.S. consumers and U.S. businesses that rely on inputs from abroad may benefit when other countries have weak currencies, because imports may become less expensive. When foreign countries intervene in foreign exchange markets, it may also help lower U.S. borrowing costs. Through the International Monetary Fund (IMF), countries have committed to avoiding currency manipulation. There are also provisions in U.S. law to address currency manipulation by other countries. The IMF has never cited a country for currency manipulation, and the U.S. Department of the Treasury has not done so since it last cited China in 1994. There are differing views on why. Some argue that countries have not engaged in policies that violate international commitments on exchange rates or triggered provisions in U.S. law relating to currency manipulation. Others argue that currency manipulation has occurred, but the provisions do not effectively respond to exchange rate disputes. Legislation in the 114th Congress The 114th Congress responded to concerns about currency manipulation through Trade Promotion Authority (TPA) and customs legislation. TPA legislation signed into law in June 2015 (P.L. 114-26) included, for the first time, principal negotiating objectives addressing currency manipulation in trade agreements. Currency manipulation was also addressed in the Trade Facilitation and Trade Enforcement Act of 2015 (P.L. 114-125). It enhanced Treasury reporting and bilateral engagement on exchange rate issues, and led to the creation of a new Treasury "monitoring list" on currency manipulation. Recent Developments During the 2016 presidential campaign, combatting currency manipulation, particularly by China, was a key issue for Donald Trump. Since assuming office, President Trump has continued to express concerns about the exchange rate policies of other countries, although the Treasury Department has not formally labeled a country as a currency manipulator. In the renegotiation of the North American Free Trade Agreement (NAFTA), the Trump Administration has identified combatting currency manipulation as a negotiating objective. In March 2018, the Administration announced that, through negotiating modifications to the U.S.-South Korea Free Trade Agreement (KORUS FTA), the Treasury Department was finalizing a side agreement on currency with South Korea.
|
In response to the downturn in the U.S. mortgage market, the Bush Administration helped broker an alliance of mortgage lenders, servicers, counselors, and investors, called the HOPE NOW Alliance, whose stated goals are to "maximize outreach efforts to homeowners in distress to help them stay in their homes" and to "create a unified, coordinated plan to reach and help as many homeowners as possible." One aspect of the alliance is the Statement of Principles, Recommendations and Guidelines for a Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans (the Framework or the ASF Plan). The Framework was proposed by the American Securitization Forum (ASF), a professional forum for many organizations that participate in the securitization market and a member of the HOPE NOW Alliance. This report first examines the details of the ASF Plan and then discusses the potential liability concerns that may arise for servicers who implement modifications under the Plan. Finally, the effectiveness of the Framework is analyzed based on the loan workout data provided by the HOPE NOW Alliance. The principles provided in the Framework are voluntary. The Framework's stated "overall purpose" is to provide further guidance for servicers to streamline borrower evaluation procedures and to facilitate the effective use of all forms of foreclosure and loss prevention efforts, including refinancings, forbearances, workout plans, loan modifications, deeds-in-lieu and short sales or short payoffs. The voluntary Framework structure may be applied to mortgages with the following characteristics: (1) subprime, (2) first-lien mortgages that (3) were originated in the one-and-one-half year period between January 1, 2005, and July 31, 2007, with (4) adjustable interest rates that have an introductory fixed-rate period of less than 36 months, where (5) the first interest rate resets are scheduled to occur between January 1, 2008, and July 31, 2010, and that (6) have been securitized on the secondary market. It should be noted that the Framework does not apply to interest-only mortgages simply because payments (as opposed to interest rates) increase within the specified time period. Nor does it apply to prime mortgages or Alt-A mortgages. Servicers of mortgages that meet all six of the above requirements may separate borrowers of these mortgages into one of three "segments." Segment 1 is for borrowers with loans that are current and that qualify to be refinanced into an available FHA (Federal Housing Administration), FHA Secure, or private mortgage product. Servicers are encouraged to help borrowers of mortgages falling into this category to refinance if the borrowers are unable to afford the mortgage after reset, or if they are unwilling to pay for the reset. Segment 2 is for borrowers with mortgages that meet the six requirements above but that are not likely to qualify for refinancing, and where four additional requirements are met: (a) borrowers must be current with their mortgage payments; (b) borrowers must reside in the residences securing the mortgage; (c) borrowers must meet the "FICO test," i.e., have credit scores below 660 and less than 10% higher than their scores at the time of origination; and (d) borrowers' mortgage payments would have to increase by more than 10% after the scheduled reset. Borrowers who meet all of the requirements of Segment 2 qualify for "fast track" loan modification, which may include an interest rate freeze at the rate prior to reset that, in most cases, lasts for five years. This fast track rate freeze is designed to give borrowers and lenders time to refinance into more affordable loans in order to limit the number of mortgages going into default and reduce the number of homes for sale in an already saturated market. In part because eligibility for this segment is defined by readily available financial data, servicers should be able to apply this fast track rate freeze to borrowers in a more efficient and streamlined fashion than is normally the case. The final segment is for all mortgages meeting the six requirements above, but that do not qualify for either Segment 1 or 2. Servicers may apply a more individualized analysis of these mortgages to determine the best way to mitigate losses "in a manner consistent with the applicable servicing standard...." Servicers of securitized mortgages who do not fall within the scope of the Framework may perform loan modifications in accordance with the governing service contracts. As described above, the Framework provides servicers guidance in identifying borrowers who are in danger of defaulting on mortgages and in helping them provide effective refinancing, loan modification, and loss mitigation measures for these borrowers in ways that likely are in accordance with governing Pooling and Servicing Agreements (PSAs). PSAs are contracts that govern the legal relationship between mortgage-backed securities (MBS) trustees, MBS investors, and servicers of the mortgages comprising these trusts. While not all PSAs are exactly alike, one relevant feature of typical agreements is the scope of permission for servicers to perform loss mitigation for borrowers who have yet to miss a mortgage payment. Industry standards issued in the summer of 2007 stated that servicers could modify loans if default was reasonably foreseeable, provided that such action increased the net present value (NPV) of the mortgage pool. A fast track modification that freezes interest rates could potentially create gains for MBS trusts, thus increasing their NPV, by minimizing losses as a result of avoiding foreclosure expenses from the troubled borrowers, but also could potentially create losses by freezing rates for borrowers capable of paying the higher reset. Satisfying the NPV test generally would require a comparison of the likely gains and losses of a particular plan, which historically has been done through individual loan analysis. Loan-by-loan modification, however, is time consuming and expensive. In the summer of 2007, many loan servicers and policymakers recognized that a large number of upcoming payment resets could potentially overwhelm the resources of servicers willing to conduct voluntary modifications. These servicers likely would not have been able to help applicable borrowers in need in a timely fashion if action only took place on a mortgage-by-mortgage basis. For this reason, one of the Framework's goals was to create a structure by which broad swaths of mortgages could be modified as a group, hence the fast track loan modification plan. Because broad swath modification is a deviation from the norm, servicers willing to perform loan workouts in accordance with the Framework's guidelines could worry that they would expose themselves to tax, accounting, and contract liability from secondary market investors and federal regulators of tax-exempt trusts. For instance, some in the industry might have worried that a trust could cease to qualify as a tax-exempt REMIC if a significant portion of its qualified mortgages were modified in accordance with a broad-based plan, rather than on a loan-by-loan basis. This potential liability could deter servicers from engaging in loss mitigation, including making use of those measures outlined in the ASF Plan. In an attempt to allay liability concerns, the HOPE NOW Alliance requested opinions from the Internal Revenue Service (IRS) on the tax implications of its particular modification plan, as well as from the Securities and Exchange Commission (SEC) on the accounting ramifications of modifications of loans held in securitization trusts. Tax implications depend on the interpretation of the Real Estate Mortgage Investment Conduit (REMIC) rules, which govern limitations on tax-exempt passive trusts. Accounting implications depend on the interpretation of Financial Accounting Standard (FAS) 140, which governs the treatment of asset sales to passive trusts. The IRS stated in Revenue Procedure 2007-72 that it would not object to the Framework by challenging the tax status of affected trusts. This IRS statement assured participants of the ASF Plan that loan modifications provided in accordance with the Framework's specific criteria will not result in loss of the tax status of the REMICs and other trusts. Rev. Proc 2007-72 was limited to the AFS Plan. The IRS then issued a separate revenue procedure (Rev. Proc 2008-28) to clarify more general tax issues relating to modification of securitized mortgage loans. The IRS identified conditions under which it would not challenge the tax status of the trusts that hold securitized loans, or assert that anticipatory loan modifications create a tax liability on prohibited transactions. The conditions enumerated in Rev. Proc 2008-28 are (1) the mortgage is for a single-family (one- to four-unit) dwelling; (2) the dwelling is owner-occupied; (3) overdue mortgages make up less than 10% of the trust's assets at start-up; (4) there is reasonable belief that the original loan will result in foreclosure; (5) the loan modification is less favorable to the holder of the loan than the original loan; and (6) there is reasonable belief that the loan modification reduces the risk of foreclosure. The SEC, which has oversight authority over organizations that coordinate accounting standards, provided a letter dated January 8, 2008, stating that it would not object to loan modifications on the basis of FAS 140, but specifically abstained from passing judgment on possible alternative plans or the rights of third parties such as investors. Like the IRS's tax opinion, the SEC's accounting opinion might need to be supplemented if significant features of the plan are changed. Although the SEC has stated that it would not object to the ASF Plan based on the NPV test, servicers who provide fast track loan modifications may still face from objections from other parties. Secondary mortgage market investors could still challenge servicers who provide these modifications on a contract violation theory if they could show that the gains from avoiding foreclosures have a reasonable probability of outweighing the losses from freezing payments at lower rates. For example, if a secondary mortgage market investor could show that only 35% of loans in a particular trust that were modified under the fast track plan would have resulted in foreclosure in the absence of some kind of workout plan, while the remaining 65% of those modified mortgages would not have resulted in foreclosure, then that investor could argue that these modifications did not increase the NPV of the trust, and thus the fast track rate freezes were provided in breach of the governing PSA. The HOPE NOW Alliance has accumulated data on the number of loan modifications and repayment plans that have been initiated by servicers per quarter. Table 1 presents the quarterly statistics for prime and subprime loss mitigation, including both loan modification and formal repayment plans. The data show that loan modifications and formal repayment plans have been increasing steadily in each successive quarter since the issuance of the Framework. Total workout plans rose from 398,691 in the third quarter of 2007 to 502,520 in the first quarter of 2008. Second quarter 2008 data are not yet available but an additional 182,901 mortgages received workout plans in April 2008. The April results bring the total number of borrower workout plans to 1,558,854 compared with 573,133 foreclosure sales. However, it is difficult to identify how many of these measures were made pursuant to the ASF Plan and how many were performed through alternative channels. It is unlikely that many of the loan modifications that occurred during the fourth quarter of 2007 or earlier came as a result of the ASF Plan because the plan was not announced until December 7, 2007; the IRS Bulletin was not published until December 27, 2007; and the SEC letter was not issued until January 2008. In addition, servicers would have needed time after the Framework's issuance to analyze their loan files, identify mortgages meeting the plan's standards, and set up policies necessary to implement the plan. Rather, the majority of the modifications and loss mitigation measures that had taken place up to the end of 2007 were probably based on individualized analysis and an agreement, similar to the ASF Plan but that apply exclusively in California, which was instituted prior to the Framework. It is also unclear how many of the modifications from the first quarter of 2008 were fast track modifications. According to HOPE NOW, 431,171 subprime 2/28 and 3/27 mortgages in the U.S. were scheduled to reset to a variable rate at some point during the first quarter of 2008. While approximately 203,000 of these loans were either sold or refinanced, only 14,418 of them were modified, either under the fast track plan or otherwise adjusted. A partial explanation for this relatively low number of modifications of subprime mortgages with hybrid ARMs may be the decrease in short term rates, most notably of the London Interbank Offered Rate (LIBOR), the index to which the majority of these mortgages' rates are tied. In December 2007, the six-month LIBOR was around 4.8%. That rate had dropped to just over 2.8% by April of 2008. This reduction has resulted in a diminished "reset shock," which likely has held many of these mortgage payments below the 10% increase necessary to qualify for a fast track modification. Additionally, the falling rates likely kept the payments of many of these subprime mortgages at an affordable level for borrowers who may not have been able to afford payments that reset to the higher December 2007 rate. The arguably limited necessity of fast track modifications under current conditions illustrates how the limited scope of the ASF Plan could lead to proposals to change its features, which could lead to another round of requests for SEC and IRS letters. In addition, it can be argued that different root causes of mortgage problems in different parts of the country complicate the creation of a uniform solution. As an example, subprime loans make up a relatively small share of California's total loans as compared to other states, yet alternative mortgages made up a relatively large share of California's prime and Alt-A markets. Not only did many of these prime loans have adjustable rates, but some had introductory interest-only features. The rapid increase in prime and Alt-A loan delinquencies in California and other states that had experienced rapid runups in house prices could lead some to question limiting the scope to subprime loans or adjustable rate loans. Arguments may also be made for new programs that address the specific problems occurring in a particular geographic region.
|
In response to the downturn in the U.S. mortgage market, the Bush Administration helped broker an alliance of mortgage lenders, servicers, counselors, and investors called the HOPE NOW Alliance, whose stated goals are to "maximize outreach efforts to homeowners in distress to help them stay in their homes" and to "create a unified, coordinated plan to reach and help as many homeowners as possible." One aspect of the alliance is the Statement of Principles, Recommendations and Guidelines for a Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans (the Framework or ASF Plan), as proposed by the American Securitization Forum (ASF). Pursuant to the Framework, borrowers who meet certain requirements qualify for "fast track" loan modification, which may include an interest rate freeze at the rate prior to reset that, in most cases, lasts for five years. Because this type of modification is a deviation from the norm, servicers willing to perform loan workouts in accordance with the Framework's guidelines could worry that they would open themselves up to tax, accounting, and contract liability from secondary market investors and federal regulators of tax-exempt trusts. This potential liability could deter servicers from engaging in loss mitigation, even those measures outlined in the Framework. The Internal Revenue Service (IRS) issued a revenue procedure (Rev. Proc 2008-28) on May 16, 2008, to clarify certain tax issues relating to modification of securitized mortgage loans. The IRS said that it would not challenge the tax status of the trusts that hold securitized loans, nor would the IRS assert that anticipatory loan modifications create a tax liability on prohibited transactions, if: (1) the mortgage is for a single-family (one- to four-unit) dwelling; (2) the dwelling is owner-occupied; (3) overdue mortgages make up less than 10% of the trust's assets at start-up; (4) there is reasonable belief that the original loan will result in foreclosure; (5) the loan modification is less favorable to the holder of the loan than the original loan; and (6) there is reasonable belief that the loan modification reduces the risk of foreclosure. The data show that loan modifications and formal repayment plans have been increasing steadily in each successive quarter since the issuance of the Framework. However, it is difficult to identify which of these modifications were made pursuant to the ASF Plan and which occurred through alternative channels. The Framework only applies to certain mortgages that are current, which makes it distinct from Project Lifeline, a plan announced on February 12, 2008, for mortgages that are in serious default. On June 17, 2008, the HOPE NOW servicers announced common measures to expedite resolution of short sales and second mortgages, which can require third-party approval.
|
Talks on Non-Agricultural Market Access (NAMA) in the World Trade Organization (WTO) Doha Round refer to the reduction of tariff and non-tariff barriers (NTBs) on industrial and primary products, basically all trade in goods which are not foodstuffs. While the agriculture negotiations have received greater scrutiny in the Doha round, trade of industrial and primary products, the subject of the NAMA negotiations, continues to make up the bulk of world trade. Nearly $12.5 trillion in manufactures and primary products was traded worldwide in 2009, accounting for 78.9% of world trade activity. In the United States, industrial and primary products accounted for 68% of exports and 81% of imports in 2009. Hence, the outcome of these negotiations could have a substantial impact on the U.S. trade picture and some effect on the overall U.S. economy. Previous to the Doha Round, industrial tariff negotiations were the mainstay of General Agreements on Tariffs and Trade (GATT) negotiations. These rounds led to the reduction of developed country average tariffs from 40% at the end of World War II to 6% today. However, average tariff figures mask higher tariffs for many labor intensive or value-added goods that are especially of interest to the developing world. Moreover, average tariff levels in developing countries remain high, with average industrial tariffs averaging about 13%. For the United States and other developed countries, prospective gains from the NAMA talks in this round would be from the reduction of high tariffs in the developing world, particularly from such countries as Brazil, India, and China. Developing countries were exempted from making concessions in market access in previous rounds, thus sustaining the heavy tariff structure in those countries. Developing countries are leery of opening up their markets to competition, often making the argument that protectionist policies were employed in the development of many successful economies, from the European and North American economies in the 19 th century to the rise of the East Asian tigers in the 20 th century. However, as negotiating positions have made clear, developed countries are demanding more access for their industrial products as a price for opening up their agricultural sectors, where many developing countries have a comparative advantage. Conversely, developing countries have held industrial tariff negotiations hostage to movement on agriculture. This dynamic has been one of the factors contributing to the current deadlock in the negotiations. Legislation to implement any agreement that results from the Doha Round negotiations would need to be passed by Congress. If considering such legislation, Congress may examine the extent to which a potential agreement opens foreign markets to U.S. exporters through the reduction of both tariff and non-tariff barriers. Congress may also examine a potential agreement by its impact on the health of the U.S. manufacturing sector, and its impact on manufacturing employment. The current round of trade negotiations were launched at the 4 th Ministerial of the WTO, held at Doha, Qatar, in November 2001. The course of the negotiations were set in the Doha Ministerial Declaration, which provided the negotiating objectives of the round in general terms. The objectives for the non-agriculture market access negotiations were described in Paragraph 16, which read: We agree to negotiations which shall aim, by modalities to be agreed, to reduce or, as appropriate, eliminate tariffs, including the reduction or elimination of tariff peaks, high tariffs, and tariff escalation, as well as non-tariff barriers, in particular on products of export interest to developing countries. Product coverage shall be comprehensive and without a priori exclusions. The negotiations shall take fully into account the special needs and interests of developing and least-developed country participants, including through less than full reciprocity in reduction commitments... To this end, the modalities to be agreed will include appropriate studies and capacity-building measures to assist least-developed countries to participate effectively in the negotiations. The NAMA paragraph was short on specifics and left the modalities for the talks to negotiations. The general nature of the document reflected the reluctance of many members to sign up for the round, and the language has been characterized as the least common denominator of what could be agreed upon at the time. However, the declaration gives certain clues about what path the negotiations would take. First, the declaration showed a clear intent to address concerns of the developing countries by a commitment to reduce tariff peaks and escalations, to concentrate on products of export interest to developing countries, and to provide special and differential treatment (SDT), including "through less than full reciprocity in reduction commitments" which became a mantra for developing countries. However, the language on reducing tariff peaks, high tariffs, and escalation also suggests the desire for a degree of tariff harmonization. This, in turn, would suggest the use of a non-linear reduction formula (see " Tariff Reduction " below). Paragraph 16 allowed members to take away from the Ministerial what they wanted, and to return to specifics later. This initial ambiguity has haunted the negotiations to this day. Negotiations proceeded at a slow pace in 2002 and 2003. Several deadlines for agreement on negotiating modalities (i.e., methodologies by which negotiations are conducted) were missed in the agriculture and industrial market access talks. Without agreement, negotiators looked toward the September 2003 Cancún Ministerial to resolve the modalities. In the weeks before Cancún, negotiating documents to achieve this resolution were criticized by all sides, and expectations of the Ministerial were reduced to achieving an agreement on the framework for the modalities to be used in future negotiations. During this period, the United States favored an aggressive tariff-cutting negotiating strategy. In December 2002, the United States proposed the complete elimination of tariffs by 2015. This proposal would have eliminated "nuisance" tariffs (tariffs below 5%) and certain industrial sector tariffs by 2010, and would have removed remaining tariffs in five equal increments by 2015. This proposal applied to all countries and did not contain SDT language. Throughout the negotiations, the United States generally has sought to limit the scope of special and differential treatment, maintaining that it is in the developing countries' own interest to lower tariffs, not least to promote trade among developing countries. The initial European Union (EU) tariff reduction proposal relied on a "compression formula," one in which all tariffs are compressed in four bands with the highest band being 15%. A joint submission by the United States, Canada, and the EU before the Cancún Ministerial first proposed the use of a Swiss-style harmonization (i.e., non-linear) formula for tariff reduction. This joint paper did contain SDT language for developing countries in the form of credits awarded for unilateral liberalization activity. In the end, industrial market access was not even discussed at the Cancún Ministerial, which broke up over agriculture and the so-called "Singapore issues." Yet, a draft text from the Ministerial, known as the Derbez text, became the basis for the July 2004 Framework Agreement, which, in turn, formed the basis for subsequent negotiations. The July Framework Agreement reaffirmed the use of an unspecified non-linear formula applied line-by-line that provides flexibilities for developing countries. The text also supported the concept of sectoral tariff elimination as a complementary modality for tariff reduction on goods of particular export interest to developing countries, but it advanced no concrete proposal. In negotiating the July Framework, developing countries resisted the wholesale inclusion of the Derbez text. They insisted on a paragraph, included as the first paragraph of the text, indicating that "additional negotiations are required to reach agreement on the specifics of some of these elements," the elements being the formula, treatment of unbound tariffs, flexibilities for developing countries, participation in sectoral tariff modalities, and preferential tariff beneficiaries. As in the Doha Ministerial, ambiguity allowed for an immediate agreement, but sowed the seeds of future disagreement. As in other sectors, subsequent negotiations on NAMA have been conducted on the basis of the July Framework Agreement. Although it was hoped that modalities could be achieved in time for the 6 th Ministerial at Hong Kong, this proved optimistic, and progress was limited to incremental steps. For example, while the July Framework called for a non-linear, harmonizing tariff reduction formula, the Hong Kong Ministerial finally settled on the Swiss formula for tariff reduction, but did not settle on coefficients for that formula. At the Ministerial, WTO members agreed on a new deadline of April 30, 2006, to achieve final negotiating modalities and to establish draft schedules based on these modalities by July 31, 2006. These deadlines were not met, and after a contentious negotiating session on agriculture on July 23, 2006, Director-General Pascal Lamy suspended the Doha Round for a period that was to last approximately six months. Following the July 2006 suspension, several WTO country groups such as the G-20 and the Cairns Group of agricultural exporters met to lay the groundwork to restart the negotiations. Although these meeting did not yield any breakthrough, Lamy announced the talks were back in "full negotiating mode" on January 31, 2007. Key players in the talks, such as the G-4 (United States, European Union, Brazil, India), conducted bilateral or group meeting to break the impasse in the first months of the year. In April 2007, G-6 negotiators (G-4 plus Australia and Japan) agreed to work towards concluding the round by the end of 2007, yet a G-4 negotiating session in Potsdam collapsed anew in June 2007. On July 17, 2007, the chairman of the NAMA negotiating group released a modalities text to be considered by the negotiating committee. While this text proved controversial, it served as the basis for continued, if fruitless, Geneva negotiations for the next year with revisions to this text produced in February, May, July, and December 2008. These various texts have reflected some narrowing of positions over time, but they should not be considered to reflect the present state of agreement in the negotiations. The United States, in particular, has rejected the use of these drafts as the basis for further negotiations, particularly in the areas of sectorals and tariff flexibilities for developing countries. Low-level negotiations continued during much of 2009 as the new U.S. administration formulated its trade policy and continued in 2010, although efforts to flesh out positions on non-tariff barriers and sectoral proposals were made by the Geneva-based negotiators. Several studies seek to estimate the potential gains emanating from the reduction of tariffs on industrial products resulting from a successful outcome of the Doha negotiations. These studies typically attempt to quantify the net welfare benefit from various liberalization scenarios. They use models of the world economy known as computable general equilibrium (CGE) models, which provide computer simulations of the world economy through equations that simulate the relationship between economic variables. The models use the versions of the Global Trade Action Project (GTAP) database, which compiles trade flows, and estimate the economic impact of such flows on tariff revenues, production, prices, and welfare. Assumptions made in modeling the world economy, as well as the version of the GTAP data used, affect the results of the studies. For example, it has been noted that models that use the most recent data (GTAP version 6, using 2001 data) have found smaller welfare gains to the world economy from trade liberalization. Previous versions of the data did not reflect ongoing trade liberalization such as China's entry into the WTO, the implementation of preferential trading arrangements, or the phase-in of previous liberalization commitments. The results also depend on whether a given model uses static or dynamic assumptions such as constant or increasing returns to scale, or whether the model accounts for unemployment or technology transfer. The focus of these reports are often on the effects of agricultural liberalization or on the potential gains (or losses) of developing countries. However, this section restricts itself to those studies that model industrial or primary product tariff reductions. Table 2 provides a summary of the model outcomes described below. One well-known attempt to gauge the impact of the multilateral trade liberalization is the Michigan Model , a multi-country, multi-sector, general equilibrium model that is used to analyze various trade policy changes and scenarios. In this study, conducted at the beginning of the round, the model measures the welfare effects of a 33% reduction in tariffs and subsidies on agriculture, the same reduction on tariffs in manufactures, and service sector liberalization. According to this model, a 33% reduction in manufacturing tariffs would result in a net welfare benefit of $163.4 billion to the world economy. The United States would achieve a net $23.6 billion welfare gain, although Japan ($45.2 billion) and the EU (39.2 billion) would receive greater gains. Overall, the developed countries would achieve $113.4 billion in net welfare gains and the developing countries led by China ($10.9 billion) would receive the other $50 billion in worldwide net benefit. The model's outcome suggests, the United States could gain primarily from services liberalization ($135 billion), would receive some net welfare benefit from manufacturing tariff liberalization ($23.6 billion), but could suffer a net welfare loss of $7.23 billion from the agricultural liberalization assumed in the model. The model suffers from the use of older data from 1995, but is bolstered by more dynamic assumptions such as increasing returns to scale and monopolistic competition. The World Bank and several other organizations have modeled the effect of trade liberalization using more recent GTAP-6 data from 2001. The World Bank study found that full liberalization of all merchandise trade (including agriculture) could lead to a $287 billion increase in real income by 2015. Full liberalization in industrial manufactures alone would lead to a $105 billion increase in real income, divided between a $38 billion increase from textiles and apparel liberalization, and a $67 billion increase from liberalization for other manufacturers. Developed countries could receive the largest share of benefit from full liberalization in dollar terms ($57 billion v. $10 billion for developing countries), but developing countries may achieve greater benefits in proportion to the size of their economies. The World Bank study found that developing countries would receive a preponderance of the benefits resulting from textile and apparel liberalization ($22 billion v. $16 billion in the developed world). The World Bank study also modeled possible Doha Round outcomes. In computing a 50% reduction by developed country tariffs and a 33% reduction by developing countries for all merchandise trade (agriculture and industrial), the study found that welfare gains from such liberalization could total $96.1 billion. Of this amount, industrial tariff liberalization could provide $21.6 billion of extra net welfare benefit with $7.1 billion accruing to developing countries. A Carnegie Endowment for International Peace study uses an applied general equilibrium model with some novel features that attempt to account for the presence of unemployment in developing countries (most studies assume full employment), and to chart the dynamic effects of technology transfer, which increases along with trade. The model poses two different scenarios for possible manufacturing outcomes of the Doha Round: an ambitious scenario of a 50% reduction in developed country tariffs and a 33% reduction in developing country tariffs and a more modest scenario for manufacturing with a 36% reduction in developed country and a 24% reduction in developing country tariffs. The authors of the model warn the extent of liberalization may be overstated due to the model's use of applied, rather than bound tariffs. The study found global real income gains from manufacturing were $53.1 billion for the ambitious scenario and $38.1 billion for the modest scenario. The liberalization of manufacturing tariffs represented over 90.6% of the gains from the Doha round liberalization in the ambitious scenario and over 87% for the more modest formula. In the ambitious scenario, the gains were apportioned between $30.2 billion (56.8%) for developing countries and $23 billion (43.2%) accruing to developed countries. The more modest scenario yielded $21 billion to developing countries and $16.4 billion to developed countries. In either scenario, the largest recipient of welfare gains is China at $14.8 billion and $10.6 billion, respectively. These figures represent nearly half of all gains shown for the developing world, and slightly more than one-fourth of the gains overall. The study suggests that some regions, such as Sub-Saharan Africa would be net losers in manufactured goods liberalization. In terms of net gains or losses of world export market share for developing country manufacturing exports under the modest scenario, China would be the largest gainer with an approximate 0.33% increase in its share of world exports. Some countries including Brazil, Mexico, South Africa, and the rest of Sub-Saharan Africa would lose industrial market share under the modest scenario. For the United States, the model suggests that real income gains resulting from manufacturing liberalization would be nearly $6.5 billion for the ambitious Doha scenario and $4.5 billion in gains for a more modest outcome. The United Nations Committee on Trade and Development (UNCTAD) also models trade liberalization in industrial sectors. The UNCTAD model uses a static CGE model that assumes perfect competition and constant returns to scale. The study models welfare gains under free trade and under several "Swiss" formula scenarios, the formula under which negotiations are now taking place (see " Tariff Reduction " below). Under the complete liberalization scenario, the net welfare benefit accruing to the entire world was estimated at $200.8 billion, with developing countries accruing $135.3 billion of that. Over one-third of that gain would accrue to China ($48.6 billion). The EU would receive the largest gains among developed countries at $28.5 billion, and the study predicted the United States would receive $11.2 billion in benefits. The UNCTAD study also models Swiss formula reductions using coefficients equaling the average weighted industrial bound tariff by group (3.4% for developed countries, 12.5% for developing countries) with one scenario modeling the respective coefficients at twice that level. This model generated net welfare gains between $107.6 billion and $134.7 billion. Under the scenarios, developing countries gained $65.2 billion to $86.9 billion of this figure, nearly two-thirds of the gains. Again, China gained the most between $34.8 billion and $41.2 billion, around ½ of total world welfare gains. The model shows U.S. gains of $5.8 billion and $7.0 billion, respectively. While this study has the advantage of using an agreed-upon negotiating modality, the study does not use coefficients actually proposed during the negotiations. A 2006 Organization for Economic Cooperation and Development (OECD) study found that worldwide net welfare gains from full tariff liberalization in manufactured goods could be $23.4 billion, which represented 56% of all tariff reduction gains. Seventy-three percent of this gain went to developing countries ($17 billion) with $6.3 billion accruing to the developed world. In relation to the size of their economies, developing countries gained relatively more with such gains equaling 0.33% of developing country GDP, versus 0.05% for developed countries. Notable in this survey was an outcome showing that North America would suffer the largest welfare loss from manufacturing liberalization ($6.8 billion) due to, according to the authors, an unfavorable terms-of-trade effects in the motor vehicle and related industries, resulting from lower prices in the sector. The study also modeled several Swiss formula scenarios, but the models did not differentiate between agriculture and manufacturing tariffs. Because of the differing assumptions made in these models and the different datapoints generated by them, it is difficult to generalize about their results. All but one found a greater net welfare benefit from liberalization of manufacturing tariffs than from agriculture. The studies suggest that developing countries would gain the most from manufacturing liberalization, at least in relative terms, and that the single largest gainer in terms of net welfare benefit would be China. Most of these studies indicate the United States could achieve modest net welfare gains from manufacturing liberalization. The principal negotiating issue in the NAMA talks has been over the tariff formula. The December 2005 Hong Kong Ministerial declaration endorsed the use of a non-linear, "Swiss" style, tariff reduction formula. This result builds on previous negotiations, beginning with the Doha Ministerial Declaration, which launched the round in November 2001. That Declaration committed member nations to negotiate the reduction or elimination of tariffs, based on modalities to be agreed in the talks. Negotiating modalities discussed for the NAMA talks included cuts determined by formula, by a request-offer approach, or by agreement to harmonize or eliminate tariffs in a specific sector—all of which had been used in previous rounds of negotiations. The Doha Declaration called for the reduction or elimination of tariff peaks or tariff escalation. Tariff peaks refer to a country's adoption of the maximum allowable tariff in order to protect sensitive products from competition. Tariff peaks are levied by the United States for certain textile products, footwear, and watches. Tariff escalation is the practice of increasing tariffs as value is added to a commodity. As an example of tariff escalation, cotton would come in with a low tariff, fabric would face a higher tariff, and a finished shirt would face the highest tariff. Tariff escalation is often employed to protect import-competing, value-adding industries. Peak tariffs and escalations tend to be levied particularly against the products of developing countries, thereby adding to the cost of consumer goods in developed countries. Negotiations to achieve modalities proceeded at a slow pace, but after more than two years including the ill-fated Cancun Ministerial, the July 2004 Framework Agreement endorsed a non-linear formula applied on a line-by-line basis as a modality to conduct tariff reduction negotiations. A non-linear formula works to even out or harmonize tariff levels among participants. This type of formula would result in a greater percentage reduction of higher tariffs than lower ones, resulting in a greater equalization of tariffs at a lower level than before. Negotiations on a "line-by-line" basis means that the formula would not be applied as an average to industrial categories, but to the tariff line of each individual product. A harmonization formula would also work to reduce tariff peaks and tariff escalations, another stated goal of the Doha Declaration. By contrast, an example of a linear formula would be one that reduced tariffs by a certain percentage across the board. Consequently, this formula would not change the relative tariff rates among members. A country with relatively high tariffs before undergoing the formula would still have high tariffs relative to other countries afterwards. This approach is generally favored by countries with high tariffs or certain tariff peaks that the country seeks to preserve. After a further 18 months of largely fruitless negotiations, the December 2005 Hong Kong Ministerial formally adopted the Swiss formula as the non-linear formula by which industrial tariff cuts would be negotiated. It is known as the Swiss formula because it was the formula proposed by Switzerland, and later adopted by GATT members, to cut tariffs in the 1970s Tokyo Round. The Swiss formula is, T= at/(a+t) where T , the resulting tariff rate, is obtained by dividing the product of the coefficient ( a ) and the initial tariff rate ( t ) by the sum of the coefficient ( a ) and the initial tariff ( t ). Selection of the coefficient is key, because it determines the final tariff; a lower coefficient results in a lower tariff (T). In addition, the equation works in such a way that the coefficient also represents the country's maximum tariff after the formula has been applied. Although the Ministerial agreed to a Swiss formula, it did not agree on the coefficients that would finalize the negotiating modalities. Before the Round was temporarily suspended in July 2006, negotiations in Geneva were being conducted around the use of two coefficients for the formula, with one value for developed countries and another, higher, value for developing countries. The EU in its cross-cutting proposal of October 2005 proposed a coefficient of 10 for developed countries and 15 for developing and least developed countries (LDCs); this ratio was subsequently endorsed by the United States. Pakistan proposed that the developed countries have a coefficient of 6 and developing countries a coefficient of 30. Other proposals suggested a range of figures. New Zealand has suggested that the difference between the two should be no more the five percentage points. Developing countries contend that they should be afforded a higher coefficient based on language in the Doha Ministerial Declaration affording them "less than full reciprocity in reduction commitments." An alternate developing country proposal distinct from the Swiss formula with multiple coefficients was one put forth by Argentina, Brazil, and India, known as the ABI proposal. ABI also used the Swiss formula, but it proposed the coefficient to be the tariff average of each country, thus each country would have its own coefficient. ABI would not result in tariff harmonization among countries because there would not be a common coefficient; however, it would result in harmonization across products within each country's tariff schedule. Just prior to the ill-fated June 30-July 1, 2006, mini-ministerial in Geneva, Pascal Lamy suggested a possible compromise in the form of the 20-20-20 proposal. In addition to advocating a ceiling of $20 billion in U.S. domestic agriculture support and the use of the G-20 agricultural market access proposal for developed countries, Lamy advocated a developing country of coefficient of 20 for the NAMA Swiss formula. The NAMA element of the proposal was criticized by U.S. and EU officials as lacking ambition. U.S. manufacturing groups scored the proposal as failing to provide sufficient market access to make a deal worthwhile to U.S. manufacturers. Brazil, for its part, attacked the proposal as too ambitious, and renewed its call for a coefficient of 30 for developing countries. The NAMA chairman's negotiating draft of July 2007 (and reaffirmed in February 2008) suggested a Swiss formula coefficient of [8-9] for developed countries and between [19-23] for developing countries. The chairman calculated that such a coefficient range would yield an average tariff of 3%, 90% of tariffs below 5%, and tariff peaks of 7%-8.5% for the United States and Europe. For developing countries, the chairman calculated the average bound tariff resulting from the suggested coefficients as 12%, with 80% to 90% of tariff lines below 15%. Thirty-one developing countries would apply these tariff reductions; least developed countries (LDCs) would be exempt from reduction commitments and recently acceded members (such as China, Taiwan, and Vietnam) would be granted a higher coefficient to reflect the ambitious reductions these countries have already undertaken in order to join the WTO. The July 2007 NAMA draft reflected a middle ground between the more ambitious coefficient range [10-15] of the developed country proposal and that of the NAMA-11 [10-35]. Such a middle ground was proposed by Chile and drew support from Colombia, Mexico, Costa Rica, Hong Kong, Peru, Singapore, and Thailand. This proposal called for a developed country coefficient of "less than 10" and "between the upper teens and low twenties" as a developing country coefficient. Reaction to the July 2007 draft was cool on all sides. The NAMA-11 group of countries criticized what they considered the asymmetry of the proposal with the agriculture text, claiming that it demanded more from developing countries than the agriculture text did from developed countries. It also claimed that the proposal did not reflect the "less than full reciprocity" commitment for developing countries reflected in the Doha Declaration. Three members of NAMA-11, Argentina, Bolivia, and Venezuela, indicated that the draft could not be the basis for further negotiations. Meanwhile, the United States and the European Union scored the proposal for not being ambitious enough to provide a satisfactory level of market access. The July 2008 draft, as modified by the Lamy proposal at the July 2008 Ministerial and reaffirmed in the December 2008 draft, suggests an 8 coefficient value for developed countries and a sliding scale approach for the value of the coefficient for developing countries. Under this proposal, the developing country coefficient would be tied to the use of one of the so-called "Paragraph 7" flexibilities that had been introduced in the July 2004 framework agreement. Under that agreement, developing countries may choose one of the following flexibilities: (1) apply less than formula cuts for up to 10% of tariff lines provided that the cuts applied are no less than half the formula cuts and that the tariff lines do not exceed 10% of the value of a member's non-agricultural imports, or (2) keep tariff lines unbound or not applying formula cuts for 5%of tariff lines provided they do not exceed 5%of the value of a member's non-agricultural imports. The bracketed percentages were initially posited as working hypotheses, then adopted by the July 2007 draft modality text, and then removed in the February 2008 revised draft. While this was seen by some as a step backward in the negotiations, according to the chairman it was done to increase the range of flexibilities available to developing countries to encourage them to accept the existing range of coefficients in the overall tariff reduction formula. The result of these negotiations has been the proposal to tie these Paragraph 7 or "sliding scale" flexibilities directly to the overall formula cuts. Under this scenario, a developing country would choose a coefficient of 20, 22, or 25. Thus, a developing country adopting coefficient x= 20 could choose (1) to apply less than formula cuts for up to 14% of tariff lines provided that the cuts applied are no less than half the formula cuts and that the tariff lines do not exceed 16% of the value of a member's non-agricultural imports, or (2) keep tariff lines unbound or not applying formula cuts for 6.5% of tariff lines provided they do not exceed 7.5% of the value of a member's non-agricultural imports. A developing country adopting coefficient y=22 would adopt the original Paragraph 7 flexibilities. Thus, this country would apply less than formula cuts for up to 10% of tariff lines provided that the cuts applied are no less than half the formula cuts and that the tariff lines do not exceed 10% of the value of a member's non-agricultural imports, or (2) keep tariff lines unbound or not applying formula cuts for 5% of tariff lines provided they do not exceed 5% of the value of a member's non-agricultural imports. A developing country adopting coefficient z=25 would not avail itself of any flexibilities, as it has made the least formula reductions. The use of these flexibilities has been further complicated by the so-called "anti-concentration clause," which provides that the flexibilities available to developing countries shall not be used to exclude full chapters of the harmonized tariff schedule (HS) from full formula reductions. Both the United States and the EU have been adamant that the flexibilities should not be used in a way to exclude whole industrial sectors from formula cuts, as reflected in the 2 digit HS chapter. Meanwhile, developing countries have opposed expanding the scope of the anti-concentration clause beyond the statement that it should not apply to full HS chapters, as agreed by all members at Hong Kong. The December 2008 text reaffirmed full formula tariff reductions as a minimum of 20% of national tariff lines or 9% of the value of imports of the member in each HS chapter. The current draft also provides for certain flexibilities for countries participating in customs unions such as the Southern African Customs Union (SACU)(South Africa, Namibia, Botswana, Lesotho, and Swaziland) and Mercosur (Brazil, Argentina, Uruguay, and Paraguay). These flexibilities are sought to allow these countries to maintain a common external tariff, while subjecting them to formula cuts. Countries that have recently joined the WTO, so-called "recently acceded members" (RAMs), had to commit to tariff reductions and bindings as a part of their accession negotiations. Thus, they have been given some additional flexibilities in the proposed modalities. Albania, Armenia, Macedonia, Kyrgyzstan, Moldova, Saudi Arabia, Tonga, Vietnam, and Ukraine will not be required to undertake any tariff reductions beyond their accession commitments this round, and China, Oman, Croatia, and Taiwan will have extended periods in which to phase-in their tariff commitments. Another group of countries, so-called "small and vulnerable economies" (SVEs), countries with less than 0.1% of world trade and whose economies are reliant on the production of a few products, would be allowed flexibilities in the amount and structure of their tariff reductions, but would be required to increase the level of their tariff bindings. However, Venezuela's request to be considered as an SVE, due to what it claims to be its concentrated pattern of imports and reliance on petroleum exports, was not looked upon favorably by the United States. A second issue in the negotiations is the process of tariff binding and the use of bound tariffs in the reduction formula. Under Article II of the GATT, tariffs are "bound" at a specific levels of customs duty when an agreement is reached between nations on a most-favored nation basis to (1) lower a duty to a stated level; (2) maintain an existing level of duty; or (3) not to raise a duty above a specified level. Tariffs can be bound as a specific duty per item or as an ad valorem duty. An ad valorem tariff is set as a percentage of the value of an imported good, while a non- ad valorem or specific tariff uses some other measurement such as a fixed rate per unit or weight of goods. The binding of tariffs provides for stability and predictability in the trading system by preventing the raising of tariff rates except under strict circumstances accompanied by compensatory actions. The Uruguay Round achieved success in binding tariffs in both developing and developed countries. For all countries, the percentage of imports under bound rates increased from 68% to 87%. The percentage of imports under bound rates increased from 78% to 99% in developed countries, from 73% to 98% in transition economies, and from 21% to 73% in developing countries. The value of tariff binding to the world trading system is that it sets a maximum tariff which cannot be exceeded without penalty. However, many countries actually apply much lower tariffs to imported goods. These applied tariffs can vary widely from bound tariffs especially in developing countries. Although the United States, the EU, and several other NAMA "Friends of Ambition" advocated the use of applied tariffs as the basis by which tariff formula cuts be made, the 2004 July Framework and the subsequent Hong Kong Ministerial document decided to implement tariff cuts based on bound rates. This decision had implications for the tariff formula. Because bound tariffs are often significantly higher than applied tariff levels, reductions from applied rates would result in greater cuts to actually applied tariffs. Thus for the negotiations to provide actual market access, as opposed to just cutting the binding rate, the formula coefficient must be lower. Higher coefficients would work to exclude some tariff lines from any actual cuts in applied tariffs, especially in developing countries. A second goal of the Doha negotiations in this area concerns the binding of tariffs by developing countries. Because the binding process commits a country not to raise tariffs beyond a certain level, binding has been seen as the first step in tariff reduction. Under the 2004 Framework Agreement, reductions in unbound tariff lines would be calculated from twice the currently applied rate. However, the Hong Kong Ministerial Declaration adopted a "constant non-linear mark-up approach," but did not adopt any particular formula. Generally, such an approach would add a certain number of percentage points to the applied rate of the unbound tariff line in order to establish the base rate on which the tariff reduction formula would be applied. The current draft suggests a mark-up of applied rate plus 25 percentage points. The Framework also provided flexibility for developing countries who have bound less than 35% of their non-agricultural tariff lines. They would be exempt from tariff reduction commitments in the Round provided that they bound the remainder of their non-agricultural tariff lines at an average level of 28.5%. Subsequent discussions on this issue have backtracked somewhat, however, with the current draft proposing that countries with binding coverage below 15% of tariff lines bind 75% of currently unbound tariffs, and countries and countries with binding coverage at 15% or above bind 80% of their tariff lines at an average rate of not more than 30%. In addition, all tariffs are to be bound in ad valorem terms; all remaining non- ad valorem tariffs would be converted and bound by a methodology to be determined through negotiation. While non-ad valorem tariffs are more prevalent in agriculture, they continue to be employed for non-agricultural tariffs and are not solely a developing country phenomenon. One study calculates that 4.2% of lines in the United States tariff schedule remain non ad-valorem and for Switzerland the figure is 82.8%. Aside from the formula-based flexibilities and binding concessions described above, the negotiations, it provides least developed countries (LDCs) with other special and differential treatment. LDCs would not be required to apply formula cuts, nor participate in the sectoral cuts, but would undertake to "substantially" increase their level of bound tariffs. The Hong Kong Ministerial also agreed that developed countries and developing countries in a position to do so would grant LDCs duty-free and quota-free access to 97% of their tariff lines as part of their Doha obligations. The negotiations have also acknowledged the challenge of designing tariff reductions for countries that are already beneficiaries to various preference programs such as the U.S. African Growth and Opportunity Act or the EU's Everything But Arms (EBA) Initiative. To ameliorate such preference erosion, the draft modalities provide extended implementation periods for tariff reduction for certain tariff lines on which some developing now receive non-reciprocal tariff preferences. The industrial market access talks also encompass negotiations on the reduction of non-tariff barriers (NTBs). Non-tariff barriers include such activities as import licensing; quotas and other quantitative import restrictions; conformity assessment procedures; and technical barriers to trade. The 2004 July Framework instructed members to submit notification of NTBs by October 31, 2004, for negotiators to identify, examine, categorize, and ultimately, negotiate. Although this notification procedure occurred, little substantive negotiations on the NTBs identified subsequently took place. The NAMA drafts have included various horizontal and vertical proposals that would be subject to text-based negotiations under a modalities agreement. The horizontal proposals include a proposed agreement on remanufactured goods and a 2006 EU-and NAMA-11-sponsored mechanism to facilitate solutions to specific NTBs, apart from the dispute settlement system, as they arise. Vertical proposals have been put forward concerning NTBs for chemical products; electronics; electrical safety and electromagnetic compatibility; labeling of textiles, clothing, footware, and travel goods; and automotive products. WTO members have agreed to consider the use of sectoral tariff elimination as a supplementary modality for the NAMA negotiations. Sectoral initiatives, such as tariff elimination or harmonization, permit a critical mass of countries representing the preponderance of world trade in a commodity to agree to eliminate tariffs in that good. Such an arrangement requires the participation of the major players, however, because under the most-favored-nation principle those tariffs would be eliminated for all countries, even those not reciprocating. The 1996 Information Technology Agreement is an example of a completed sectoral tariff elimination agreement in which 41 countries have eliminated tariffs on 180 products. The Hong Kong Ministerial Declaration took note of these sectoral negotiations and instructed negotiators to determine which sectors "could garner sufficient support to be realized." Sectoral negotiations have been proposed for automotive and related parts; bicycles and related parts; chemicals; electronics/electrical products; fish and fish products; forest products; gems and jewelry; hand tools; industrial machinery; open access to enhanced health care; raw materials; sports equipment; toys; and textiles, clothing and footwear. Countries that have indicated a willingness to participate in at least one of these sectoral negotiations include Canada, the European Union, Hong Kong, Iceland, Japan, Korea, New Zealand, Norway, Oman, Singapore, Switzerland, Taiwan, Thailand, United Arab Emirates, United States, and Uruguay. Facing resistance from developing countries who maintain that sectoral negotiations did not form part of the original negotiating mandate, the sectoral provisions have weakened over time. The current NAMA draft reaffirms the voluntary aspects of sectoral negotiations, and does not require participation. However, it does permit developing country members participating in sectoral initiatives to increase their coefficient in the overall tariff reduction formula by an increment to be determined. The current draft also proposes special and differential treatment for developing countries participating in the sectorals including "0 for x" tariff reductions, longer implementation times and partial product coverage to be determined on a sector-by-sector basis. Some developing countries have participated in these discussions, and have proposed some sectors, other developing countries have questioned engagement in sectoral negotiations prior to settling on a formula for negotiations. The switch in the terms used to describe the level of participation that would make a sectoral initiative feasible, from "critical mass" to "viable" has also been seen as weakening the text. This is because the term "critical mass" has come to mean the initiative would include countries comprising 90% of world trade, thus requiring the participation of China and maybe other developing countries. The term viable, by contrast, does not have such a defined connotation, perhaps giving these countries a pass on participation. The United States has been the main proponent of sectoral negotiations and has sought to have developing countries commit to at least two sectorals and to the level of cuts prior to determining the level of formula cuts. U.S. industry groups have been disappointed in the trajectory of the sectoral negotiations. The National Association of Manufacturers have criticized the sectoral proposals, claiming "robust participation in sectoral agreements is the key to a successful NAMA agreement ... the tariff-cutting formulas currently proposed for manufactured goods are too weak to generate new market access and trade flows, making strong sectoral agreements the only option for sufficient trade liberalization in industrial goods." Although Doha Round negotiations are continuing, U.S. trade promotion authority (TPA) expired on July 1, 2007. Any future congressional consideration of TPA extension legislation may provide a venue for a debate on the status of the Round and the prospects for reaching an agreement consistent with principles set forth by Congress in granting TPA. If progress is not made in the Doha Round, or if it goes into a period of limbo, there may be consequences for industrial tariff liberalization. First, the negotiation of bilateral and regional free trade agreements may accelerate. In the wake of the 2006 negotiation suspension, the United States, the EU, Brazil, and India all announced plans to concentrate on additional bilateral liberalization. While bilateral or regional free trade agreements (FTA) potentially can completely remove tariffs or any other trade distortions between negotiating countries, the proliferation of these agreements may complicate international trade as exporters must navigate competing tariff schedules, rules of origin, or other non-tariff barriers. This prospect can lead to trade diversion, a circumstance in which countries trade based on tariff levels and not on comparative advantage. A related question is whether the proliferation of these agreements may erode the willingness of participating countries to negotiate multilaterally, especially if countries are able to strike deals with their major trading partners. A further consequence may be the loss of agreements already made at the negotiations. While the NAMA talks are far from completed, some components (such as the Swiss formula) have been agreed. It is possible that prolonged disagreements may imperil the progress that has been made as countries may withdraw what they have agreed to without signs of forward momentum. It is also unlikely that the NAMA talks can achieve a breakthrough in the absence of progress in the agriculture talks. For good or ill, the agriculture talks have become the linchpin of the negotiations. Aside from the intrinsic importance developing countries place on agriculture, many developing countries appear to have used the NAMA negotiations as a bargaining chip to hold out for better agriculture offers. These countries often hold defensive positions in the NAMA talks and seek expanded agricultural access in protected and subsidized developed country agricultural markets as recompense for any NAMA concessions they might make. Conversely, developed countries seek market openings in industrial products to offset their concessions in agriculture. Because of the negotiating principle of the single undertaking, in which nothing is agreed until everything is agreed, separate agreements in discrete negotiating areas are unlikely.
|
Non-Agricultural Market Access (NAMA) in the World Trade Organization's (WTO) Doha Round has emerged as a major stumbling block in the seven-year Doha Round negotiations. NAMA refers to the cutting of tariff and non-tariff barriers (NTB) on industrial and primary products, basically all trade in goods which are not foodstuffs. While the agriculture negotiations have often overshadowed the NAMA talks, trade of industrial and primary products continues to make up the bulk of world trade. Average tariffs in developed countries have declined from 40% at the end of World War II to 6% today through successive rounds of General Agreement on Tariffs and Trade (GATT)/WTO trade negotiations. Developed countries seek the reduction of continuing high tariffs in the developing world, particularly from such countries as Brazil, India, and China. Developing countries seek special and differential treatment and tie their cuts in industrial tariffs to reductions in agricultural tariffs and subsidies. Several econometric studies have modeled the possible effect of industrial tariff liberalization on the global economy. The studies vary based on the assumptions and data used. All but one found a greater net welfare benefit from liberalization of manufacturing tariffs than from agriculture. The studies indicate that developing countries in the aggregate would gain the most from manufacturing liberalization, at least in relative terms, and that the single largest gainer in terms of net welfare benefit would be China. In response to the global economic crisis, the Group of 20 (G-20) leading economies have repeatedly called for conclusion of the Doha Round as a way to bolster economic confidence and recovery. WTO Director-General Pascal Lamy has referred to 2011 as a window of opportunity to conclude the round and announced an intensive work program to achieve this goal. The subject of the current NAMA negotiation is a draft text—revised several times since its initial release in 2007—that has been subject to much disagreement. The negotiation of the tariff reduction formula was initially the main stumbling block in the negotiations. Members agreed to a Swiss-formula non-linear tariff reduction formula approach at the December 2005 Hong Kong Ministerial, one in which higher tariffs are decreased more than lower tariffs. However, disagreements persist about the size or amounts of the tariff cuts. The talks also seek to reduce the incidence of non-tariff barriers, which include import licensing; quotas and other quantitative import restrictions; conformity assessment procedures; and technical barriers to trade. The use of sectoral tariff elimination and special and differential treatment for developing countries has also proven controversial. Legislation to implement any agreement that results from the Doha Round negotiations would need to be passed by Congress. U.S. Trade Promotion Authority (TPA), under which Congress agreed to a time line for voting on implementing legislation with no amendments in return for consultation and adherence to congressional negotiating objectives, expired on July 1, 2007. Consequently, there may be attempts to revise or extend TPA in order to consider legislation resulting from a Doha agreement.
|
Human trafficking involves the exploitation of individuals for forced labor or commercial sex. The trafficking of individuals within U.S borders is commonly referred to as domestic human trafficking, and it occurs in every state in the nation. Of those individuals who are victims of sex trafficking, research indicates that most victims coming into and within the United States are women and children, and the victims include U.S. citizens and noncitizens alike. This report focuses on the sex trafficking of children in the United States. The investigation and prosecution of human trafficking has often been carried out by the states, and all states and the District of Columbia have laws outlawing human trafficking, including sex trafficking in children. Congress has focused recent attention on domestic sex trafficking of children, which includes commercial sex acts involving children under the age of 18. Under the Victims of Trafficking and Violence Protection Act of 2000 (TVPA), the primary law that addresses trafficking, sex trafficking of children is a federal crime—even if a child is not removed from his or her community. Further, regardless of whether a child is believed to have consented to sex or whether the child represents himself/herself as an adult, the child is considered a trafficking victim under federal law. The exact number of child victims of sex trafficking in the United States is unknown because of challenges in defining the population and varying methodologies used to arrive at estimates. U.S. citizens—adults and children alike—are more often victims of sex trafficking than labor trafficking. One snapshot of the child victim population, albeit incomplete, comes from the Department of Justice (DOJ)-funded Human Trafficking Reporting System (HTRS). Data in the HTRS come from investigations opened by federally funded human trafficking task forces, and do not represent all incidences of human trafficking nationwide. In January 2008, the task forces began entering data into HTRS. Between January 1, 2008, and June 30, 2010, the task forces opened 2,515 investigations of human trafficking; 82% of these were classified as sex trafficking. Of these sex trafficking cases, 83% involved U.S. citizen victims and 40% involved prostitution or sexual exploitation of a child. Data from the National Human Trafficking Resource Center (NHTRC) can also provide a snapshot into sex trafficking in the United States. The NHTRC, a program of the Polaris Project, "is a national, toll-free hotline" that receives calls, texts, and tips on human trafficking. The NHTRC determined that it received information on 4,884 potential trafficking cases in 2013. Of these cases, 69% were categorized as sex trafficking incidents, and 31% involved potential minor victims. Demand for sex with children (and other forms of commercial sexual exploitation of children) is steady, and profit to sex traffickers, or pimps, has increased. Together, these and other factors have helped fuel sex trafficking of children. Pimps/traffickers prey on vulnerable youth and groom their victims to enter "the life" of being forced to sell sexual services for the profit of others. They manipulate and abuse—physically, mentally, and emotionally—their victims to maintain control. Additionally, technological advances such as cellular telephones and the Internet have facilitated the demand for child sex trafficking. These technologies can rapidly connect buyers of commercial sex with trafficking victims while simultaneously distancing the perpetrator from the criminal transactions. The individuals who purchase sexual services from pimps/traffickers are known as solicitors, purchasers, buyers, or "johns." Solicitors of sex with children may or may not be aware that the individuals with whom they are engaging in sex are children or trafficking victims. Commercial sexual exploitation of children appears to be fueled by a variety of individual (e.g., homelessness or history of child abuse), relationship (e.g., family conflict or dysfunction), community (e.g., peer pressure or gang involvement), and societal (e.g., sexualization of children) variables. These factors may interact in ways that can increase the risk of exploitation. Of note, having one or more risk factors does not necessarily make a child vulnerable to sex trafficking and other forms of exploitation. Further, certain other factors can also heighten risk of exploitation, including the presence of large numbers of unattached and transient males in communities—including military personnel, truckers, conventioneers, and sex tourists, among others; and the recruitment of children by organized crime units for sex trafficking. Notably, studies have found that sex trafficking (and commercial sexual exploitation) is supply-driven as well as demand-driven. However, federal legislation has focused more extensively on penalizing the traffickers and has placed less emphasis on the buyers of commercial sex. Experts generally agree that any efforts to reduce the prevalence of sex trafficking—as well as other forms of trafficking—should address not only the supply, but also the demand. The TVPA, most recently amended and reauthorized as part of the Violence Against Women Reauthorization Act of 2013 ( P.L. 113-4 ), has been the primary legislative vehicle authorizing services to victims of trafficking. The TVPA historically focused on providing shelter and support services to victims within the United States—particularly noncitizens. This may have been, in part, because noncitizens were not eligible for those services—including healthcare, housing, education, and legal assistance—to which U.S. citizen and lawful permanent resident (LPR) victims had access. U.S. citizen victims may be eligible for certain crime victim benefits and public benefit entitlement programs, though these services are not tailored to trafficking victims. Further, "there is currently little data to assess the extent to which U.S. citizen trafficking victims are accessing the benefits for which they are eligible." Since its enactment in 2000, the TVPA has been reauthorized four times—in 2003 ( P.L. 108-193 ), 2006 ( P.L. 109-164 ), 2008 ( P.L. 110-457 ), and 2013 ( P.L. 113-4 ). Through reauthorizations in 2006, 2008, and 2013, Congress increased focus on U.S. citizen and LPR victims and authorized services specifically to address sex trafficking of children within the United States. In addition, Congress requested a report, through P.L. 110-457 , detailing any differences in services provided to noncitizens and citizens. In practice, services authorized through the TVPA for trafficking victims, which are provided primarily by the Departments of Justice and Health and Human Services (HHS), continue to aid primarily the noncitizen victim population. This may be a result of several factors. For one, while Congress has expanded authorized funding to include victim services for trafficking victims in the United States—irrespective of immigration status—appropriations for trafficking victims services simultaneously remained relatively stable since the TVPA passed in 2000 through FY2014. In other words, Congress has generally not appropriated additional funds for services that target a broader spectrum of victims that have been subsequently authorized. Further, appropriations have not specified which services should be funded, and program funding has been an administrative decision within DOJ and HHS. Exploring the adequacy of victim services for all victims of sex trafficking in the United States may be of interest for Congress if policy makers choose to exercise oversight regarding the implementation of TVPA grant programs. Another issue Congress may consider is the lack of specialized support for minor victims of sex trafficking in the United States. Organizations in the United States that specialize in serving child victims of prostitution and other forms of sex trafficking collectively have limited housing and supportive services. Other facilities, such as runaway and homeless youth shelters as well as foster care homes, do not appear to be adequate for meeting the needs of victims or keeping them secure from pimps/traffickers and other abusers. Further, victims of trafficking may come to the attention of child protective services (CPS), but CPS may not be able to adequately respond to the needs of sex trafficking victims if workers are not knowledgeable about human trafficking, the trafficking laws, or how to handle cases involving child victims. Child victims may also be arrested and placed in juvenile detention facilities because they are perceived to be responsible for prostitution (and other types of commercial sex acts) and/or because they often need protection from sex traffickers. This report provides an overview of sex trafficking of children in the United States. It first conceptualizes the issue, discussing the victims and perpetrators involved. It then outlines the federal response to investigating and prosecuting perpetrators as well as providing services to victims. The report concludes with a discussion of select issues concerning the federal response to sex trafficking of minors in the United States. Federal law does not define sex trafficking per se. However, the term "severe forms of trafficking in persons," as defined in the TVPA, includes sex trafficking. "Severe forms of trafficking in persons" refers to (A) sex trafficking in which a commercial sex act is induced by force, fraud, or coercion, or in which the person induced to perform such act has not attained 18 years of age; or (B) the recruitment, harboring, transportation, provision, or obtaining of a person for labor or services, through the use of force, fraud, or coercion for the purpose of subjection to involuntary servitude, peonage, debt bondage, or slavery. As part of this definition, a "commercial sex act" means "any sex act, on account of which anything of value is given to or received by any person." The commercial aspect of the sexual exploitation separates trafficking from other crimes such as molestation, sexual assault, and rape. There appears to be a consensus among experts that the prostitution of minors fits the definition of "severe forms of human trafficking." In the case of minors, there is general agreement in the United States and much of the international community that the trafficking term applies to children, regardless of whether the child's actions are believed to be forced or voluntary. As mentioned, the exact number of children who are victims of sex trafficking does not exist because comprehensive research is lacking. However, several studies have attempted to measure the extent of the problem. Notably, the studies are not comparable, do not measure the same populations, and do not use consistent terminology. For a discussion of studies that aim to evaluate the scope of the commercial sexual exploitation and prostitution of children, see Appendix A . Runaways are particularly vulnerable to becoming victims of sex trafficking. A federally funded study found that approximately 1.7 million youth had run away from home or were forced to leave their homes at some point in 1999. While away from home, an estimated 38,600 (2.2%) of these youth were sexually assaulted, were in the company of someone known to be sexually abusive, or were engaged in sexual activity in exchange for money, drugs, food, or shelter. Runaways may be perceived as easy targets for pimps/traffickers because they often cannot go home and have few resources. One study involving a nationally representative sample of shelter youth and interviews of street youth in multiple cities indicated that approximately 28% of street youth and 10% of youth in shelters reported selling sex to generate money for basic needs (often referred to as survival sex). Those youth under the age of 18 would be considered victims of sex trafficking if they had sex with an adult in exchange for basic provisions. The study also pointed out that the odds of engaging in survival sex increased for youth who had been victimized (emotionally or physically), had participated in criminal behavior, had a history of substance abuse, had attempted suicide, had a sexually transmitted disease (STD), or had been pregnant. The Dallas Police Department also found a strong correlation between sex trafficking and runaway status: the more times a child runs away, the greater the likelihood that he or she will be victimized. The department also found that other risk factors among child trafficking victims include their young ages, whether they had previously been sexually exploited, and whether they had previously been victims of prostitution. Other research, including studies examining the histories of prostitutes in Boston, Chicago, and San Francisco, has found that the majority of prostituted women were runaways. According to a study funded by HHS, between 21% and 42% of runaway and homeless youth were victims of sexual abuse before they left their homes. In the general youth population, this prevalence is 1% to 3%. The Letot Center, a juvenile justice facility in Dallas that cares for youth victims, has indicated that about 9 out of 10 youth in the Center had previously been physically or sexually abused. Further, 10% of the youth had previously been involved with child protective services (CPS). In addition to runaway and homeless youth, foster youth may also fall prey to traffickers. According to anecdotal reports, it appears that traffickers target group homes and other settings where foster youth congregate. Victims of sex trafficking are exploited by pimps/traffickers who may operate alone or as part of a criminal network. In the United States, traffickers range from teenage boys, young men, and men and women who work for older male pimps to organized criminal syndicates operating both within and across state and national lines. In a study of the underground commercial sex trade in eight U.S. cities, traffickers cited certain factors that influenced their decision to become involved in the industry, including exposure to sex work by family members, lack of job options, and encouragement from a significant other or acquaintance. Pimps/traffickers profit by receiving cash or other benefits in exchange for the sexual use of an individual by another person. It is more profitable for a trafficker to prostitute a child than to commit other crimes such as dealing in drugs. For one, the commodity (child) is reusable. In addition, technological innovation has allowed traffickers to reach a wider client base and connect more quickly with buyers. Of note, when referring to the trafficking of minors , the terms "pimp" and "trafficker" are synonymous. This does not necessarily hold true when referring to the trafficking of adults. In the context of adults, a pimp who does not use force, fraud, or coercion to induce adults to prostitute themselves would not be considered a trafficker. However, this distinction is moot when the prostituted individuals are minors, with whom a pimp need not use force, fraud, or coercion to be considered a trafficker. There is no single profile of a buyer of commercial sex with a minor, making buyers particularly difficult to identify. In addition, there is little research on the factors associated with the risk of becoming or being a buyer or exploiter. Research has suggested that these predators are often encouraged by online solicitations, temptations, and exploitation. In addition to those actively seeking out sex with minors, some buyers may engage in sex with minors unknowingly. The perpetrators may assume that a prostituted individual is an adult. Alternatively, they may or may not inquire about the age of that individual and may still decide to engage in a sex act even if she or he is a minor. Before 2000, U.S. laws were widely believed to be inadequate for dealing with human trafficking or for protecting and assisting victims. Anti-trafficking legislation and programs have since been implemented with the goal of improving the situation. The Victims of Trafficking and Violence Protection Act of 2000 (TVPA, P.L. 106-386 ) was enacted on October 28, 2000. The TVPA sought to punish traffickers and provide support for victims within U.S. borders. Congress reauthorized the TVPA in 2003 ( P.L. 108-193 ), in 2006 ( P.L. 109-164 ), in 2008 ( P.L. 110-457 ), and most recently in 2013 ( P.L. 113-4 ). Of note, the Trafficking Victims Protection Reauthorization Act of 2005 ( P.L. 109-164 ), signed into law on January 10, 2006, sought to address the special needs of child victims, as well as the plight of American victims trafficked within the United States. The act sought to remedy a perceived inequality between the services available to foreign and domestic victims by creating grant programs specifically to address the needs of U.S. citizen and LPR victims. The William Wilberforce Trafficking Victims Protection Reauthorization Act of 2008 ( P.L. 110-457 ) created a new grant program for U.S. citizen and LPR victims, and it required a study identifying any gaps between services provided to U.S. citizen and noncitizen victims of trafficking. The most recent TVPA reauthorization ( P.L. 113-4 ) amended one of the TVPA grant programs to authorize the Attorney General and Secretary of HHS to make block grants to four entities throughout the United States for the specific purpose of combatting the sex trafficking of minors. According to the Department of Justice, the TVPA is considered the seminal piece of legislation in the fight against the commercial sexual exploitation of children. The federal government investigates and prosecutes trafficking crimes and provides services to victims, including those who are sex trafficked. The U.S. government has made strides since the passage of the TVPA in 2000 in identifying and protecting victims, investigating and prosecuting incidents of human trafficking, and training law enforcement and the public to identify instances of trafficking. Nonetheless, the State Department's 2013 Trafficking in Persons Report recommends that, among other things, the United States increase funding for victim services; improve interagency coordination; and "increase screening to better identify trafficked persons, including adults and children arrested or detained for criminal offenses frequently associated with human trafficking, youth served through the child welfare system, and runaway and homeless youth being served through programs funded by [HHS]." As part of the response to punishing traffickers, the Departments of Justice (DOJ) and Homeland Security (DHS) have primary responsibility for investigating and prosecuting trafficking cases. Multiple federal statutes, including those enacted and amended by the TVPA, outlaw sex trafficking of minors and include penalties for individuals who are found guilty. The federal government also funds services for victims of trafficking. The TVPA, as amended, is the major federal legislation that authorizes these services, which are provided primarily by DOJ and HHS. There has been confusion regarding whether U.S. citizen, LPR, and noncitizen victims are equally eligible to receive these services. In practice, these services tend to be targeted to aiding noncitizen victims. A policy change at DOJ in FY2012 allows federal funding for victims services to support U.S. citizen victims of human trafficking as well as noncitizen victims. In addition, it appears that previously in FY2009, the DOJ Grants for Victim Services used funding specifically to serve U.S. citizen and LPR minor victims of sex trafficking. Table 1 summarizes programs authorized by the TVPA to combat and respond to trafficking of children in the United States. The majority of programs appear to be able to address the trafficking of U.S. citizen, LPR, and noncitizen victims alike. The programs include grants to law enforcement for investigations and prosecutions as well as to social services and other providers of victims' services. Only selected programs, including DOJ Grants for Victim Services and HHS's Victims' Assistance program, have actually been funded. While both of these programs have served noncitizen victims, only the DOJ Grants for Victim Services has used money to serve U.S. citizen and LPR victims. Investigations of human trafficking (including sex trafficking) are often complicated by language barriers and humanitarian issues (e.g., the victim has been traumatized and is unable to aid in the investigation), as well as logistical challenges and difficulties (e.g., transporting, housing, and processing the victims). Moreover, unlike drug trafficking cases where the contraband itself is proof of the illegal activity, the successful prosecution of trafficking in persons cases relies on the availability of witnesses who may refuse to testify for various reasons, including fear of retribution against themselves or their families. As mentioned, the investigation and prosecution of child prostitution is most often a matter of state law. Every state outlaws the prostitution of children, and human trafficking in terms sufficient to encompass sex trafficking in children. Within the federal government, DHS and DOJ have primary responsibility for investigating (and DOJ is responsible for prosecuting) sex traffickers, including those who traffic children. The majority of the cases are investigated by agents in DHS's Bureau of Immigration and Customs Enforcement (ICE) or DOJ's Federal Bureau of Investigation (FBI), who coordinate as appropriate. In addition, DOJ, through the Child Exploitation and Obscenities Section (CEOS) in the Criminal Division and the Human Trafficking Prosecution Unit (HTPU) in the Civil Rights Division, works with the U.S. Attorneys' Offices to prosecute individuals who violate federal laws relating not only to trafficking, but also to child pornography, child prostitution, obscenity, child sex tourism, and international parental kidnapping. CEOS prosecutes sex traffickers under the TVPA and other laws relating to child sexual exploitation. With specific respect to prosecuting the domestic sex trafficking of minors, perpetrators are often prosecuted for violations of the Mann Act, the Racketeer Influenced and Corrupt Organization Act (RICO), or the TVPA. Specific statues available to prosecute such crimes include, but are not limited to, the following: 18 U.S.C. §1591—Recruiting, enticing, or obtaining (including via force, fraud, or coercion) individuals to engage in commercial sex acts, or benefiting from such activities; 18 U.S.C. §2421—Transporting individuals across state or international lines for prostitution or other unlawful sexual activities; 18 U.S.C. §2422—Enticing or coercing an individual to cross a state or international line for prostitution or other unlawful sexual activities; 18 U.S.C. §2423—Transporting a minor across state or international lines for prostitution or other unlawful sexual activities; 18 U.S.C. §2424—Keeping an alien in a house or place of prostitution; and 18 U.S.C. §2241(c)—Engaging in interstate travel for sexual activities with a child under age 12, and sexual activities with a child under age 16. Of these, only 18 U.S.C. §1591 is an anti-trafficking statute created in the TVPA. The provisions created in other federal laws often reference that the crime is prosecutable so long as the victim is brought across states lines; however, under the TVPA, victims do not have to be removed from their communities in order for the crime to be considered eligible for prosecution. Further, the majority of statutes used to prosecute trafficking offenses focus on prosecuting the traffickers, and not as much focus has been placed on prosecuting the clients or "johns." Another difference between the prosecution of traffickers and the prosecution of buyers appears to be that traffickers can be prosecuted whether or not a victim is brought across state lines. On the other hand, federal statutes generally used to prosecute buyers appear to require that either the buyer crosses state lines or that she/he entices the victim to cross state lines. In short, there may be more flexibility and options for federal prosecutors to prosecute traffickers than to prosecute johns. The following sections discuss efforts by DOJ and DHS to combat trafficking, including prostitution and other forms of child sex trafficking. While the Civil Rights Unit (CRU) of the FBI is responsible for overseeing of human trafficking investigations "involving adults (domestic or foreign), foreigners, and any sex trafficking cases involving foreign minor victims[, t]he Violent Crimes Against Children Section (VCACS) is responsible for investigating cases involving the commercial sexual exploitation of domestic minors." These units may coordinate with other FBI components, such as the Organized Crime and Violent Gang units to investigate these sex trafficking cases. The CRU opened 306 human trafficking cases in FY2012; that same year, the VCACS opened an additional 363 cases specifically related to the commercial sexual exploitation of children in prostitution in the United States and had 302 convictions. The FBI, along with the Child Exploitation and Obscenities Section of DOJ and the National Center for Missing and Exploited Children (NCMEC), participates in the Innocence Lost Initiative, an initiative dedicated specifically to combating sex trafficking of minors within the United States. The FBI has established 66 Innocence Lost task forces and working groups around the country. This has led to the conviction of over 1,300 perpetrators as well as the rescue of 2,700 children. Operation Cross Country in July 2013 swept 76 cities over three days, resulting in "the recovery of 105 sexually exploited children and the arrests of 150 pimps and other individuals." This was the seventh iteration of this operation, which brings together federal and state law enforcement entities, prosecutors, and social service providers to identify and recover trafficking victims. The FBI also leads Violent Crimes Against Children Task Forces, which investigate, among other things, sex trafficking of children. In FY2011, there were 26 such task forces, and by FY2013 the number had expanded to 69. Through the Anti-Human Trafficking Task Force Initiative, DOJ (via the Bureau of Justice Assistance (BJA)) funds nationwide anti-trafficking task forces (at the end of FY2013, BJA was funding 16 such task forces). These task forces are composed of federal, state, and local law enforcement investigators and prosecutors and NGO victims service providers. The task forces coordinate cases and conduct law enforcement training on the identification, investigation, and prosecution of human trafficking cases. Research has reportedly shown that locales with task forces are more likely to identify and prosecute trafficking cases. The Anti-Trafficking Coordination Team (ACTeam) Initiative was launched in 2011 as an interagency coordination effort between "the Departments of Justice, Homeland Security, and Labor aimed at streamlining federal criminal investigations and prosecutions of human trafficking offenses." Six pilot sites were launched in Atlanta, El Paso, Kansas City, Los Angeles, Memphis, and Miami. DOJ, DHS, and DOL have continued to support these ACTeams. The Internet Crimes Against Children (ICAC) Task Force program was first funded in 1998 to provide federal support for state and local law enforcement agencies to combat online enticement of children and the proliferation of pornography. The ICAC program has 61 regional task forces, which are comprised of "more than 3,000 federal, state, and local law enforcement and prosecutorial agencies that conduct investigations, forensic examinations, and prosecutions related to online child victimization and pornography." Since the ICAC program started in 1998, over 338,000 individuals—law enforcement officers, prosecutors, and professionals in the United States and at least 17 other countries—have been trained to investigate and prosecute cases involving Internet crimes against children. ICAC task forces reviewed 8,565 complaints and arrested over 6,900 individuals suspected of involvement in sexually victimizing children in FY2012. The Human Smuggling and Trafficking Unit (HSTU) is the unit within ICE primarily responsible for trafficking investigations (including sex trafficking). It coordinates with other units within ICE—such as the Cyber Crimes Center and the Victim Assistance Program—and with units in other agencies to combat sex trafficking. In FY2012, ICE initiated 894 cases with a nexus to human trafficking, and recorded 967 criminal arrests, 559 indictments, and 381 convictions in these and other trafficking cases initiated in previous years. The data, however, do not distinguish the proportion of arrests for sex trafficking or labor trafficking, nor do they distinguish the proportion of cases involving domestic or international victims. They also do not distinguish the proportion of arrests that were made for violations related to minors or adults. In July 2004, the Attorney General and the Secretaries of the Departments of State (DOS) and Homeland Security signed a charter to establish the Human Smuggling and Trafficking Center (HSTC). The Intelligence Reform and Terrorism Protection Act of 2004 ( P.L. 108-458 , §7202), signed into law on December 17, 2004, formalized the HSTC. The HSTC serves as the federal government's information clearinghouse and intelligence center for all federal agencies addressing human smuggling, human trafficking, and the potential use of smuggling routes by terrorists. It is unclear how much of the HSTC's resources are focused on minor victims of sex trafficking. While the HSTC is the information repository for matters including trafficking, there is no centralized database housing information on trafficking perpetrators, victims, outreach, and other matters—although Congress mandated the creation of such a database in the TVPA reauthorization of 2008. The 2011 Attorney General's Annual Report to Congress on U.S. Government Activities to Combat Trafficking in Persons indicated that the HSTC "concluded a project with DHS's Systems Engineering and Development Institute (SEDI) to inventory federal human trafficking data sets and to assess the feasibility of creating a human trafficking database." The President's Interagency Task Force to Monitor and Combat Trafficking in Persons developed a strategic action plan in 2013 for providing services to victims of human trafficking, both sex and labor trafficking. The five-year plan was informed by a listening session hosted by HHS and held at the White House in December 2012. It lays out four broad goals that are associated with action items to identity and provide services to victims of trafficking: increase coordination and collaboration at the federal, regional, state, tribal, and local levels; increase awareness of human trafficking among government and community leaders and the general public; expand access to services for victims throughout the United States; and promote services that improve short- and long-term health, safety, and well-being of victims. For example, the action items for the overarching goal of promoting services seek to develop approaches to serving victims that have been rigorously tested. The plan notes that baseline and follow-up data should be collected on service delivery strategies. It also outlines steps that agencies are taking to identify promising practices to respond to trafficking victims. As referenced in Table 1 , the TVPA, as amended, authorizes services (primarily through DOJ and HHS) to assist victims of trafficking within the United States. Some of these programs are aimed at child victims of trafficking, particularly sex trafficking. In practice, funds appropriated to HHS for trafficking have been used to carry out the program authorized under 22 U.S.C. §7105(b). Under 22 U.S.C. §7105(b), it appears that HHS may provide assistance to two distinct categories of victims: (1) any victim under the age of 18 and (2) any adult who HHS has certified as a victim—a noncitizen adult victim. The statute does not specify the citizenship of children. In practice, HHS provides services only to noncitizen children. Although noncitizen trafficking victims under the age of 18 do not have to be certified to receive benefits and services, it is HHS policy to issue eligibility letters to such noncitizen victims. Because adult domestic victims do not go through the process of certification, there is some confusion over whether U.S. citizens are eligible for services provided by HHS and other federal agencies (including, as referenced under 22 U.S.C. §7105(b), the Department of Labor, the Legal Services Corporation, and other federal agencies not including DOJ). Adult U.S. citizen and LPR trafficking victims are not required to be certified by HHS, and indeed would not meet the criteria to be certified because certification applies only to foreign nationals who need an immigration status (e.g., T status or continued presence) to remain in the United States. Nonetheless, a 2007 report by the Senior Policy Operating Group on Trafficking in Persons (SPOG) states, "there are not many differences in trafficking victims' eligibility for the services we reviewed when one looks at the relevant statutes." However, the report does note that U.S. citizen victims may have less intensive case management services compared to noncitizens. In addition, only noncitizen trafficking victims are eligible for refugee-specific programs. For services authorized under 22 U.S.C. §7105(b)(2), DOJ can use funds to provide services to "victims of trafficking," which appears to include both citizens and noncitizens as well as both adults and minors. Of the money it has received to combat trafficking in persons prior to FY2015, DOJ had targeted funds toward the Grants for Victim Services. Until FY2010, these grants had exclusively been used to provide emergency services to victims as soon as they have been identified, prior to certification by HHS (for more information, see Appendix B ), but since then some funds have been used for victims post-certification. In addition, in FY2012 DOJ changed its policy so that federal funding for victims services could support U.S. citizen victims as well as foreign national victims. Nonetheless, under the umbrella of this program, DOJ had previously used some funding to serve domestic minor victims of sex trafficking through a program called Services for Domestic Minor Victims of Human Trafficking. In FY2009, DOJ's Office for Victims of Crime awarded cooperative agreements, each for $800,000, for a period of three years to three organizations that work with domestic minor victims of sex trafficking. Three additional organizations have received DOJ support through other programs for these same purposes. The purposes of the grant are to (1) provide a comprehensive array of timely and high-quality services, including intensive case management and shelter, to victims of sex and labor trafficking who are U.S. citizens or LPRs under the age of 18; (2) develop, enhance, or expand the community response to domestic minor victims of all forms of human trafficking; and (3) produce a final report about the implementation of the project so that OVC may disseminate lessons to the trafficking victims' services field. While other HHS and DOJ programs authorized under TVPA (and referenced in Table 1 could provide services to minor victims of sex trafficking, it does not appear that these programs received funding prior to FY2015. For instance, the act directs the Secretary of HHS to carry out a grant program for states, tribal governments, local governments, and nonprofit nongovernmental victims' service organizations to establish, develop, expand, and strengthen assistance programs for U.S. citizens or LPRs who are the subject of sex trafficking or severe forms of trafficking in persons that occur, in whole or in part, within the United States. The act further directs the Secretary of HHS to establish a pilot program to establish residential treatment facilities in the United States for juveniles subjected to trafficking within the United States. The William Wilberforce Trafficking Victims Protection Reauthorization Act of 2008 ( P.L. 110-457 ) reauthorized the two programs through FY2011. In addition, the act also created a new grant program to be administered jointly by the Secretary of HHS and the Attorney General to provide services to U.S. citizen victims of severe forms of trafficking. These programs, however, have not received appropriations. In addition, the most recent TVPA reauthorization created a new grant program authorizing the Assistant Attorney General for DOJ's Office of Justice Programs to award one-year grants to six grantees to combat sex trafficking of children in the United States. While this program was not funded in FY2014, it appears to have received an appropriation for FY2015. In the Violence Against Women Act Reauthorization Act of 2013 ( P.L. 113-4 ), Congress amended several grant programs to add to their allowable activities serving victims of trafficking. For instance, a newly consolidated program that includes three grant programs—Creating Hope Through Outreach, Options, Services, and Education for Children and Youth (Choose Children and Youth) Grant Program; the Grants to Indian Tribal Governments Program; and the Grants to Indian Tribal Coalitions Program—all may be employed to serve victims of sex trafficking. A discussion of programs, outside of the TVPA, that may provide assistance to minor victims of sex trafficking (but are not directed to do so in authorizing statute or elsewhere) in the United States is included in Appendix C . In addition, other federal programs may be available to child trafficking victims who are citizens, such as the Supplemental Nutrition Assistance Program (SNAP), selected programs administered by the Substance Abuse and Mental Health Services Administration (SAMHSA), and Job Corps. Nonetheless, little is known about the extent to which these services and benefits are accessed by child victims/survivors of sex trafficking, and whether victims and service providers are aware of such programs. One overriding issue concerning minor victims of sex trafficking is the extent to which federal agencies can and do provide services to U.S. citizen and lawful permanent resident (LPR) trafficking victims. Originally, the Victims of Trafficking and Violence Protection Act of 2000 (TVPA, P.L. 106-386 ) primarily targeted services toward noncitizen victims because they were not eligible for existing federal human service programs for which U.S. citizen and LPR victims may have been eligible. As mentioned, U.S. citizen victims are eligible for certain crime victim benefits and public benefit entitlement programs, though these services are not tailored to trafficking victims. Further, the extent to which U.S. citizen victims rely upon these services is unknown. There has been disagreement over whether the services and programs authorized by the TVPA are available to all victims, regardless of citizenship status. A 2010 U.S. Department of Justice (DOJ) report noted that U.S. citizen and foreign national victims of trafficking are treated differently when they are identified, characterized, and offered services. In addition, service providers and advocates report that federal legislation on commercial sexual exploitation often focuses on foreign victims; as a result, providers often have difficultly securing social services for U.S. citizen victims. Contributing to this concern may be the limited response provided by agencies such as child protective services (CPS) that many may assume would be able to serve these U.S. victims—discussed in detail below. In response to perceived inequities between services provided to U.S. citizen and noncitizen trafficking victims, the Trafficking Victims Protection Reauthorization Act of 2005 ( P.L. 109-164 ) enacted policies to assist U.S. citizen and LPR victims. In the conference report to accompany the law, Congress highlighted concerns with the commercial sexual exploitation of U.S. and LPR children in particular: The United States not only faces an influx of international victims of sex and labor trafficking, but also has a problem of internal trafficking (also referred to as domestic trafficking), particularly of minors, for the purpose of commercial sexual exploitation. In consultation with the committees of jurisdiction over domestic programs, the Committee amended Title II of the bill, which addresses trafficking in persons that occurs within the borders of the United States and victimizes United States citizens or permanent residents…. Among youth living on the streets in the United States, involvement in commercial sex activity is a problem of epidemic proportion…. The Committee is concerned about U.S. persons who become subjects of trafficking for commercial sexual exploitation and encourages the law enforcement community at the State and local levels to focus efforts on prosecuting individuals who exploit others through prostitution and trafficking. New strategies and attention are needed to prevent the victimization of U.S. persons through domestic trafficking. As mentioned, P.L. 109-164 authorized two programs specifically to provide services to minor victims, one of which targeted U.S. citizen and LPR trafficking victims. Despite explicit language in the TVPA, as amended, regarding assistance to U.S. citizen and LPR victims, appropriations language has been unclear as to whether funds are available for this purpose. Each year since FY2008, Congress has appropriated money to DOJ for programs for victims of trafficking and to HHS to "carry out the Trafficking Victims Protection Act of 2000." DOJ funds have been used by the Office for Victims of Crime (OVC) to provide services to noncitizens and, beginning in FY2009, to carry out the Services for Domestic Minor Victims of Human Trafficking program. Funds have also been used to support the Anti-Human Trafficking and ACT Task Forces. HHS funds have been used by the Office of Refugee Resettlement (ORR) to provide certification and victim services and to carry out a public awareness campaign about trafficking. ORR has said that services are not provided for U.S. citizens and LPRs because it believes that Congress has not provided funding specifically for this purpose. Indeed, HHS funding to combat trafficking remained stable between FY2002 and FY2013 at approximately $10 million; appropriated funding did not increase after Congress authorized additional programs for minor victims of sex trafficking, including U.S. citizens and LPRs. In FY2014, Congress increased appropriations (to almost $14 million) for HHS to combat trafficking. Even with this increase, Congress directed HHS to "dedicate a significant amount of the increase for the Victims of Trafficking program to improve services for foreign national trafficking victims [emphasis added]." For FY2015, the FY2015 Conference report provides $15.7 million to HHS to combat trafficking. Further, the FY2010 Attorney General's Annual Report to Congress on U.S. Government Activities to Combat Trafficking in Persons states, "the funds provided under the TVPA by the federal government for direct services to victims are dedicated to assist non-U.S. citizen victims and may not be used to assist U.S. citizen victims." However, it appears likely that the funding may be available for benefits and programs for U.S. citizens and LPRs, given that the TVPA authorizes services for these victims. In fact, DOJ began funding a three-year grant in FY2009, Services for Domestic Minor Victims of Human Trafficking, for U.S. citizen and LPR victims. According to DOJ, this grant is authorized under 22 U.S.C. §7105(b)(2)(A), which was included in the TVPA as enacted in 2000. The authorizing language of this grant program does not appear to differentiate between U.S. citizen and noncitizen victims: IN GENERAL.—Subject to the availability of appropriations, the Attorney General may make grants to States, Indian tribes, units of local government, and nonprofit, nongovernmental victims' service organizations to develop, expand, or strengthen victim service programs for victims of trafficking. Authorized funding for this grant appears to be inconsistent with the statement in the FY2008 Attorney General's report that the funds appropriated under the TVPA can only be used for noncitizen victims. Likewise, in FY2012 a policy change at DOJ allowed federal funding for victim services to support U.S. citizen trafficking victims as well as noncitizen victims. Due to the apparent confusion over the authority and funding available to provide services to U.S. citizen trafficking victims, Congress may choose to clarify the authorities to provide services to these victims under the TVPA. A corollary issue is the overall breadth of funding for victims' services. It has been estimated that there are approximately 14,000 noncitizens trafficked into the United States each year. And this estimate does not include U.S. citizen and LPR victims. In addition, it is estimated that the number of child victims of sex trafficking in the United States could be in the hundreds of thousands. As the focus on sex trafficking has broadened to include victims of child prostitution, funding has increasingly become an issue. In FY2015, Congress appropriated to HHS and DOJ approximately $58 million for services to trafficking victims, a significant increase, mostly for DOJ, from previous years. For information on current authorizations and appropriations for trafficking victims' services through HHS and DOJ, see Table 1 . This raises several questions. For one, are the resources for trafficking victims, both citizen and noncitizens, adequate? The State Department's 2013 Trafficking in Persons Report recommends that the U.S. government "increase funding for relevant agencies to provide victim services both domestically and internationally," among other things, to more effectively combat trafficking in persons. If funds were allocated based on estimated citizen populations and noncitizen populations, would certain victims have more difficulty obtaining services? To what extent are the needs of U.S. citizen and noncitizen victims similar and to what extent do they differ? As mentioned, U.S. citizens and LPRs are more likely to be victims of sex trafficking and noncitizens are more likely to be victims of labor trafficking. As such, should funding for victims of trafficking generally be targeted to serve specific populations based on immigration status, or should it be targeted to providing specialized services for victims of a particular form of trafficking (sex or labor trafficking) without regard to immigration status? The social services field provides services to child victims of sex trafficking through a variety of strategies. Such strategies include (1) direct care and support services for victims and survivors; (2) short- and long-term shelter; (3) curriculum development and education for children and youth at risk for sex trafficking, victims, survivors, and victim service providers; (4) programs designed to prevent sex trafficking of minors; and (5) hotlines operated to assist victims of trafficking and provide them and others with referrals, among other types of supports. Services are often provided by nongovernmental service providers, sometimes with support from the federal government, state governments, and philanthropic entities. Nonetheless, services and shelter for victims/survivors are available on a limited basis. As background for a 2012 colloquium on supports for child victims and survivors of sex trafficking, a working group surveyed organizations that provide residential and other services to victims. Of the 51 organizations that responded to the survey, most (78%) said they provided community-based care or case management; 19% reported providing foster care support; and 47% responded that they provide residential care. They collectively reported having the capacity to provide services for 1,684 child victims and shelter services for 226 child victims. Given that the number of child victims is believed to be much higher, the shelter and services that are available may only reach a fraction of children needing supports. Moreover, little is known about the efficacy of these services. According to the National Academy of Sciences' report on child sexual exploitation and sex trafficking in the United States, "very few evaluations of specific victim and support services have been conducted, and there are few published reports and even fewer peer-reviewed studies on these services. As a result, victim and support service professionals and programs lack a critically reviewed evidence base for practice." Still, some interventions for victims show promise. LIFESKILLS is a program in San Francisco for victims and survivors at-risk of sex trafficking and commercial sexual exploitation, as well as those at risk for exploitation. An independent evaluation of the program found that participants had reduced contact with the criminal justice system, and reported significantly better outcomes for sexual assault victimization; however, the program made no significant impact on substance abuse, commitment to school, most measures of victimization, and social support. Despite the paucity of services and information about their effectiveness, recent efforts have been made to identify best practices for serving child victims of trafficking. A 2012 colloquium of social service providers and advocates made recommendations on providing such supports to child victims. Some of their recommendations include that providers should assess the individual needs of victims and place them into the most suitable emergency or long-term services; facilitate communication among service providers; and work to ensure diverse placement options are needed to prevent barriers to placement. In addition, the framework seeks to ensure that victims have tailored treatment plans; residential facilities should be staffed with or have regular access to medical and case professionals who can effectively assist victims through trauma-informed care; and treatment plans are designed to help lead survivors toward independence. Separately, as part of HHS's work on sex trafficking of minors within the United States, researchers identified—based on discussions with shelter providers, law enforcement officials, case workers, and directors and staff of four residential facilities that serve minor victims of domestic sex trafficking—promising elements for residential facilities for victims: Residential facilities should be designed to serve homogenous populations of trafficking victims. Victims may benefit from smaller, more intimate settings so they can develop relationships more easily with staff and other victims. Facilities must be secure in order to establish physical and emotional safety, and should include an undisclosed location, security cameras and alarm systems, 24-hour staffing and presence of security guards, unannounced room searchers and drug screens, and limited phone use. Services must be available to trafficking victims, including basic needs such as clothing, food, and shelter; intensive case management; mental health counseling and treatment; medical screenings and routine care; life skills and job training programs; youth development programming; educational programming; and services to assist youth in reunifying with their families or other appropriate support persons, as appropriate. State and local child welfare agencies are responsible for carrying out child welfare policies that are intended to promote the safety, well-being, and permanency of all children. Child victims of sex trafficking may come to the attention of child welfare services if they are reported to the agency's child protective services (CPS) hotline. In addition, children in foster care may be vulnerable to becoming trafficked. The capacity for state and local child welfare agencies to respond to the needs of sex trafficking victims is believed to be limited. This may be due, in part, to inadequate training, insufficient resources, high caseloads, and the perception that victims should be handled in the juvenile justice system. A study commissioned by HHS found that child welfare group homes and other foster care settings do not appear to be able to adequately meet the needs of youth or keep them from traffickers and other abusers. In addition, these settings are often not equipped to provide intensive services for victims or recognize the trauma they have experienced. Other research, which examined the role of CPS workers in a small number of cities, found that these workers were not familiar with human trafficking terms and laws or how to handle cases involving trafficking of children. Reports of abuse and neglect can be screened in and referred for investigation by CPS only if they concern actions that meet the state statutory definition of abuse and neglect. States that receive state grant funds under the Child Abuse Prevention and Treatment Act (CAPTA) must define "child abuse and neglect" to be consistent with this federal definition of abuse and neglect under CAPTA: "at a minimum, any recent act or failure to act on the part of a parent or caretaker, which results in death, serious physical or emotional harm, sexual abuse or exploitation, or an act or failure to act which presents an imminent risk of serious harm." The law also expands on the term "sexual abuse," which refers to "the employment, use, persuasion, inducement, enticement, or coercion of any child to engage in, or assist any other person to engage in, any sexually explicit conduct or simulation of such conduct for the purpose of producing a visual depiction of such conduct; or the rape, and in cases of caretaker or inter-familial relationships, statutory rape, molestation, prostitution, or other forms of sexual exploitation of children, or incest with children." The law does not, however, define "parent" or "caretaker." While some states refer to sexual abuse in general terms, others refer to more specific types of abuse, including sexual exploitation. Forms of sexual exploitation include the production of child pornography or allowing a child to engage in prostitution. Several states also define persons who can be reported to CPS as perpetrators. These are individuals who have a relationship with or regular responsibility for the child and generally include parents, guardians, foster parents, relatives, or other caregivers responsible for the child's welfare. It appears that in some cases, this could mean an adult over the age of 18 who is living with the child, but it is unclear whether a pimp/trafficker could be included in this definition. As enacted in October 2014, the Preventing Sex Trafficking and Strengthening Families Act ( P.L. 113-183 ) requires state child welfare agencies to respond to concerns about sex trafficking of children in foster care, including responding to those who run away from that care and those who otherwise come into contact with the child welfare agency. Specifically, P.L. 113-183 amends the federal foster care program (authorized in Title IV-E of the Social Security Act) to require state child welfare agencies to develop and implement procedures to identify, document in agency records, and determine appropriate services for certain children or youth who are victims of sex trafficking, or at risk of being such victims. The procedures need to ensure relevant training for caseworkers and must be developed in consultation with state and local law enforcement, juvenile justice systems, health care providers, education agencies, and organizations with experience in dealing with at-risk children and youth. P.L. 113-183 provides that these procedures are to be developed within one year of the bill's enactment and implemented within two years of that date. The law further requires state child welfare agencies to report to law enforcement authorities immediately, or in no case later than 24 hours, after they receive information about child or youth victims of sex trafficking. This reporting provision is effective beginning no later than two years after the bill's enactment. Additionally, within three years of the law's enactment, state child welfare agencies are required to annually report to HHS the total number of children and youth who are sex trafficking victims. The procedures to identify, document in agency records, and determine services for victims of, or those at risk of, sex trafficking must apply to all children in the care, placement, or supervision of the state child welfare agency, including children who are in foster care and under age 18 (or up to any age under 21, if the state has elected to serve such older youth with Title IV-E foster care assistance); children (under age 18) who are not in foster care but for whom the agency has an open case file; current and former foster youth (up to age 21, or 23 in limited circumstances) who are receiving services under the Chafee Foster Care Independence Program (CFCIP); and children who run away from foster care, provided they have not reached the age at which the state ends Title IV-E assistance (or have not been formally discharged from care). In addition, a state may elect to use these procedures to identify individuals up to the age of 26 who are victims, or at risk of becoming victims, of sex trafficking, without regard to whether the youth was ever in foster care. Despite challenges with involving CPS in these types of cases, some states have recently taken steps to track commercial sexual exploitation and/or prostitution cases under the broader category of sexual abuse. Some have also begun to provide specialized foster care services for victims of sex trafficking. The Connecticut Department of Children and Families screens in children who are victims of sex trafficking (regardless if the offender is a relative), and a Trafficking Clinical team of licensed clinicians assesses victims within 72 hours. Florida and Illinois also screen in child victims of sex trafficking. One policy response could be to encourage or require state child welfare agencies to screen in reports of commercial sex trafficking, including child prostitution, as a form of sexual abuse, regardless of whether this abuse is perpetrated or facilitated by a parent or guardian. This would expand on the requirements under P.L. 113-183 that compel states to respond to cases involving children but do not necessarily specify that they be screened in for services (and possible placement in foster care). Such changes could be made through amendments to federal child welfare programs (under Titles IV-B and IV-E of the Social Security Act or CAPTA), which provide funding for state child welfare programs. Regardless of whether the federal government provides additional funding to child welfare agencies to develop policies and possibly serve more children (including those who were not necessarily involved in the child welfare system), states may have difficulties in placing children in specialized foster or group homes, given that few facilities exist for victims generally. A separate consideration is the extent to which the child welfare system should be tasked with leading the social service response to child sex trafficking—and whether the federal government should play a role in helping coordinate a response across multiple systems. As part of its report on child sex trafficking, the National Academy of Sciences recommends, among other items, improving collaboration and information sharing across multiple sectors such as the federal government, state and local governments, academic and research institutions, foundations and nongovernmental organizations, and the commercial sector. Through the Trafficking Victims Protection Act of 2000, Congress legislated, essentially, that juveniles who are involved in commercial sexual crimes are to be considered the victims of these crimes. However, researchers have cited disparities in the ways that exploited children are labeled at the state and local levels. It has been suggested that victims of child sexual exploitation—even though these children are too young to consent to sexual activity with adults—may at times be labeled as child prostitutes or juvenile delinquents and treated as criminals rather than being labeled and treated as victims. These children who are arrested may then be placed in juvenile detention facilities with juveniles who have committed serious crimes instead of in environments where they can receive needed social and protective services. As Shared Hope International observes, "while this sometimes is viewed as the only option available to arresting officers, it is a practice that pulls the victim deeper into the juvenile justice system, re-victimizes [the young person], and hinders access to service." Like runaway and homeless youth shelters, juvenile detention facilities provide treatment and services (in this instance, services aligned with a youth's pending charges) that are often unrelated to sex trafficking. Consequently, these services may be ineffective at addressing the deeper issues facing victims. Further, victims may enter into the juvenile justice system in situations where law enforcement does not know that the juvenile is a trafficking victim as well as in situations where law enforcement is aware that the juvenile is a victim. For instance, a law enforcement officer who has not been trained in identifying children as victims of commercial sexual exploitation may mistakenly charge these children with a crime. Children may hide their identities by using fake identification cards to protect the pimp, further reducing the likelihood that the children will be identified as victims or that that the pimp will be prosecuted. On the other hand, an officer who recognizes that an individual is a victim may charge the individual with a crime so as to place the victim into one of the only available safe and secure environments—a detention facility within the juvenile justice system. As mentioned previously, there are few safe facilities for child victims of sex trafficking. Results from the 2009 study conducted by Shared Hope International suggest that, in 9 out of 10 U.S. cities evaluated with respect to prostitution and other forms of commercial sexual exploitation, victims had been placed in juvenile detention centers. There are no comprehensive data, however, that address the number of prostituted or otherwise sexually trafficked juveniles who are treated as offenders. Two studies do provide some insight into this number and how law enforcement agencies process children who are prostituted. One of the only studies that has attempted to gather these data relies on National Incident-Based Reporting System (NIBRS) data from 76 law enforcement agencies in 13 states. Findings from this study, conducted by the Department of Justice, reveal that 229 juveniles were implicated as offenders in prostitution incidents, and arrests were made in about 74% of those cases between 1997 and 2000. Although the percentage of juveniles involved in prostitution who were arrested is lower than the percentage of adult prostitutes arrested (90%), this nonetheless suggests that in the sample examined, juveniles were more likely to be treated as offenders than as victims. In addition, as part of the National Juvenile Prostitution Study, juveniles were categorized as victims, as delinquents, or as both victims and delinquents based on how they were treated by police. Juveniles were categorized as being treated as victims if (1) only the exploiter was arrested or (2) the juvenile and exploiter were arrested but the charge against the juvenile was not a prostitution-related charge (e.g., disturbing the peace or a drug charge). Juveniles were categorized as being treated as delinquents if they were the only ones arrested or detained. They were categorized as being treated as both victims and delinquents if the exploiter was arrested on a charge specific to a sexual assault against a minor and the juvenile was also arrested on a prostitution-related charge. Based on this classification, 53% of juveniles were classified as victims, 31% as delinquents, and 16% as both victims and delinquents. For the cases where a child was classified as both a victim and delinquent, researchers examined the case summaries more carefully to see whether they could be classified more accurately as victims or as delinquents. In all cases, researchers were prompted to change the status to victim only because either (1) the initial charges were dropped or (2) there was a specific comment from the investigator that the only reason the juvenile was charged was so they could get needed services. Overall, 69% of juveniles were ultimately classified as victims and 31% as delinquents. The study found a strong and significant association between how the case came to the police's attention and how the juvenile was treated by law enforcement. Cases that began through a police report (i.e., a report by the juvenile, a family member, a social service provider, or others) were almost eight times more likely to result in the juvenile being treated as a victim than those cases that began through action taken by the police (i.e., surveillance or undercover operations). Juveniles were also more likely to be treated as victims if they were younger, female, frightened, or were dirty or had body odor at the time of the initial encounter with police. Congress provides grants to states for juvenile justice through several avenues such as grants within the Juvenile Justice and Delinquency Prevention Act (JJDPA). These grant programs provide funding for an array of purposes including counseling, mentoring, and training programs; community-based programs and services; after school programs; education programs; substance and drug abuse prevention programs; mental health services; gang-involvement prevention programs; and coordinating local service delivery among the different agencies involved, among other purposes. However, none of the purposes directly specify services for victims of trafficking or commercial sexual exploitation. As such, if victims of trafficking continue to be placed into the juvenile justice systems, policy makers may consider whether to expand or specify the list of purpose areas for which states may utilize juvenile justice grant funding. Several policy options exist to address the issues in labeling victims of trafficking as perpetrators of crimes. For example, Congress may consider whether to provide grant money for the purposes of researching or establishing alternatives to detention for victims of child sex trafficking. A related question that may arise is whether these alternatives should be available for domestic victims and/or international victims, or whether this distinction should be made at all. Another option Congress may consider is whether to provide funding for programs to train law enforcement and social service providers to recognize possible indicators of trafficking and subsequently identify the victims. If Congress decided to appropriate funds for these types of programs, research would be needed to assess the reliability and validity of any trainings utilized. Another option that researchers have proposed is encouraging states and localities to adopt what have been referred to as "safe harbor" laws, preventing minor victims of trafficking from being prosecuted for prostitution and ensuring that they are provided with specialized services. As noted, under the TVPA, the federal government recognizes individuals under the age of 18 who are involved in commercial sexual activity as victims rather than perpetrators. In addition, victims of sex trafficking are eligible for specialized services. Researchers and victim advocates have recommended that states adopt policies that are in line with the federal stance on child victims of sex trafficking. In addition, the Attorney General is required to promulgate a model state trafficking statute; the most recent TVPA reauthorization in 2013 updated this requirement to note that this model statute should include the following safe harbor provisions: (A) treat an individual under 18 years of age who has been arrested for engaging in, or attempting to engage in, a sexual act with another person in exchange for monetary compensation as a victim of a severe form of trafficking in persons; (B) prohibit the charging or prosecution of an individual described in subparagraph (A) for a prostitution offense; (C) require the referral of an individual described in subparagraph (A) to appropriate service providers, including comprehensive service or community-based programs that provide assistance to child victims of commercial sexual exploitation; and (D) provide that an individual described in subparagraph (A) shall not be required to prove fraud, force, or coercion in order to receive the protections described under this paragraph; A number of states have started adopting specialized courts that would help divert at-risk youth (particularly girls at risk of prostitution) from the justice system and instead provide them with specialized services. For example, there are "Girls Courts" in California and Hawaii, as well as a network of 11 Human Trafficking Intervention Courts in New York. Policy makers may debate whether to expand existing grant programs such that funds could be used to support such efforts. They may also consider whether to create a separate path of federal support for such diversion programs. It is widely agreed upon that any efforts to reduce the prevalence of child sex trafficking—as well as other forms of trafficking—must include efforts to reduce not only the supply, but also the demand . Research has identified various factors that contribute to the demand for commercial sex. One such factor contributing to the demand for younger girls is that buyers believe they are less likely to contract a sexually transmitted disease from a younger girl. Another factor influencing the demand for commercial sex is the technology boom; commercial sex is advertised extensively on the Internet, and buyers are connected with victims through cell phones—allowing traffickers to conduct business quickly and anonymously over the phone rather than face-to-face. As succinctly noted by one recent study, Given the broad range of factors associated with men purchasing sex, additional research is needed to help support or refute the reasons currently proposed for why men buy sex and more important, the motivators for purchasing sex with minors, to better explain the biological, social, and cultural influences on this behavior. As experts have recommended increased research into the factors associated with purchasing sex, policy makers may debate whether or not to further support this research, in either the private or public domains—or both. Experts have also provided recommendations for demand reduction strategies that involve increasing public awareness and prevention as well as bolstering investigations and prosecutions of those buying illegal commercial sex. The federal government has already taken steps to address demand reduction. For example, DOJ's Office of Justice Programs funded a national assessment of sex trafficking reduction efforts. This program sampled over 825 cities and counties that have engaged in some form of demand reduction programs. Through the program, researchers gathered intensive information from 274 sites including police and sheriff's departments, prosecutors, social service providers, and others. Researchers found that evidence supporting the effectiveness of demand-reduction tactics "is robust in relation to evidence of the effectiveness of other approaches" such as supply-reduction interventions. The researchers did not, however, draw conclusions about the comparative effectiveness of specific demand-reduction program models. Policy makers may consider other policy options to reduce the demand for commercial sex with minors. For instance, Congress may consider whether to provide further grant money designated specifically for campaigns to increase public awareness of the issue. Also, some researchers have suggested that increasing the age of consent in all commercial sex activities would be an effective means of reducing the risk of misidentifying a minor as an adult. Congress may debate whether this would also decrease the rate at which johns seek out minors for commercial sex or whether it would only decrease the genuine misidentification of a minor as an adult. Yet another option that Congress may consider is whether strengthening the federal anti-trafficking laws, particularly with respect to the investigation and prosecution of buyers of commercial sex with minors. As mentioned, one distinction between the prosecution of traffickers and the prosecution of buyers appears to be that traffickers can be prosecuted whether or not a victim is brought across state lines. On the other hand, federal statutes generally used to prosecute the buyers of commercial sex appear to require that either the buyer crosses state lines or that he entices the victim to cross state lines. Congress may also consider whether encouraging states to strengthen their laws to provide harsher penalties for engaging in commercial sex activities with minors would deter individuals from doing so. Policy makers may also debate whether providing funding to assist states with investigations and prosecutions of these crimes would in turn reduce the prevalence of buyers who are willing to engage in commercial sex with minors. Studies of sex trafficking, including those involving sex trafficking of children in the United States, are scarce. Those studies that do provide insight into the number of victims of child sexual exploitation, such as those conducted by Estes and Weiner and Shared Hope International (see Appendix A ), provide estimates based on the number of youth who are at risk of trafficking or were identified as victims in a small number of cities. Given the nature of sex trafficking, estimating the number and characteristics of victims, pimps/traffickers, and johns is difficult. Nonetheless, the TVPA required that the Department of Justice provide demographic and other information related to sex trafficking in reports to Congress. Specifically, the act required "review and analysis of sex trafficking and unlawful commercial sex acts in the United States" in two reports. One of the two reports is to address severe forms of trafficking in persons, including the estimated number and demographic characteristics of persons engaged in severe forms of trafficking. The other report is to address sex trafficking, including the number and demographic characteristics of persons engaged in sex trafficking and those who purchase sex acts; the estimated value in dollars of the "commercial sex economy;" and the number of investigations, arrests, and incarcerations of persons engaged in sex trafficking, including purchasers of sex trafficking. DOJ has completed studies of severe forms of trafficking in persons by using a data system known as the Human Trafficking Reporting System (HTRS), discussed above. These data are based on human trafficking incidents that were opened for investigation by state and local trafficking task forces. Approximately 40% of all incidents opened for investigation involved children who were sex trafficked. It does not appear that DOJ has carried out the second report on sex trafficking. Appendix A. Selected Studies Measuring Sex Trafficking of Children Estimates of children who are victims of sex trafficking are scarce, and there is little to no consensus on the value of existing estimates. The research literature includes studies that use varying methodology, such as differences in how the population is defined, how data are collected (e.g., estimates based on youth risk factors, interviews with stakeholders, police records, etc.), and the geographic scope (e.g., city, state, or national) of the study. Some of these studies are discussed below. As part of their research on child sex trafficking and commercial sexual exploitation, the National Academy of Sciences discussed these and other studies. Their report concluded that the despite absence of strong evidence on the nature and extent of the problem, they should focus on how federal and other stakeholders could make progress in addressing child sex trafficking and commercial sex trafficking. The report discussed the challenges with focusing on better prevalence and incidence studies, including cost. It suggested shifting focus and resources from national-level counting to more targeted counting, such as the number of survivors from a specified region or subpopulation receiving services, charges brought forth by prosecutors, and successful convictions of exploiters and traffickers. Estes-Weiner Study Richard J. Estes and Neil Alan Weiner estimated in their 2001 study that more than 244,000 youth in the United States were at risk of becoming victims of prostitution and other forms of trafficking. Importantly, the authors noted that this number did not reflect the actual number of child exploitation cases. The study noted that the majority of victims tended to be runaway or thrown-away youth who lived on the streets and became victims of prostitution. Generally, these children came from homes where they had been abused or abandoned and often became involved in prostitution as a way to support themselves. Estes and Weiner found that approximately 55% of girls living on the streets in the United States engaged in formal prostitution, and of these girls, approximately 75% worked for a pimp/trafficker. The average age at which girls first entered into prostitution was between 12 and 14 years, and the average age of entry into prostitution for boys was between 11 and 13 years. The researchers also estimated that in the United States, approximately 156,200 homeless youth were at risk of commercial sexual exploitation. National Juvenile Prostitution Study The National Juvenile Prostitution Study surveyed nearly 2,600 law enforcement agencies regarding individuals involved in juvenile prostitution in 2005. Data were collected on whether agencies arrested or detained—in conjunction with a juvenile prostitution case—(1) youth under age 18 or (2) adults ages 18 and older. In total, the study calculated 1,450 arrests and detentions for crimes related to juvenile prostitution that year, including crimes committed by adults. The study further found that 95% of the law enforcement agencies sampled made no arrests in cases involving juvenile prostitution; in large jurisdictions where researchers assumed such cases would be most likely, 56% of agencies reported no arrests or detentions. Based on these findings, the researchers suggested that, at least in larger communities, police were not doing enough to address the problem of child prostitution in particular. To gather more information and data on victim characteristics, researchers followed up with law enforcement officials from agencies that had reported arrests or detentions in juvenile prostitution cases. They randomly sampled these agencies and spoke with case investigators for 138 cases. Cases were classified under three categories: third-party exploiters, solo juveniles, and child sexual abuse (CSA) cases with payment. Most of the cases (57%) were classified as third-party exploiters. This category involved pimps or others who profit financially from selling juveniles for sex, and included small-time or less formal operations and well-organized criminal and commercial enterprises, such as massage parlors. The solo juvenile category, which involved 31% of the cases, encompassed juveniles who offered themselves for sexual services (including pornography production), typically to people they did not know, for money or other items of monetary value. This group included juveniles who lacked a stable residence and juveniles living in a home or institution, such as a foster home. Finally, the remaining 12% of youth were engaged in CSA with payment cases, whereby children were sexually abused by family members, acquaintances, and caretakers and who were paid money as inducements to engage in or continue these sexual acts. Researchers found that of the entire sample, 9 out of 10 youth were female and more than half (55%) were ages 16 or 17. Most (60%) had a history of running away; in 12% of the cases, officials did not know about the runaway history. Shared Hope International Study In 2006, Shared Hope International, a nonprofit organization that seeks to prevent and eradicate sex trafficking, began working with 10 Department of Justice-funded human trafficking task forces to assess the scope of sex trafficking of children. The study defined domestic minor sex trafficking (DMST) as the commercial sexual exploitation of American children within U.S. borders, which includes prostitution, pornography, and/or stripping. While the study used a broad definition of DMST, it focused primarily on the prostitution of children. Researchers requested that the 10 task forces identify the number of minors who qualified as DMST victims. No further information was provided about how victims were identified, except to say that an accurate count of the number of victims was not available due to many factors, including a lack of protocols to track victims and misidentification of victims. Table A-1 presents the findings from the 10 study sites. Notably, the data collected are not uniform and represent different time periods. Ohio Trafficking in Persons Study Commission In 2009, Ohio Attorney General Richard Cordray tasked the Ohio Trafficking in Persons Study Commission to explore the scope of human trafficking within Ohio. Using methodologies developed in other studies—including the Estes and Weiner study discussed above—the commission estimated that of the American-born youth in Ohio, nearly 3,000 (2,879) were at risk for sex trafficking, or prostitution. Further, 1,078 Ohio youth were estimated to have been victims of sex trafficking over the course of one year. The researchers also estimated that 3,437 foreign-born persons (adults and juveniles) in Ohio were at risk for sex or labor trafficking, of which 783 were estimated to be trafficking victims. Additionally, they estimated that 945 homeless youth in Ohio may be at risk for trafficking. Importantly, the report states, "due to the very nature of human trafficking, it is virtually impossible to determine the exact number of victims in Ohio at any given time and with any degree of certainty." Prostitution of Juveniles: Patterns from the National Incident-Based Reporting System (NIBRS) In 2004, DOJ's Office of Juvenile Justice and Delinquency Prevention published a report examining characteristics of juvenile prostitution incidents that had come to the attention of law enforcement. Data referenced in the report are from the National Incident-Based Reporting System (NIBRS), years 1997–2000. With the caveat that the data included in this study were limited, findings suggest that juvenile prostitution and adult prostitution are distinctive. Compared to adult prostitution, the prostitution of juveniles was more likely to occur indoors, to occur in large cities, and to involve multiple offenders. Within the category of juvenile prostitution, the study also noted differences between boys and girls. Male juvenile prostitutes were often older than female juvenile prostitutes, and they were more likely to operate outdoors. When arresting juveniles for prostitution, law enforcement more often arrested males than females. Researchers also found that police were more likely to characterize juveniles engaged in prostitution as offenders rather than as victims of crime. However, those characterized as victims were more likely to be younger and female. Appendix B. Trafficking Victim Services for Noncitizens The TVPA, as amended, is the major federal legislation that authorizes these services, which are provided primarily by the Departments of Justice (DOJ) and Health and Human Services (HHS). In practice, these services tend to be targeted to noncitizen victims . Department of Justice (DOJ) Office for Victims of Crime (OVC) The TVPA of 2000 created a grant program administered by the Attorney General to provide grants to states, Indian tribes, local governments, and nonprofit victims' services organizations to develop, expand, or strengthen victims' service programs for trafficking victims. This grant program, known as the Services for Victims of Human Trafficking Program, is administered through DOJ's Office for Victims of Crime (OVC) and provides emergency services—including temporary housing, medical care, crisis counseling, and legal assistance—to victims as soon as they have been identified, prior to certification by HHS. OVC awards grants to organizations to (1) provide timely, professional, and culturally competent services to foreign national victims of severe forms of human trafficking; and (2) build community capacity in addressing the needs of [trafficking in persons] TIP victims by enhancing interagency collaboration and supporting coordinated victim responses. This program provides services to pre-certified victims of human trafficking, and since FY2010, OVC has also allowed grantees to provide ongoing support to all certified victims of trafficking. In addition, in FY2010, OVC and the Bureau of Justice Assistance (BJA) jointly funded a grant to fund a comprehensive approach to countering trafficking—sex trafficking as well as labor trafficking of both foreign and domestic victims. BJA's contribution to the grant program supported law enforcement agencies in three sites with anti-human trafficking task forces; the agencies coordinated task force efforts with local U.S. Attorneys and victim service providers. OVC's contribution to the grant program funded victim service organizations to coordinate comprehensive victim services. Furthermore, OVC continues to oversee three projects awarded under the Recovery Act of 2009 that are designed to address the needs of domestic minor victims of trafficking. These projects include the following: A project run by Girls Education and Mentoring Services (GEMS) Inc., to provide specialized training and technical assistance to service providers in six cities. A joint effort between the Seattle Police Department and the Seattle Human Services Department to support an advocate position within a community-based, nonprofit, residential recovery program for prostituted youth. Providing the funds to the Sexual Assault Resource Center (SARC) in Portland, OR, to provide services to 44 minor victims of sex trafficking. Department of Health and Human Services (HHS) In practice, HHS administers grant programs to nonprofit and other organizations that directly serve noncitizen trafficking victims and provides information to the public about trafficking. The grants for victims' services, as well as certain benefits solely for noncitizen victims, are provided by the Office of Refugee Resettlement (ORR) in the Administration of Children and Families. According to ORR, the office does not provide any services to U.S. citizen victims of trafficking even though such services are authorized under TVPA. ORR notes that this is because Congress has not appropriated any money specifically for these services. Certification To receive benefits and services through HHS under the TVPA (22 U.S.C. §7105(b)), victims of severe forms of trafficking who are at least 18 years of age must be certified by the Secretary of HHS, after consultation with the Secretary of Homeland Security. Certified victims must be willing to assist in every reasonable way in the investigation and prosecution of severe forms of trafficking. They must have made a bona fide application for a T-visa (that has not been denied). Further, they must have been granted continued presence in the United States in order to effectuate the prosecution of traffickers in persons. ORR provides certification and eligibility letters for victims. Under the law, noncitizen trafficking victims under the age of 18 do not have to be certified to receive benefits and services, but it is HHS policy to issue eligibility letters to such victims. As discussed in this report, the concept of certification does not apply to U.S. citizen and LPR victims. Victims' Services Through the Office of Refugee Resettlement (ORR) Once trafficking victims are certified, they may be eligible for certain victims' services through ORR. ORR funds and facilitates a variety of programs to help refugees achieve "economic and social self-sufficiency in their new homes in the United States." These programs are intended to help needy refugees who are ineligible to receive benefits under two federal programs available to U.S. citizens: Temporary Aid for Needy Families (TANF) and Medicaid. For trafficking victims, ORR also provides grants to organizations that render assistance specific to the needs of these victims, such as temporary housing, independent living skills, cultural orientation, transportation needs, access to appropriate educational programs, and legal assistance and referrals. ORR may also supply trafficking victims with intensive case management programs to help the victim find housing and employment, and provide mental health counseling and specialized foster care programs for children. These services are not currently available to U.S. citizen trafficking victims. Rescue and Restore Victims of Human Trafficking Campaign HHS, through ORR, also conducts outreach to inform victims of available services and to educate the public about trafficking. HHS established the Rescue and Restore Victims of Human Trafficking public awareness campaign, which promotes public awareness about trafficking and the protections available for trafficking victims. The goal of the campaign is to help communities identify and serve victims of trafficking and support them in coming forward to receive services and aid law enforcement. HHS funds three contracts to "intermediary" organizations to foster connections between the Rescue and Restore campaign and local service providers. These intermediaries serve as the focal points for regional public awareness campaign activities and aid in victim identification. In addition to promoting public awareness about trafficking, HHS, through the Rescue and Restore campaign, has established anti-trafficking coalitions. These coalitions are intended to increase the number of trafficking victims who are identified and assisted. Coalition members include social service providers, local government officials, health care professionals, leaders of faith-based and ethnic organizations, and law enforcement personnel. Along with identifying and assisting victims, coalition members use the Rescue and Restore campaign messages to educate the general public about human trafficking. Another component of the campaign is the creation of a toll-free National Human Trafficking Resource Center (NHTRC) available for advice and victim-care referrals 24-hours a day. In FY2013, the NHTRC received 20,579 phone calls. These calls included information on 4,884 cases of human trafficking. Of these, 3,392 involved sex trafficking, and 119 additional cases involved both sex and labor trafficking. It is unknown, however, how many of the calls to NHTRC were related to situations involving child prostitution. Appendix C. Other Possible Federal Responses to Sex Trafficking of Minors Policy makers and researchers have begun viewing commercial child sexual exploitation as a form of human trafficking. Nonetheless, while anti-trafficking statutes are fairly new, having first been enacted in 2000, the issue of commercial child sexual exploitation is not. Thus, there are other laws and programs that attempt to address the issues surrounding the commercial sexual exploitation of children, some of which have been in existence for several decades. While these laws and programs target exploited children, they do not focus exclusively on trafficking victims. This Appendix contains a discussion of selected programs. Department of Health and Human Services (HHS) Runaway and Homeless Youth Program As discussed, runaway youth are particularly at risk of becoming victims of sex trafficking. The Runaway and Homeless Youth (RHY) program, administered by the Family and Youth Services Bureau (FYSB) of HHS, includes three programs to assist runaway and homeless youth. For FY2015, Congress appropriated $114.1 million for the program. Two of the programs—the Basic Center program (BCP) and Transitional Living program (TLP)—provide shelter, counseling, and related services to youth. While the BCP and TLP generally do not specialize in services for runaway and homeless victims of prostitution and other forms of sexual exploitation, some providers serve these victims. The third RHY program, the Street Outreach program (SOP), provides street-based outreach and education, including treatment, counseling, provision of information, and referrals for runaway, homeless, and street youth who have been subjected to or are at risk of being subjected to sexual abuse and exploitation. Trained workers, some of whom are employed by BCPs and TLPs (and other runaway and homeless youth shelters that are not federally funded), visit youth on the street to provide these services and referrals. The RHY program also funds the National Runaway Safeline (NRS), which serves as the national communication system for runaway and homeless youth. The NRS mission is to keep runaway and at-risk youth safe and off the streets. NRS operates a 24-hour hotline to provide crisis intervention, referrals to community resources, and family reunification. NRS staff are trained on issues involving child sexual exploitation and provide training to RHY and other grantees about the forms of sexual exploitation among runaway and homeless youth. In 2008, staff from the Family and Youth Services Bureau and Office of Refugee Resettlement provided training to five RHY grantee sites. The grantees were funded under the BCP, TLP, and/or SOP. According to HHS, the training familiarized ORR staff with the work of FYSB grantees. Further, the training developed and tested a training module for new ORR and FYSB grantees on ORR procedures in processing or certifying trafficked youth. The training highlighted the differences between domestic and foreign trafficking victims, the different services they can receive, and emerging issues related to providing services to these youth—including the labeling of youth as victims or offenders as well as defining trafficking. The 2013 strategic plan on services for U.S. victims, as outlined by the President's Interagency Task Force to Monitor and Combat Trafficking in Persons, specified that runaway and homeless youth providers are part of a broader response to sex trafficking that involves multiple sectors and organizations. The federal strategic plan calls for greater supports for RHY and other social service providers in aiding victims of trafficking. The plan articulates that these providers "need training and support to expand their screening protocols to identify those who are trafficking victims and to provide appropriate services and referrals." The plan also lays out action steps that HHS can take to prepare runaway and homeless providers in responding. HHS is currently working on such efforts. With support from HHS/ACF, four Runaway and Homeless Youth program grantees have collaborated with the FBI on its Innocence Lost initiative to recover victims of child sex trafficking. These grantees developed a set of standards for working with victims of trafficking that have been used to provide training and technical assistance to grantees. Department of Justice (DOJ) Missing and Exploited Children's Program The Missing Children's Assistance Act ( P.L. 98-473 ), as amended, authorizes funding for the Missing and Exploited Children's (MEC) program. The act is the centerpiece of federal efforts to prevent the abduction and sexual exploitation of children, and to recover those children who go missing. Since 1984, the National Center for Missing and Exploited Children (NCMEC) has served as a national resource center and has carried out many of the objectives of the act in collaboration with OJJDP. The Missing Children's Assistance Act directs NCMEC to provide technical assistance to law enforcement agencies and first responders in identifying, locating, and recovering victims of, and children at risk for, child sex trafficking. NCMEC's Child Sex Trafficking Unit provides technical assistance to law enforcement agencies working to identify and recover children in the United States who have been victimized by sex trafficking. Analysts in the unit provide analytical reports about offenders who sexually exploited children through sex trafficking, and they provide information to law enforcement officials about known missing child cases possibly linked to sex trafficking. NCMEC also operates the CyberTipline, which allows the public and electronic communication service providers (e.g., search engines and email providers) to report child victims of prostitution, enticement of children for sexual acts, child sexual molestation occurring outside the family, child pornography, and sex tourism involving children. NCMEC analysts from the Exploited Children's Unit send verified reports to the appropriate Internet Crimes Against Children Task Forces (see discussion elsewhere in this report) or, when appropriate, the local police agencies. The CyberTipline also accepts reports of misleading domain names and unsolicited materials sent to children, which are then referred to the Child Exploitation and Obscenities Section (CEOS) of DOJ. Federal law enforcement agents and analysts co-located at NCMEC prepare and serve subpoenas based on leads from the CyberTipline, and reported leads are referred to field offices. The FBI uses CyberTipline reports to gain leads for their Innocence Lost Project on domestic child trafficking. The majority of reports are for child pornography. The MEC program also supports the Internet Crimes Against Children (ICAC) Task Force program to assist state and local law enforcement cyber units in investigating possible incidents of online child sexual exploitation (discussed above). The MEC also provides technical assistance for the AMBER Alert system, which coordinates state efforts to broadcast bulletins in the most serious child abduction cases. In addition to funding its major components (the National Center for Missing and Exploited Children, the ICAC Task Force Program, etc.), the Missing and Exploited Children's program provides funding for smaller grant programs, some of which have targeted victims of commercial sexual exploitation. For example, in FY2009, DOJ allocated funding for two competitive grant programs that address commercial sexual exploitation. One of the grants provided funding to three communities to assist in developing policies and procedures for identifying victims of commercial sexual exploitation. Another grant, Research on the Commercial Sexual Exploitation of Children, was used to support research on the scope and consequence of the commercial sexual exploitation of children and youth. For FY2011, the MEC program provided funding through a grant, the Technical Assistance Program to Address Commercial Sexual Exploitation/Domestic Minor Sex Trafficking. The program funded Safe Horizon, Inc., a victim assistance agency, to provide training and technical assistance to OJJDP grantee organizations and other entities to implement or enhance efforts to identify youth at risk of commercial sexual exploitation (defined above) and domestic minor sex trafficking (not defined); develop or enhance mentoring service models for youth at risk; provide an array of services for youth victims; and develop and deliver prevention programming in a variety of community settings. Violence Against Women Act (VAWA) Programs In the Violence Against Women Act Reauthorization Act of 2013 ( P.L. 113-4 ), Congress clarified that victim services and legal assistance (authorized by VAWA) include services and assistance to victims of domestic violence, dating violence, sexual assault, or stalking who are also victims of severe forms of trafficking in persons (as defined under Trafficking Victims Protection Act of 2000). While this did not specifically add services to trafficking victims to the purpose areas of all VAWA programs, it clarified that services can be provided to certain victims populations who are also trafficking victims. Additionally, in P.L. 113-4 Congress amended several VAWA grant programs to specifically add to their allowable activities serving victims of trafficking. For instance, the newly consolidated Creating Hope Through Outreach, Options, Services, and Education for Children and Youth (Choose Children and Youth) Grant Program, the Grants to Indian Tribal Governments Program, and the Grants to Indian Tribal Coalitions Program all may be employed to serve victims of sex trafficking.
|
The trafficking of individuals within U.S borders is commonly referred to as domestic human trafficking, and it occurs in every state of the nation. One form of domestic human trafficking is sex trafficking. Research indicates that most victims of sex trafficking into and within the United States are women and children, and the victims include U.S. citizens and noncitizens alike. Recently, Congress has focused attention on domestic sex trafficking, including the prostitution of children, which is the focus of this report. Federal law does not define sex trafficking per se. However, the term "severe forms of trafficking in persons," as defined in the Victims of Trafficking and Violence Protection Act of 2000 (TVPA, P.L. 106-386) encompasses sex trafficking. "Severe forms of trafficking in persons" refers, in part, to "[s]ex trafficking in which a commercial sex act is induced by force, fraud, or coercion, or in which the person induced to perform such act has not attained 18 years of age.... " Experts generally agree that the trafficking term applies to minors whether the child's actions were forced or appear to be voluntary. The exact number of child victims of sex trafficking in the United States is unknown because comprehensive research and scientific data are lacking. Sex trafficking of children appears to be fueled by a variety of environmental and situational variables ranging from poverty or the use of prostitution by runaway and "thrown-away" children to provide for their subsistence needs to the recruitment of children by organized crime units for prostitution. The TVPA has been the primary vehicle authorizing services to victims of trafficking. Several agencies have programs or administer grants to other entities to provide specific services to trafficking victims. Despite language that authorizes services for citizen, lawful permanent resident, and noncitizen victims, appropriations for trafficking victims' services have primarily been used to serve noncitizen victims. U.S. citizen victims are also eligible for certain crime victim benefits and public benefit entitlement programs, though these services are not tailored to trafficking victims. Of note, specialized services and support for minor victims of sex trafficking are limited. Organizations specializing in support for these victims may have fewer beds than might be needed to serve all victims. Other facilities, such as runaway and homeless youth shelters and foster care homes, may not be able to adequately meet the needs of victims or keep them from pimps/traffickers and other abusers. In addition, it has been suggested that minor victims of sex trafficking—while too young to consent to sexual activity with adults—may at times be labeled as prostitutes or juvenile delinquents and treated as criminals rather than being identified and treated as trafficking victims. These children who are arrested may be placed in juvenile detention facilities instead of environments where they can receive needed social and protective services. Finally, experts widely agree that any efforts to reduce the prevalence of child sex trafficking—as well as other forms of trafficking—should address not only the supply, but also the demand. Congress may consider demand reduction strategies such as increasing public awareness and prevention as well as bolstering investigations and prosecutions of those who buy illegal commercial sex ("johns"). In addition, policy makers may deliberate enhancing services for victims of trafficking. The most recent reauthorization of the TVPA, in March 2013, reauthorized some existing provisions, created a new grant program to combat child sex trafficking, and authorized appropriations through FY2017.
|
Various water supply shortages and greater demand for water supply related to energy development projects have brought increased attention to disputes over the control of water resources across the country. For example, new applications of energy extraction technologies have increased oil and gas production from shale formations in various regions of the United States. One method of extraction, known as hydraulic fracturing, typically injects a pressurized freshwater-based liquid mixture into wells to fracture shale formations containing the oil or gas. In particular, the demand for water supply to develop energy in the northern plains states has raised controversy over water use in the Missouri River basin. Access to water for energy development purposes has created tension between federal and state interests when stakeholders seek access to freshwater from federal water projects. This issue has been of particular interest at Lake Sakakawea, a reservoir created by the federal Garrison Dam along the Missouri River in North Dakota. In recent years, the U.S. Army Corps of Engineers (Corps), which controls Lake Sakakawea and five other mainstem Missouri River reservoirs, has identified surplus water in these reservoirs and considered how it would contract with industrial and municipal users interested in the temporary use of this water. In 2012, the Corps announced plans to provide access to surplus water at Lake Sakakawea for municipal and industrial (M&I) use under surplus water agreements and ultimately to charge a fee for access to water stored at the project. State interests have opposed the Corps' plan, arguing that the Corps should not charge for access to water that would be available for state allocation if the river were flowing freely. According to this argument, the Corps' plan infringes on state authority to administer water rights. Although the federal government has fairly broad authority related to water resources management, water allocation has traditionally been a matter left to the states, which administer their own water rights systems. This dual exercise of authority over water resources has led to questions over the Corps' proposed actions at its Missouri River reservoirs. Using Lake Sakakawea as an example, this report analyzes the legal authority of the Corps to charge for stored surplus water. It examines the relevant constitutional and statutory authority of the Corps to operate federal water projects, including the Water Supply Act of 1958 (WSA) and the Flood Control Act of 1944 (1944 FCA). It also analyzes state authority over water within state boundaries and discusses the relationship between federal and state authority, including examples of congressional actions that have addressed competing federal and state roles regarding water resources. Federal water projects may be operated for a variety of authorized purposes, typically identified by Congress at the time of the project authorization. Project purposes may include navigation, flood control, hydropower, M&I use, irrigation, etc. The federal agency authorized to operate the project may do so for any purpose identified by the project legislation, or for any purpose otherwise generally authorized by law. Congress authorized the Corps to construct various federal water projects along the Missouri River, including the Garrison Dam/Lake Sakakawea Project in North Dakota, in the Flood Control Act of 1944. The Corps has operated Lake Sakakawea for its authorized purposes of flood control, navigation, irrigation, hydropower, M&I water supply, fish and wildlife, water quality, and recreation. The federal government has considered the impact of development of water resources in the region on a number of occasions. The original construction of the Garrison Dam resulted in the creation of Lake Sakakawea, which submerged a portion of the state's farmland and tribal lands. To compensate North Dakota for the loss of that land, Congress authorized the Garrison Diversion Unit, a project to provide irrigation, as well as M&I water supplies, to North Dakota. In 1986, following the report of a commission directed to review water needs in North Dakota and propose modifications to the Garrison Diversion Unit, Congress approved the commission's recommendations to scale back irrigation development and improve availability of water from the Missouri River for municipal, industrial, and rural supplies. The controversies associated with development of water diversion and distribution facilities ultimately were addressed in 2000, when Congress approved legislation providing additional funding for various M&I water projects. In response to current and future M&I needs, the Corps has issued a Final Surplus Water Report for Garrison Dam/Lake Sakakawea and has published draft reports for each of the other five mainstem reservoirs on the Missouri River. Noting its authority over projects on the mainstem of the Missouri River and over tributary projects with a dominant purpose of flood control, the Corps sought to determine whether and how much surplus water could be made available at Lake Sakakawea to meet M&I needs. The Corps has defined surplus water to include water stored in a Corps reservoir "that is not required because the authorized use for the water never developed or the need was reduced by changes that occurred since authorization or construction" or "water that would be more beneficially used as a municipal and industrial water than for the authorized purpose and which, when withdrawn, would not significantly affect authorized purposes over some specified time period." Courts have reiterated this definition, explaining that surplus water is a term that refers to "all water that can be made available from the reservoir without adversely affecting other lawful uses of the water." In other words, the lake contains a certain amount of water that is reserved for various authorized purposes. Any additional amounts of water held in the lake may be considered surplus, and the Corps may have authority to reallocate that water permanently or temporarily. Noting the rapid growth of demand for water from Lake Sakakawea, the Corps has concluded that "100,000 acre-feet of water can be identified as temporary surplus water, the use of which over the next 10 years would not significantly affect project purposes." However, the Corps has clarified that surplus water provided under the agreements may be used for M&I purposes but cannot be used for crop irrigation. The Corps has explained that its surplus water agreements would not affect existing uses of water because a condition of the agreements requires acquisition of the legal water rights, which the state cannot issue if they affect pre-existing legal rights, as discussed below. Under the Corps' proposal, interested parties would enter surplus water agreements with the agency, essentially contracting with the Corps for surplus water stored in Lake Sakakawea. The Corps would enter surplus water agreements with applicants for additional water supply for a term of five years, which would be renewable for an additional five-year term. The Corps surplus storage agreements provide access to project storage, but the Corps does not have authority to allocate water to water users. Thus, to use the water that is being stored, entities seeking to enter surplus storage agreements must secure water rights from the state under its water permit system. The Corps has announced that the pricing policy for the storage agreements will be developed through a formal rulemaking process, which will allow for public comment before any final regulations are implemented. The Corps expects the rulemaking process to last approximately 18 months. Until that time, new and existing users will not be charged for water withdrawn from Lake Sakakawea pursuant to surplus water contracts. The Corps has broad constitutional authority for its water projects. The Supreme Court historically has held that the Corps' authority derives from the Commerce Clause and the significant interest in promoting navigation throughout the nation's waterways. The breadth of this authority regarding various purposes of Corps' operations has been recognized repeatedly. In 1899, the Court explained that the states' control of the appropriation of their waters was subject to "the superior power of the General Government to secure the uninterrupted navigability of the all navigable streams within the limits of the United States." Citing this principle, the Court later held that a state could not enjoin the Corps from constructing a dam and reservoir, even if the water impounded within the reservoir was controlled by the state. The Court rejected the state's argument that the project would interfere "with the state's own program for water development and conservation … [which] must bow before the 'superior power' of Congress." The Court has indicated that the constitutional "authority is as broad as the needs of commerce." It has explained that maintaining the navigability of waterways is only one of the various purposes for which the government may claim authority over water. The Court has stated that if a particular project serves a purpose of navigation, "it is constitutionally irrelevant that other purposes may also be advanced." It has cited other valid purposes such as flood control, watershed development, and "recovery of the cost of improvements through utilization of power" as examples of the breadth of federal authority over waters. Thus, a state's authority over its waters is "subject to the power of Congress to control the waters for the purpose of commerce." Accordingly, if Congress authorizes the Corps to impound water at one of its projects for purposes related to commerce, the federal authority over the water supersedes the state's authority for those purposes. Notwithstanding this broad authority, Congress historically has deferred to states' authority regarding allocation, as discussed in later sections of this report. In addition to the Corps' general constitutional authority, Congress has provided statutory authority for specific actions by the Corps related to M&I water supplied at its projects. Under the WSA, the Corps may include permanent storage space at its projects for municipal and industrial use, even if such a purpose was not originally authorized. Under the 1944 FCA, the Corps may contract with other government or private parties for the temporary use of surplus water from its projects. In 1958, Congress recognized state primacy in developing M&I supplies, stating, It is hereby declared to be the policy of the Congress to recognize the primary responsibilities of the States and local interests in developing water supplies for domestic, municipal, industrial, and other purposes and that the Federal Government should participate and cooperate with States and local interests in developing such water supplies in connection with the construction, maintenance, and operation of Federal navigation, flood control, irrigation, or multiple purpose projects. To promote this policy, the WSA authorizes the Corps to include water storage for M&I use as a project purpose for new and existing projects: "[S]torage may be included in any reservoir project surveyed, planned, constructed or to be planned, surveyed and/or constructed by the Corps of Engineers … to impound water for present or anticipated future demand or need for municipal or industrial water…." The WSA includes a few limitations on the Corps' ability to add M&I storage as a purpose for its projects. Congress indicated that construction and modification costs would be shared by state and local interests and that such costs would be "determined on the basis that all authorized purposes served by the project shall share equitably in the benefits of multiple purpose construction." Notably, the WSA states that it does not modify Section 1 of the 1944 FCA. Section 1 of the 1944 FCA recognizes "the interests and rights of the States in determining the development of the watersheds within their borders and likewise their interests and rights in water utilization and control…." As discussed in more detail below, this provision perhaps may indicate that the WSA was not intended to supersede state water rights. Section 6 of the 1944 FCA specifically authorizes the Corps to enter contracts for surplus water. The Corps "is authorized to make contracts with States, municipalities, private concerns, or individuals, at such prices and on such terms as [it] may deem reasonable, for domestic and industrial uses for surplus water that may be available at any reservoir under the control of the [Corps]." The contracts entered under Section 6 must not "adversely affect then existing lawful uses of such water." The Corps cited its authority under Section 6 in its pursuit of surplus water agreements at Lake Sakakawea. As discussed above, the Corps has stated that the proposed agreements would not affect existing lawful uses of water at the project. It does not appear that the Corps' authority under Section 6 has been litigated with respect to potential interference with state ownership of water. In other challenges arising under Section 6, courts have recognized the authority conferred by Section 6 as valid when applied to the Corps. States in the Missouri River basin have objected to the Corps' plan to charge a fee for surplus water stored at its reservoirs. States have argued that maintaining surplus water supply in the federal reservoir and charging citizens for the right to access that water which otherwise would be available through natural flow of the river violates their legal right to state waters. North Dakota, in which Lake Sakakawea is located, has asserted ownership of the waters flowing within the state boundaries, claiming that charging for access to that water while it is stored in a Corps' project violates that legal right. The U.S. Supreme Court has long held that a state owns the navigable waters within its borders. In 1842, the Court explained that when the United States was formed, "the people of each state became themselves sovereign; and in that character hold the absolute right to all their navigable waters and the soils under them for their own common use, subject only to the rights since surrendered by the Constitution to the general government." Under the constitutional equal footing doctrine, states that later joined the union acquired the same rights granted to the original states, and therefore also acquired ownership of their state's navigable waters upon achieving statehood. Thus, the Missouri River basin states may claim the right to waters within their state boundaries since their admission to the union. It is notable that, although the Court recognized state ownership of water within state boundaries, it also indicated that the state's interest in its waters could be limited by superseding rights assigned under the Constitution to the federal government. In other words, the state may not claim absolute ownership to navigable waters if the federal government has constitutional authority to act with respect to those waters. Although the federal government has broad authority to regulate water, it historically has deferred to the states' authority regarding allocation of water resources within each state. In some cases, it explicitly has recognized the states' power to assign water rights, though it has done so on a limited basis. At other times, Congress has noted the competing roles of federal and state governments with respect to water resources management and included general statements recognizing the interests of a state related to specific legislation. In some instances, Congress has recognized the authority of states to allocate water and consequently required federal compliance with state water rights schemes. For example, Section 8 of the Reclamation Act of 1902 requires the Bureau of Reclamation (Reclamation) to conform with state water laws "relating to the control, appropriation, use, or distribution of water.... " The Supreme Court has explained that Section 8 "requires the Secretary to comply with state law in the 'control, appropriation, use or distribution of water'" by a federal project, confirming that Reclamation must acquire water rights for water it impounds at its water projects in various states (as had been the agency's practice). Reclamation then contracts with water users to provide water. Reclamation generally holds the water right, which is allocated by the state's water authority, and the water users hold a contract right to the water provided under their agreement with Reclamation. It does not appear that the Corps is subject to any such similar provision requiring conformity with state water law. Arguably, this may be a result of the different nature of Corps projects in comparison to projects operated by Reclamation. While Reclamation projects are authorized largely for irrigation and some M&I uses, Corps projects generally operate for nonconsumptive uses, meaning that water used at the project is replenished locally, not diverted away from its source for offstream uses. Additionally, many Reclamation projects are classified as single-purpose projects, but most Corps projects are multi-purpose, with flood control and navigation being the primary purposes. Finally, Reclamation projects are authorized for development in the western states, which on the whole are more arid than the rest of the country in which the Corps also operates. Congress, of course, may consider whether the Corps or other agencies besides Reclamation should be required to comply with state water laws. If the Corps was obligated to obtain water rights to the water stored in Lake Sakakawea, it may avoid the controversial claims that it was restricting access to water that would otherwise be available for acquisition through the state permit process. Despite not requiring Corps' conformity with state water laws, Congress has not ignored the impact that federal legislation may have on state water rights. The Corps' statutory authorities related to water storage arguably may indicate that Congress intended to protect the states' ability to administer water rights under state law to some degree despite the Corps' use of the water. In Section 1 of the 1944 FCA, Congress recognized "the interests and rights of the States in determining the development of the watersheds within their borders and likewise their interests and rights in water utilization and control…." Congress included specific protection for waters in states "lying wholly or partly west of the ninety-eighth meridian"—the drier, western states. Section 1(b) states that the use of waters in those states is authorized for navigation only if it "does not conflict with any beneficial consumptive use, present or future, in [such states], of such waters for domestic, municipal, stock water, irrigation, mining, or industrial purposes." In other words, the Corps is not authorized to use water for navigation in the western states, including North Dakota, if the Corps' use of the water would interfere with other beneficial uses. As mentioned earlier, the WSA states that it does not modify Section 1 of the 1944 FCA, emphasizing that Congress was not authorizing interference with certain other uses of water at federal projects. During hearings related to the passage of the WSA, a Senate subcommittee debated that provision and the effect the legislation would have on state water rights. One Senator, advocating for recognition of states' authority to administer water rights, explained that federal law requires that any water used in Reclamation projects be acquired through water rights assigned by the state in which the project is located, and argued that the Corps likewise should be required to comply with state water laws. Although the final legislation did not include an explicit statement requiring the Corps to obtain state water rights for its projects, the original language was amended to remove a provision which was thought to imply that only certain water rights under state law may be protected. The final language states that the authority provided under the WSA "shall not be construed to modify" Section 1 of the 1944 FCA or Section 8 of the Reclamation Act. It is unclear what the Corps' obligations are with respect to state water rights for surplus water at Lake Sakakawea. On one hand, the Corps' constitutional authority to manage its projects for a variety of authorized purposes is broad; it has been delegated authority from Congress to store water for M&I purposes; and it has been authorized to charge for surplus water stored at the project. On the other hand, it may also be argued that the Corps' constitutional authority over water stored at its projects extends only to the amount of water necessary to meet the purposes of that project and not to any surplus water. Likewise, it may be argued that, although Congress provided statutory authorizations to the Corps related to storage and sale of water stored in a Corps' project, it also indicated a certain degree of deference to state uses of the water, particularly in western states like North Dakota, when exercising that authority.
|
Various water supply shortages and greater demand for water supply related to energy development projects have brought increased attention to disputes over the control of water resources across the country. In particular, domestic on-shore unconventional oil and gas development, such as hydraulic fracturing, has caused rapid growth in freshwater demand. To accommodate water supply requests in the Missouri River Basin, the U.S. Army Corps of Engineers (Corps) has proposed the use of surplus water from its Garrison Dam/Lake Sakakawea Project in North Dakota. The Corps' proposal would allow it to enter into five-year contracts to supply surplus water for a fee, which will be set through administrative rulemaking. North Dakota and other states have objected to the Corps' proposal as a violation of their constitutional right to water flowing within their borders, arguing that the Corps cannot require payment for water that the state owns. Although the legality of the Corps' charging for surplus water storage at its facilities has not been litigated specifically, the Corps' constitutional authority over operations at its reservoirs is generally very broad. Additionally, Congress has authorized the Corps to charge for surplus storage at federal projects such as the Garrison Dam/Lake Sakakawea Project. Of course, statutory approval of an action that may interfere with state sovereignty does not connote constitutionality. Other provisions within the Corps' statutory authorities arguably may indicate that Congress did not intend to infringe upon state sovereignty over water rights within its boundaries. While it appears that the Corps has broad authority to impound waters owned by the state for the purposes of a particular project without necessarily acquiring water rights under state law, it may be argued that surplus water, which is not used for any of the authorized purposes, is beyond the control of the Corps. However, the viability of such an argument is unclear, given the lack of legal precedent on the issue. This report addresses the legal authority of the Corps to charge for surplus water stored at its facilities. It analyzes the constitutional and statutory authority of the federal government to operate federal water projects, specifically Lake Sakakawea, along the Missouri River. It also examines the nature of states' claims of ownership of waters within state boundaries. Finally, the report discusses the relationship between federal and state authority, including examples in which Congress addressed competing federal and state roles.
|
Four federal agencies administer about 95% of the approximately 653 million acres of federal land in the United States: the Forest Service (FS) in the Department of Agriculture (USDA), and the Bureau of Land Management (BLM), National Park Service, and Fish and Wildlife Service in the Department of the Interior (DOI). These agencies manage the federal lands for a variety of purposes related to preserving, conserving, and developing natural resources. Each agency has specific statutory mandates and responsibilities for the lands it administers. (See Appendix A for historical background on the agencies.) The FS and BLM are both directed to manage their lands for multiple uses and for sustained yields of resource outputs without impairing resource productivity. Both agencies sell timber, permit or lease lands for livestock grazing, allow mineral exploration and development in many areas, protect watersheds, manage wildlife habitats, administer recreation uses, and preserve wilderness areas, although they often have different rules and regulations governing these activities. The similarity of their missions, the proximity of many of their lands and offices, and the existence of only one major federal resource land manager outside of DOI (the FS) have led to frequent proposals to transfer FS lands to DOI and to merge the BLM and FS. (See Appendix B for a chronological description of these proposals.) The possibility of transferring the FS to DOI and/or merging the FS and BLM has gained some congressional attention. At an oversight hearing on wildfire suppression costs on February 12, 2008, several Members of the House Committee on Appropriations, Subcommittee on Interior, Environment, and Related Agencies questioned whether reorganizing the wildfire and land management responsibilities might be more cost-effective. The subcommittee also has asked the Government Accountability Office (GAO) to assess the benefits and limitations of consolidating the FS in DOI. News stories and other public commentaries have since raised the possibility of a merger. In addition, some assert that wildfire suppression has become such an overwhelming influence that the agencies are no longer effective at achieving other goals and outputs, and thus a new "U.S. Fire Service" is perhaps warranted. This report discusses potential benefits and limitations of merging the FS and the BLM and assesses the ramifications of a separate U.S. Fire Service. Appendixes provide historical background on the two agencies and on historical transfer and merger proposals. The FS and BLM have similar management responsibilities, and many issues affect both agencies' lands. However, each agency also has unique emphases and functions. For instance, most federal rangelands are administered by the BLM, and the BLM oversees mineral development on all federal lands. Most federal forests are managed by the FS, and only the FS has programs to assist nonfederal landowners. Also, development of the two agencies has differed, and historically they have focused on different issues. Nonetheless, there are also many management parallels, the lands are often intermingled, and the agencies sometimes have offices in the same towns. These factors have led to sporadic discussions of consolidating the agencies. The historical efforts to move one of the agencies and possibly to merge the FS and BLM suggest that numerous possibilities exist. The simplest option would be to expand efforts to increase the number of offices and employees shared by the two agencies. The agencies, as authorized in § 331 of the FY1998 Interior appropriations act ( P.L. 105-83 ) and subsequently extended, have initiated a cooperative program known as Service First. It allows pilot tests of joint permitting and leasing programs, reciprocal delegations of duties and responsibilities (e.g., having a BLM employee conduct the cultural resource assessment for an FS timber sale), and co-locating facilities. One advantage of this idea is that it is currently feasible; no new law would be required to implement the option, although its authorization would need to be extended beyond FY2008 and legislative support or direction could expand the program. Another advantage is its simplicity for users—one office and one person ("one-stop shopping") for dealing with grazing or recreation permits, regardless of the history of the lands. However, having individuals implementing two different sets of laws, depending on the history of the land, could also confuse users and would likely make the job more complex for employees. For example, a rancher with both BLM and FS grazing permits could meet with one range conservationist, but have different laws applied to the different permits. It could also increase contractual difficulties and litigation if, for example, BLM grazing regulations were unintentionally applied to a national forest grazing permit. Agency transfers—FS to DOI or BLM to USDA—have been proposed in the past. Such a transfer would presumably place both agencies under the purview of a single Deputy or Under Secretary, of Agriculture or of Interior. The principal advantage of a transfer would likely be greater inter-agency coordination and consistency in annual planning and budgeting, and in implementing common laws and regulations (e.g., the Healthy Forests Restoration Act and the Federal Lands Recreation Enhancement Act). However, such a transfer could only be effected by enacting a law making the transfer. Congressional committee jurisdictions could remain unaffected by a transfer; jurisdiction over FS lands and programs is already split between the Agriculture and Natural Resources Committees, and FS funding is under the jurisdiction of the Appropriations Subcommittees on Interior, Environment, and Related Agencies. However, the departments might be less sanguine about the possible loss of a major agency. The FS accounted for 6% of the FY2007 USDA budget authority ($5.7 billion out of $93.6 billion) and 36% of FY2007 USDA staff years (33,912 out of 94,818). The BLM accounted for 14% of the FY2007 DOI budget authority ($2.3 billion out of $15.8 billion) and 16% of FY2007 DOI staff years (10,577 out of 67,429). Presuming that a transfer would entail no change in the legal mandates for administering the lands, such a transfer would probably have relatively limited impact on land management or users, except through increased inter-agency coordination and consistency. However, whether or not the legal mandates are retained, consolidated, or merged and simplified is a critical issue, discussed below. Merging the agencies has also been proposed several times. (See Appendix B ) The consequences of a merger depend partly on the nature of the merger: would the FS and BLM both be merged into a new agency, or would one agency be absorbed by the other? Would the merged agency be in DOI or in USDA, or would it be in a new Cabinet department, possibly with energy and/or environmental agencies? Because the ramifications of a merger would be more significant than a transfer or some joint operations, the rest of this section discusses the possible impacts of a merger on users, on the agencies, on the federal budget, and on political structures. A merger of the FS and the BLM possibly could improve the quality of the agencies' performance. The existence of two agencies, each managing federal lands for multiple uses, has been regarded by some as inefficient and duplicative—two agencies with two sets of laws, policies, and regulations are seen as leading to public confusion and poor service. Differences between the agencies are especially graphic when they promulgate different regulations under one law that applies to both, such as the Federal Lands Recreation Enhancement Act or the Healthy Forests Restoration Act. Merging the agencies would likely lead to a common set of laws, policies, and regulations that might enhance service and reduce duplication (or at least the appearance of duplication). For certain resources—leasable and locatable minerals—a merger seems likely to at least improve consistency in management decisions. BLM currently administers the mineral activities on all federal lands, including the national forests. FS responsibility in minerals management is limited to administering access and surface land use. A merger would eliminate the current situation in which two different agencies manage different aspects of the same resource on the national forests. Finally, merger proponents have asserted that consolidating federal multiple-use land management in one agency could lead to a greater focus and higher priority for land and resource management. Such an agency would have more comprehensive authority and responsibility, and its proponents have argued that this would lead to more effective control and more consistent direction. According to merger supporters, concentrating federal multiple-use land management in one agency would lead to formulation and implementation of a more comprehensive, effective national natural resources policy. Improvements in public service and resource management have long been argued to be the principal benefits of such a merger. This has been a principal motivation behind the Service First Initiative, described above. On the other hand, some of the benefits of coordinated service and management efforts clearly do not require a agency merger, since these benefits are already occurring without a merger. It is unclear how many additional benefits could result from expanding the Service First Initiative, and how many further benefits could only result from a merger. Opponents, however, might maintain that a merger could reduce agency responsiveness to public concerns. A merger would create a larger agency. This could, arguably, stifle creativity and policy debates, because larger organization typically establish uniform, standardized policies that inhibit individual worker responsibility and creativity. Critics argue that the agencies are already unresponsive to public interests, and that a merger would create a larger and even less responsive bureaucracy. Furthermore, it is argued that the agencies should focus their efforts on improving management and public service within their current structures, rather than waste time trying to design "the perfect bureaucracy." The nature of the potential merger has particularly important ramifications for the institutions and employees. The FS may well dominate a combined agency, since it has more than three times as many employees as the BLM (33,912 to 10,577 in FY2007) and more than double the budget ($5.72 billion to $2.27 billion in FY2007). The FS administers more land in California, Colorado, Idaho, Montana, and Washington, while the BLM manages more land in Alaska, Nevada, New Mexico, Utah, and Wyoming. In Arizona and Oregon, the acres managed by each agency are about the same. In the Great Plains and eastward, the FS is clearly dominant. Furthermore, the FS was traditionally seen as a more active land manager, because timber management was more active (the FS initiates timber sales) than was minerals management (the BLM typically responds to claim or lease activities). This may have changed in the past decade, with the decline in timber sales and increased emphasis on energy production from federal lands. The FS also historically had a vibrant esprit de corps . However, the FS image has been tarnished by internal conflicts, best illustrated by the creation of the independent Association of Forest Service Employees for Environmental Ethics in 1989. The successor organization—Forest Service Employees for Environmental Ethics (FSEEE)—representing only current and retired FS employees, is an active litigant on FS policies and programs, suggesting continuing internal dispute about appropriate national forest management. Furthermore, various observers have questioned whether the steep decline in FS timber sales has undercut agency support with the wood products industry and on Capitol Hill. The BLM's history contrasts with this pattern. Two observers have stated: The Bureau of Land Management (BLM) does not get much respect. Unfortunately, the BLM was not nicknamed the "Bureau of Large Mistakes," "Bureau of Livestock and Mining," and "Bureau of Lumbering and Mining" without justification.... [It] still shows its parentage as either partner or handmaiden to exploiter interests. The BLM started from (1) the demise of the U.S. Grazing Service at the hands of the ranchers and their congressional allies, and (2) the non-managerial public domain overseer, the General Land Office. Building a coherent, effective agency from such beginnings would have been a difficult challenge, at best. Nonetheless, critics recognize that the BLM has built an effective organization for its role as a federal land manager. A BLM-FS merger might disrupt programs, offsetting the possibly enhanced services (discussed above). In the short run, employees would need to learn the new laws, regulations, and policies as well as new operating procedures and practices. If the BLM were merged into the FS, BLM employees would have to learn FS laws, regulations, policies, procedures, and practices; the reverse would be true if the FS were merged into the BLM. And if a new agency were created, everybody would have to learn the new laws, regulations, policies, procedures, and practices. A merger could lead to internal conflicts between previously-FS and previously-BLM staff, because of differing views over federal policies and obligations with respect to users. However, the agencies have become less disparate over time, probably making a merger less disruptive today than it might have been decades ago. A merger also could cause morale problems. The personnel of the agency that is absorbed, or of both if a new agency is created, may feel a loss of identity, since many workers' sense of worth is linked to their organizations. Retirements, transfers, reassignments, job losses, and the like might result from a merger, as the post-merger employees may not match the post-merger agency requirements. Such actions could exacerbate the possible morale problems. Alternatively, creating a new agency may offer new opportunities for agency employees to help shape the future of natural resource management. Retirement of long-term employees that help maintain traditional agency cultures could allow newer, younger employees (often with different education and experience) greater prospects for creating a new future. A new agency, with revised legal authorities and guidance (as discussed below), might provide a chance to blend differences into a coherent, cohesive organization, with a common vision of the future. Reducing costs by eliminating duplicative personnel and offices is one of the primary benefits cited in most merger proposals. The Carter Administration had estimated the benefits of its Department of Natural Resources proposal at $100 million annually, but did not provide details about how these savings would be achieved. In 1984, the General Accounting Office (now Government Accountability Office) reported that 64 locations had both BLM and FS offices, and estimated that combining these offices could save $33.5 million annually. Inflation over the intervening years would likely lead to higher estimates today, although some of those savings might already have been achieved under the Service First initiative. Another benefit commonly cited by proponents is the creation of a more efficient and effective structure for managing federal lands and resources, by merging duplicative efforts. The two agencies have nearly identical missions: each inventories its lands and resources, plans and then acts to provide for use and protection of the lands and resources, and monitors the consequences of actions and uses. Especially in areas with intermingled, adjoining, or neighboring lands, these functions arguably could be more efficiently conducted by a larger single entity than by separate agencies. A merger could lead to some higher costs, at least in the short-term. There would be implementation costs, associated with changing signs, logos, letterhead, uniforms, and the like. (Creating a new agency would have greater short-term implementation costs than moving one agency into the other.) There may be some personnel and planning costs from eliminating redundant positions and from the transfers necessary to have the right people in the right locations. Buildings and other facilities and equipment might be redundant, and need to be sold (which would generate revenues, but might require expenditures to be prepared for sale). Others argue that reducing duplication does not necessarily lead to greater efficiency. Duplication may appear costly, but both economic theory and business practice suggest that the competition drives efficiency. This explains why firms develop several products for the same market—to compete internally as well as against other firms. If a BLM-FS merger reduced duplication, it also might eliminate the potential competition that could be used to improve efficiency. This presumes, of course, that the agencies feel that they are competing against each other and that analysts (external and internal) compare different agency practices and procedures to assess their relative efficiency and propose improvements. Numerous legal and political ramifications could complicate a BLM-FS merger. These considerations include consolidating the laws, congressional jurisdictions, agency structures, and compensation for the tax-exempt status of federal lands. Merging the FS and the BLM would probably provide few benefits if the combined agency continued to administer two different sets of laws, applying to different, often adjacent landholdings. Thus, an agency merger necessarily raises the question of consolidating the legal authorities for the agencies. Merging FS and BLM legal authorities could be a difficult task. The Public Land Law Review Commission took six years to complete its review, producing its recommendations in a 342-page volume (plus 39 separately-bound background documents), and it only addressed the public domain lands. The FS publishes a volume with the general laws governing FS management; the 1978 edition was 1 inch thick, while the 1993 edition is 2½ inches thick. The volume has not been updated in 15 years, and does not include the multitude of laws providing site-specific management direction. Furthermore, congressional management direction for specific sites seems to have proliferated in recent years. Designated BLM sites (in addition to wilderness areas and wild and scenic rivers) include 15 national monuments, 13 national conservation areas, a national recreation area, a cooperative management and protection area, an "outstanding natural area," and a forest reserve. Designated FS sites include 21 national game refuges and wildlife preserves, 20 national recreation areas, 6 national scenic areas, 4 national monuments, 3 special management areas, 2 national botanical areas, 2 national volcanic monuments, 2 national protection areas, a primitive area, a scenic research area, a national historic area, a recreation management area, and a scenic recreation area, plus a few more congressionally designated areas not listed in the agency's lands report. A consolidation of federal land law could result in two possible outcomes. One is that existing laws could be largely retained, extended to the additional lands, and where duplicative or contradictory revised to provide consistent direction. The result would likely be a tome on federal multiple-use laws larger than the current FS volume. Alternatively, federal multiple-use land law could be completely revised to simplify management guidance that has evolved piecemeal over a century or more for the two existing agencies. The latter might be a more difficult task, as simpler legislative direction often yields greater agency discretion, which could lead to more objections and disputes among interest groups. Differences in federal water rights between the national forests and the BLM's public lands would further complicate a merger. Federal reserved water rights are associated with reserves, such as the national forests, dating from the creation of the reservation. In contrast, BLM often does not have federal reserved water rights, because the lands were never "reserved." Presuming that a merger would retain such historical reservations, issues regarding federal reserved water rights—on which lands they exist and with what priority dates—could complicate any BLM-FS merger proposal or subsequent merged agency management. Congressional jurisdictional issues could complicate merging the FS and BLM legal authorities. The Natural Resources Committees have jurisdiction over the BLM and the public lands and over the forest reserves/national forests created from the public domain. However, the Agriculture Committees have jurisdiction over acquired forest lands and over forest management generally, as well as over forestry assistance and forest research. Which committee[s] gets jurisdiction over a particular bill depends in large measure on how the bill is drafted—is it public lands legislation or a forest management bill? Furthermore, the referrals are not always consistent; for example, the Secure Rural Schools and Community Self-Determination Act of 2000 ( H.R. 2389 ; P.L. 106-393 ) was reported by the House Agriculture Committee and discharged from the House Resources Committee before passage, but was not even referred to the Senate Agriculture Committee. An agency transfer does not necessitate a change in congressional jurisdiction, and committee jurisdictions can change without any change in the structure of the executive branch. The then-Public Lands Committees retained jurisdiction over the forest reserves after they were transferred to USDA to create the FS. Jurisdiction over FS funding was transferred from the Appropriations Subcommittee on Agriculture to the Subcommittee on Interior and Related Agencies (now Interior, Environment, and Related Agencies) in 1955, with Members (including the Speaker of the House) noting that the change was for the convenience of Congress and was not intended to suggest an executive restructuring. However, an agency merger would be more significant than a transfer, and keeping committee jurisdictions distinct could be difficult. At a minimum, both the Agriculture and Natural Resources Committees would be involved in any modification of FS and/or BLM authorizations to effect a merger. Not surprisingly, since they were created at different times by different people, the FS and the BLM are organized differently. The FS is organized around the 156 national forests, as proclaimed by the various presidents and modified for administrative simplicity. Each forest has one to seven or more ranger districts (administered by a district ranger) for implementing activities on the ground. The national forests, administered by forest supervisors, are organized into nine regional offices. Two regions are composed substantially or entirely of the forests in one state (Region 5—California and Hawaii; and Region 10—Alaska); two more are substantially composed of the forests in two states (Region 3—Arizona and New Mexico; and Region 6—Washington and Oregon). In addition, two states are divided between regions (Idaho in Region 1 and Region 4; and Wyoming in Region 2 and Region 4). In contrast, BLM is organized into 12 state offices. (BLM lands in the State of Washington are administered by the Oregon State Office.) BLM lands and federal minerals in the other 38 states are administered by a single Eastern States Office. BLM lands are organized into resource areas administered by field offices. Some field offices (in Arizona, Idaho, and Oregon) report to district offices, which report to the BLM state offices. Other field offices (in Colorado, Montana, Nevada, Utah, and Wyoming) report directly to the state office. In the other states (Alaska, California, and New Mexico), some field offices report directly to the state office and others report to a district office that reports to the state office. The state-based BLM organizational structure has provided the agency with a simple and direct means of responding to and working with governors and state congressional delegations. This has probably made the BLM more sensitive to state-level issues than the FS, but this could be at the cost of relatively less sensitivity to local and national issues. A merger likely would lead to a consistent regional and local organizational structure, but it is unclear what that structure would be, and the choice of structure (and the terminology for the units and administrators) could have a significant effect on the effectiveness of the post-merger agency. Federal lands are exempt from taxation by state and local governments. If the lands were privately owned, the landowners would pay various types of taxes—sales, property, income, severance, yield, or other taxes—to state and local governments, depending on the state and local tax structures. The federal government, however, is exempt from such taxation. A variety of programs have been enacted to compensate units of government—primarily counties—for tax-exempt federal lands. The oldest compensation program is the FS payment of 25% of gross receipts from timber sales and other revenue sources to the states for use on roads and schools in the counties where the national forests are located. This program was temporarily (FY2001-FY2006) replaced by the Secure Rural Schools and Community Self-Determination Act of 2000 ( P.L. 106-393 ), at the discretion of each county. The program expired at the end of FY2006, but one additional year's payments were enacted in the FY2007 emergency appropriations act ( P.L. 110-28 ), and possible reauthorization continues to be debated. If the program expires, payments return the 1908 formula of 25% of gross receipts. Because the P.L. 106-393 program was based on historical payments, the decline from returning to 25% of receipts will likely vary widely. Other compensation programs vary widely, depending on the history and location of the lands, the source of the receipts, and the specific legal authority involved. For example, states and counties get 50% of mineral receipts from public domain lands—except in Alaska, which receives 90%—but only 4% of land and materials receipts (e.g., land or timber sales), and 12½% of grazing receipts within grazing districts (§3 lands under the Taylor Grazing Act) and 50% of grazing receipts outside grazing districts (§15 lands)—except in Alaska, which receives 100% of grazing receipts in excess of administrative costs. The counties are allocated 75% of receipts from the O&C lands, except that up to a third is used by the BLM for roads and reforestation, so the counties actually get 50% of receipts—except that the O&C counties received payments under the Secure Rural Schools and Community Self-Determination Act of 2000 for FY2001-FY2007. The counties containing the Coos Bay Wagon Road lands similarly are allocated 75%, with a third for BLM roads and reforestation, but limited to the actual tax assessment. In Nevada, the states and counties get 15% of land sale receipts for sales under four specific land sale authorities. Counties with Bankhead-Jones lands get 12½%, 25%, or 50% of receipts, depending on several Executive Orders, a Comptroller General's Decision, and a DOI Solicitor's Opinion. States and counties containing Bureau of Reclamation lands and the Naval Petroleum and Oil Shale Reserve get no payments. Several other special land designations (e.g., state selected lands except Alaska, Coos Bay Wagon Road lands, town sites on Reclamation lands, "south half of Red River, Oklahoma," and more) provide varying payments, generally ranging from 0%-50% of receipts. In addition to these mandatory spending compensation programs for specific lands, Congress enacted the Payments In Lieu of Taxes (PILT) Act to compensate counties for most tax-exempt federal lands. PILT payments to counties are based on a complicated formula, basically based on the acreage of "entitlement" lands in the county (most, but not all, federal lands) and annually inflation-adjusted per-acre payments, but limited by county population and reduced by payments under many other county compensation programs (such as FS 25% receipt-sharing, O&C 50% receipt-sharing, and Secure Rural Schools payments). However, PILT requires annual appropriations for the program. Since PILT appropriations have been less than the calculated total payments in recent years, counties have been receiving proportionally less than the calculated payments. In theory, few object to fair and consistent compensation to state and local governments for the tax-exempt status of federal lands. The political difficulty lies in determining what is "fair and consistent." Consistent could have two different meanings in this context. To some, it would mean guaranteed payments—mandatory spending—regardless of federal budget difficulties or appropriations shortfalls. This has been sought in reauthorizing the Secure Rural Schools legislation, but is difficult because the Budget Act requires bills with mandatory spending to be offset with additional revenues or reductions in other mandatory spending; neither has been found in the ongoing reauthorization debate, and would likely not be any easier for a new "consistent" compensation program. Consistent also could mean predictable. Compensation programs based on receipts can cause annual payments to fluctuate widely; plus or minus 50% from year to year is not unheard of for FS payments. Some have proposed basing payments on a 5- or 10-year rolling average of receipts to moderate payment fluctuations. Such a change in approach would likely be easier to enact than mandatory spending. "Fair" compensation is difficult to determine, because different states and local governments rely on different funding mechanisms—sales taxes (based on gross receipts), property taxes (based on land values), income taxes (based on net receipts), and more. Choosing any one compensation system would be inherently unfair to some jurisdictions, because it would likely under- or overcompensate compared to taxation of private landowners. Similarly, choosing any one rate—be it a fixed amount per acre (like PILT) or a fixed rate per unit of value—would also be unfair to some jurisdictions, because tax rates differ; if, for example, the citizens of Michigan willingly tax their own properties at a higher rate than the citizens of Oregon, should they not also be compensated at a higher rate for the tax-exempt federal lands in their state? An agency merger could be effected without modifying the current complex systems for compensating state and local governments for the tax-exempt status of federal lands. Given the political difficulties in determining "fair and consistent" compensation, trying to "rationalize" the compensation system effectively might prevent a merger from occurring. However, revising the laws guiding federal multiple-use resource management would be an opportunity to consider revising the laws compensating state and local governments. The high and rising cost of wildland fire management by the FS and DOI and coordinated efforts to produce and maintain a National Fire Plan since 2000 have led some to consider whether a separate, independent wildland fire management agency might be more efficient and effective for wildfire tasks while leaving the FS and BLM to their traditional multiple-use resource management roles. Total FS and DOI appropriations for wildland fire management have averaged $3.10 billion annually since FY2003, with the highest appropriations ever—$3.55 billion—for FY2008. This is a substantial rise from the $1.09 billion averaged annually for FY1994-FY1999. Also, the share of the total budget allocated to wildfire management has increased substantially. For FY1994-FY2000, wildfire suppression accounted for 31% of FS discretionary funding. Since FY2001, fire suppression costs have accounted for 44% of FS discretionary funding, rising to 48% in FY2007. More importantly, rising wildfire suppression costs are affecting other FS programs. Both agencies have the discretion to borrow unobligated funds from other accounts for emergency wildfire suppression expenditures. This effectively provides them with open-ended appropriation reprogramming authority for limited purposes. Before FY2000, such borrowing authority had little impact on FS programs. The BLM can borrow from any DOI accounts; while fire was 42% of BLM discretionary appropriations in FY2007, it was only 5% of total DOI discretionary funding. Thus, borrowing has had, and still has, relatively minor impacts on DOI programs. The FS situation is different. Historically, the FS borrowed funds primarily from its mandatory spending accounts, particularly the Knutson-Vandenberg (K-V) Fund. This account accumulated deposits from timber purchasers to reforest and otherwise improve timber in timber sale areas. Because of the lag between timber payments and reforestation, the K-V Fund often had a balance of about $500 million—more than enough to borrow for emergency fire suppression without impinging on one season's tree planting efforts. However, since FY2000, emergency wildfire suppression costs have risen, while the K-V Fund is much smaller (because of much lower timber sales since 1990). Thus, the FS has had to borrow funds from other FS accounts—land and easement purchases, recreation and wildlife management, and more. These rising borrowings, even when repaid in subsequent supplemental or Interior appropriations acts, affect program implementation, because they create uncertainty in the availability of funds. Hence, legislation to insulate agency appropriations from emergency fire suppression funding has been introduced in the 110 th Congress (e.g., H.R. 5541 , H.R. 5648 , S. 1770 ). Some suggest that the fire suppression funding issue is sufficiently severe to warrant a separate agency for wildfire management. They maintain that this would allow the FS and BLM to focus on resource management, and prevent wildfire emergencies from infringing on funding for other programs. In a sense, DOI has taken a step in this direction. In his FY2009 budget request, the President proposed moving wildland fire management funding from the BLM budget to DOI Department-wide Programs. This reflects the current situation, where about 40% of BLM wildfire funding is transferred to other DOI agencies (National Park Service, Fish and Wildlife Service, and Bureau of Indian Affairs), and would help BLM to preserve funding for other programs. Such a shift—separating the funding without separating the program—is less feasible for the FS. A separate federal wildfire agency could have some significant drawbacks. Most important, separating fire management from land and resource management would make coordinating wildfire with the resources that depend on fire more difficult. Wildfire is an integral element in most temperate ecosystems; some resources (e.g., certain plant and animal species) rely on wildfire and burned areas for regeneration and habitat. In addition, a wildfire agency would likely focus on fire control, largely because acres burned are the most readily measureable performance standard and because actively burning wildfires draw congressional, public, and media attention. Wildfire management activities that seek to reduce damages, such as protecting individual structures and reducing biomass fuels, are less likely to be emphasized by a wildfire suppression agency. The FS and BLM have been responding to wildfire ecological and cost concerns by developing appropriate management response and wildland fire use practices. Appropriate management response is an approach that treats each wildfire individually using a broad array of tactical responses, from monitoring fire behavior and progress to aggressive suppression efforts, considering the wildfire's threat to lives and property and the management goals for the area. Wildland fire use is managing naturally occurring wildfires within predetermined areas to provide resource benefits (and reduce suppression costs) while assuring minimal threats to people and property. The Forest Service (FS) in the U.S. Department of Agriculture (USDA) and the Bureau of Land Management (BLM) in the Department of the Interior (DOI) are both directed to manage their lands for multiple uses and for sustained yields of resource outputs without impairing resource productivity. Both agencies sell timber, permit or lease lands for livestock grazing, allow mineral exploration and development in many areas, protect watersheds, manage wildlife habitats, administer recreation uses, and preserve wilderness areas, although they have different rules and regulations governing these activities. The similarity of missions, the proximity of lands and offices, and their existence in separate Cabinet departments have led to frequent proposals to transfer one agency to the other department and/or to merge the BLM and the FS. The FS was created in 1905, when Congress transferred the forest reserves (renamed national forests in 1907) from DOI to USDA and merged the Forestry Division of DOI's General Land Office with USDA's larger Bureau of Forestry. The BLM was created in 1946, by a merger of the DOI Grazing Service and the General Land Office. Despite the similarity of their missions, the agencies have developed independently because of their substantially different creations and evolution. Proposals to transfer the FS to DOI or the BLM to USDA, or to merge the FS and BLM (or its predecessor), date back to 1911, and have been made under Presidents Taft, Harding, Hoover, Roosevelt, Truman, Eisenhower, Nixon, Carter, and Clinton. In an attempt to improve administration of the federal lands, President Reagan proposed an substantial exchange (consolidation) of lands and personnel between the agencies, but even this more limited reorganization was prevented by Congress. Proponents and critics have cited various benefits and problems associated with transferring the agencies or merging the BLM and the FS. General questions involve the nature of the merger—would one agency absorb the other, or would a new agency be created; would the agency be in USDA, DOI, or a new department, or possibly be an independent agency? Answers to these questions affect the likely consequences of a merger. Improved service to the public has been touted as a reason for merging the agencies. Proponents argue that a single federal multiple-use resource agency could provide uniform practices and procedures, reduce public confusion, and establish a comprehensive federal natural resources policy. Critics counter that a merger could stifle creativity and public policy debates by creating a larger, less responsive bureaucracy. A merger would necessarily have substantial effects on the institutions. The FS might well dominate, since it has three times as many employees and three times as large a budget while administering nearly as much land outside Alaska. The FS was historically perceived to be a more active manager with greater espirit de corps , because it initiates timber activities, where the BLM often responds to minerals activities initiated by others. However, the BLM has been improving in these areas, while the FS image has become tarnished by internal conflict. Furthermore, the decline in timber sales and increased emphasis on energy production from federal lands in the past decade has brought the management styles of the two agencies closer together. Thus, a merger might be less disruptive than it might have been a few decades ago. However, the necessary transfers and adjustments might disrupt programs and hurt employee morale, while varying practices and procedures could prove difficult to merge. On the other hand, a new agency could offer an opportunity for employees to help shape the future of federal natural resources management and policy. Lower costs are commonly cited as reasons for a merger. Costs would allegedly be reduced by eliminating duplicative personnel and offices, leading to greater management efficiency. However, there would be short-term implementation costs, for altering signs and letterheads, for transferring people to where they are needed, and more. Furthermore, economic theory and business practice suggest that competition drives efficiency; eliminating duplication might also eliminate the potential efficiency-producing interagency competition, assuming the agencies and analysts compared agency practices to uncover efficiencies. In addition, the agencies may already be achieving some of these efficiencies through the Service First initiative. A merger would probably provide limited benefits if the legal authorities governing FS and BLM management and planning were not also merged. However, a merger of legal authorities could be difficult. The plethora of laws and regulations governing agency processes and practices would have to be consolidated. The laws could be extended to additional areas, with modifications to eliminate redundancy and contradictions, or could be simplified to provide direct, coordinated legal guidance to replace the incremental legislative direction of the past century. The former would likely be easier; the latter would be shorter and clearer, but probably more difficult to achieve because of concerns among the various interest groups. Federal reserved water rights for some areas could complicate the legal consolidation. Jurisdictional issues within Congress—the Natural Resources Committees have had jurisdiction over the BLM and public lands, but the Agriculture Committees have been the principal actors in FS and national forest issues—could complicate the issue. Differing agency organizational structures, with the key FS organization by national forests and the BLM largely structured around state offices, could also constrain consolidation. Finally, the complex array of programs to compensate state and local governments for the tax-exempt status of federal lands might impede efforts to create one consistent federal multiple-use resource management agency. Recent questions about a possible merger have been raised because of concerns that wildfire suppression costs are impeding federal multiple-use management. One newly suggested option would be creating a separate federal wildfire agency from the wildland fire management organizations within the FS and the BLM. This would allow the agencies to refocus management efforts on non-fire activities and would insulate program budgets from emergency borrowing to suppress wildfires. However, it would also separate wildfire management from other land and resource management, even though wildfire is integral to most temperate ecosystems. The agencies are responding to cost and ecological concerns by developing "appropriate management responses" to wildfires, with actions ranging from monitoring fires ("wildland fire use" to achieve management goals) through aggressive suppression, depending on resource benefits and the values at risk. Appendix A. Historical Background on the Forest Service and the Bureau of Land Management The USDA Forest Service and DOI Bureau of Land Management have similar management responsibilities and often intermingled or neighboring lands. However, each agency also has unique emphases and functions, often reflecting their different creations and evolutions. This appendix provides historical background to help explain differences between the agencies. Forest Service The FS is an agency in the U.S. Department of Agriculture. The first federal funding for forestry—an 1876 study of western forest conditions—was attached to an Agriculture appropriations bill, because a bill authorizing such a study had stalled in the House Public Lands Committee. Permanent federal forestry funding began in 1881, when Congress established the USDA Division of Forestry. The division initially focused on providing information to Congress and the public about the condition of U.S. forests. The mission evolved over the succeeding decades to providing forestry assistance to states and private forestland owners. The division grew slowly, and was upgraded to the Bureau of Forestry in 1901. Forest Reserves In 1891, Congress granted the President the authority to establish forest reserves from the existing public domain lands under DOI jurisdiction. Initially, the forest reserves were administered by a Division of Forestry in the DOI General Land Office, because the office (one predecessor of the BLM) was responsible for the public domain from which the reserves were created. This office administered the forest reserves for 14 years, during which time the reserves were increased to 56 million acres and the first federal commercial timber sales were made. In 1898, Gifford Pinchot became chief of the USDA Division of Forestry. He argued that USDA's forestry expertise warranted control over the forest reserves, but instead was directed to consult with the DOI Division of Forestry. However, Pinchot's influence on federal forestry increased when his close personal friend, Theodore Roosevelt, became the U.S. President in 1901. It took Pinchot and Roosevelt nearly four years to convince Congress of the wisdom of transferring the forest reserves to USDA. Interestingly, DOI Secretary Ethan Allen Hitchcock and Land Commissioner W. A. Richards supported the transfer of the lands to USDA. In 1905, Congress enacted the Transfer Act to shift the responsibility for administering the reserves to USDA and to merge DOI's Division of Forestry with the larger USDA Bureau of Forestry. The new entity was named the Forest Service, with Pinchot as the first chief. President Roosevelt more than doubled the forest reserve acreage in the two years following the merger, to a total of 151 million acres by 1907. Congress responded by limiting the President's authority to proclaim additional forest reserves, and renamed the reserves the national forests . In 1911, in the Weeks Law, Congress authorized additions to the National Forest System through the purchase of private lands in need of rehabilitation. Under this authority and other specific acts, the National Forest System has grown slowly to its current holdings of 193 million acres in 44 states. These lands are concentrated in the West, but the 25 million acres of national forests in the eastern half of the country account for more than half of all federal lands in the East. Forest Service Funding As noted above, forestry funding began in the Agriculture appropriations bill in 1876, and was a continuous account beginning in 1881. In 1955, House Appropriations Committee Chair Clarence Cannon decided to consolidate public works funding under one subcommittee, initially known as the Public Works Subcommittee and now called the Energy and Water Development Subcommittee. House Interior Appropriation Subcommittee Chair Michael Kirwin complained about the loss of his largest agency (the Bureau of Reclamation), and argued for a substitute of comparable size. The FS was chosen. The transfer of FS funding to Interior appropriations raised many concerns, mostly related to the efforts by several administrations to transfer the FS to DOI. The concerns were sufficient for House Speaker Sam Rayburn to take the floor to state that the transfer was merely an administrative realignment for congressional purposes and should not be seen as a precursor to transferring the agency. Senate Interior Appropriations Subcommittee Chair Carl Hayden opened the 1955 hearings on the FS budget by noting that the FS transfer from the Agriculture to the Interior Subcommittee in the Senate was simply following the jurisdiction realignment in the House, and was not intended to suggest an agency transfer. National Forest Management In 1897, in what has become known as the Organic Administration Act, Congress stated the purposes for which forest reserves (national forests) could be established: ... to improve and protect the forest within the reservation, or for the purpose of securing favorable water flows, and to furnish a continuous supply of timber for the use and necessities of the citizens of the United States. FS efforts to administer the national forests focused initially on fire control and livestock grazing. The agency's authority to regulate livestock grazing and charge grazing fees was upheld by the U.S. Supreme Court in 1911. Although sheep and goat grazing declined precipitously after the end of World War I, cattle grazing in the national forests has been relatively stable since the 1930s. In contrast, and despite FS efforts, timber sales remained relatively low until after World War II, then climbed quickly during the 1950s; the sale program was relatively stable from 1960 through 1988, but has declined substantially since 1989, due to a host of factors, including protection of water quality and of wildlife habitat for rare or endangered species, such as the northern spotted owl. Recreation uses also rose after World War II, and except for a brief decline in the mid-1980s, have continued to expand. Management goals for the national forests were identified in the 1897 act, and were further articulated and expanded in the Multiple-Use Sustained-Yield Act of 1960. This latter act states: It is the policy of the Congress that the national forests are established and shall be administered for outdoor recreation, range, timber, watershed, and wildlife and fish purposes.... The establishment and maintenance of areas as wilderness are consistent with the purposes and provisions of this Act. The Multiple-Use Sustained-Yield Act directs national forest management for the combination of uses that "will best meet the needs of the American people." Resource management is to be coordinated for multiple use —considering the relative values of the various resources, but not necessarily maximizing dollar returns, nor requiring that areas be managed for all or even most uses. The act also calls for sustained yield —a high level of resource outputs in perpetuity without impairing the productivity of the land. Management of the National Forest System is also guided by the Forest and Rangelands Renewable Resources Planning Act of 1974 (RPA), as amended by the National Forest Management Act of 1976 (NFMA). These laws encourage foresight in using the nation's renewable resources, and establish a long-range strategic planning process for FS management. RPA focuses on national, long-range direction for forest conservation by requiring an Assessment to inventory and monitor the nation's resource situation, a Program and Presidential Statement of Policy to guide FS policies and budgets, and an Annual Report to evaluate Program implementation and other FS activities. NFMA substantially expanded the guidance for the FS to prepare comprehensive land and resource management plans for units of the National Forest System that are integrated with the RPA planning process. Other FS Programs FS responsibilities are not limited to managing the national forests. Another principal FS program is a continuation of the original role of the Bureau of Forestry: to provide forestry assistance to states and nonindustrial private forest owners. Congress enacted the Clarke-McNary Act to consolidate these forestry assistance programs. Forestry research is the third principal FS program. Congress first authorized forest studies in the 1870s, but was silent on forestry research until 1928, when it enacted the McSweeny-McNary Act "to insure adequate supplies of timber and other forest products." The authorities for these two programs were revised and updated in separate acts in 1978. The FS also provides forestry assistance under its International Forestry program. The FS also manages some lands in the National Forest System that are not national forests—notably the 20 national grasslands and 69 land utilization projects and purchase units. These 89 units were established under the Bankhead-Jones Farm Tenant Act to: ... correct maladjustments in land use, and thus assist in controlling soil erosion, reforestation, preserving natural resources, protecting fish and wildlife, developing and protecting recreational facilities, mitigating floods, preventing impairment of dams and reservoirs, developing energy resources, conserving surface and subsurface moisture, protecting the watersheds of navigable streams, and protecting the public lands, health, safety, and welfare, but not to build industrial parks or establish private industrial or commercial enterprises. While many of the lands acquired under the Bankhead-Jones Farm Tenant Act are administered by the FS, others (including some lands transferred from USDA) are administered by the BLM. Bureau of Land Management The BLM was formed in 1946 by a merger of two DOI agencies: the General Land Office and the U.S. Grazing Service. The General Land Office had been established in the Department of Treasury in 1812 (and transferred to DOI in 1849) to oversee the conveyance of public domain lands out of federal ownership. The public domain are the lands acquired by the federal government from the original colonies or by treaty or purchase from a foreign government. The emphasis for many years was on conveying (disposing of) the public domain lands, not on managing them. Conveyances included grants to states (for education) and to railroads (for developing transcontinental transportation routes). In addition, millions of acres were sold or transferred to private individuals, in payment for service in the Revolutionary War and under the Homestead Act and numerous other laws. As noted above, the General Land Office's Division of Forestry was responsible for administering the forest reserves from 1891 until the lands and the Division were transferred to USDA in 1905. Taylor Grazing Act and the U.S. Grazing Service The Taylor Grazing Act was enacted to remedy the deteriorating range condition of the public lands, due to overuse and the drought and depression of the late 1920s and 1930s. It was the first legislation directing federal management of the remaining public domain lands. The act included a provision—"pending their final disposal"—that implied eventual transfer of the remaining public domain lands out of federal ownership, but management to improve conditions also suggested a continuing federal presence. The administration of the public rangelands was subject to substantial debate. Some felt that the FS should oversee the lands, as it had a relatively extensive staff and had shown a capacity for administering rangelands. Others argued that the lands should remain in DOI, because the FS had alienated the ranching industry by trying to raise grazing fees in the 1920s. In the end, because of the political jurisdictions and because of efforts by DOI Secretary Harold Ickes to retain the lands in DOI, the rangelands subject to the Taylor Grazing Act were administered by a new Grazing Division within the General Land Office; the division became the U.S. Grazing Service, separate from the Land Office, in 1939. The U.S. Grazing Service was terminated in 1946. Some attributed its demise to the political strength of the ranching industry and lack of support for the Service's conservation efforts. Others maintained that agency efforts to allocate grazing permits and raise grazing fees led to congressional dissatisfaction that led to a major cut in appropriations for 1946, forcing the Grazing Service to dismiss about two-thirds of its staff. In an effort to retain a modicum of control, President Harry Truman proposed Executive Reorganization No. 3 (May 1946) to merge the Grazing Service with the General Land Office into a new Bureau of Land Management (BLM). When Congress did not disapprove the plan, it became effective in July 1946. The O&C Lands In 1866, Congress granted lands for building a railroad from Portland, OR, to the California state line. The grant included every other square-mile section (like a checkerboard) for 20 miles on each side of the right-of-way. Because of a dispute over competing claims to build the railroad, and financial difficulties for the two principal claimants, Congress amended the original grant to require that the lands be disposed to "actual settlers" for agricultural uses at fixed prices. A new company—the Oregon and California (O&C) Railroad—merged the initial companies proclaiming their right to build the railroad and acquire the lands using the grant lands to capitalize the new company. The company built the rail line and sold some of the lands, but in 1903, because of rising timber prices, Southern Pacific (which had acquired the O&C Railroad) decided to sell no more land. Also in 1903, President Roosevelt had investigators examine fraudulent O&C land grant transactions. In 1908, in response to a petition from the Oregon legislature, Congress passed a resolution requesting the U.S. Attorney General to enforce compliance with the disposal requirement. In 1913, a decision in the federal district court in Oregon held that the government could not force disposal of the land, but the unsold land could be forfeited. In 1915, the U.S. Supreme Court held that Congress could dispose of the grant lands as it deemed fitting and equitable. In 1916, Congress enacted the Chamberlain-Ferris Act to revest (return to federal ownership) the remaining lands that had been granted to the O&C Railroad Company, and directed administration of these lands by DOI. It also directed the sale of timber to settle claims and to pay the counties an amount equivalent to tax payments that the railroad would have made for 1913-1915. This tax equivalency payment was extended through 1926 in the Stanfield Act. The Great Depression and concerns about industrial overproduction led to debates over O&C land management in the 1930s. The appropriate federal agency to administer the O&C lands was vigorously debated: Predictably, the Forest Service believed that establishing a forest management agency in the Department of the Interior was unwise and inefficient. Similarly, [DOI Secretary] Ickes was determined to hold onto the O&C timberlands. He saw the revested lands as a toehold in the forestry area which would strengthen his case for reuniting Interior and the Forest Service. In 1937, Congress enacted the O&C Act to provide for sustained yield of timber managed by DOI. The act also directed payments to the counties of 50% of timber revenues (instead of tax equivalency), with up to 25% for delinquent (1934-1937) tax equivalency payments and deficient Stanfield Act payments. The Public Land Law Review Commission and the Federal Land Policy and Management Act of 1976 The numerous federal laws governing the public lands and resources led to increasingly scattered management authorities. In 1964, Congress directed a review of the public lands and management authorities by the Public Land Law Review Commission. The commission's 1970 report recommended that the remaining public lands be retained in federal ownership and managed for multiple use and sustained yield. In 1976, after six years of deliberations, Congress enacted a comprehensive public land law: the Federal Land Policy and Management Act of 1976 (FLPMA). FLPMA formally established the federal policy of retaining the remaining public lands in federal ownership; § 102(a) states that: (1) the public lands be retained in Federal ownership, unless as a result of the land use planning procedures provided for in this Act, it is determined that disposal of a particular parcel will serve the national interest ... Many BLM lands in Alaska have been transferred to other federal agencies or out of federal ownership after FLPMA was enacted. The 1958 Alaska Statehood Act and the Alaska Native Claims Settlement Act of 1971, though pre-dating FLPMA, authorized substantial transfers out of federal ownership; the Alaska National Interest Lands Conservation Act transferred significant acreages to the National Park Service and Fish and Wildlife Service. Nonetheless, the BLM still manages more land than any other federal agency—258.2 million acres, of which 83.5 million (33%) are in Alaska, 174.7 million acres are in the 11 coterminous western states, and only 1.6 million acres are in the other 38 states. BLM Land Management Like the FS, the BLM is directed to manage its lands for multiple use and sustained yield. The BLM was given its initial multiple-use direction in the Multiple Use, Sustained Yield Classification Act of 1964. This direction duplicated the definitions of the Multiple-Use Sustained-Yield Act, but was made temporary, "pending the implementation of recommendations to be made by the Public Land Law Review Commission." Multiple use and sustained yield were made permanent management goals for the public lands, "unless otherwise specified by law," in §102(a)(7) of FLPMA. The definitions of multiple use and sustained yield in FLPMA are virtually identical to those in Multiple-Use Sustained-Yield Act, although FLPMA gives voice to future needs and values not explicitly identified in the earlier act. FLPMA also established, in §102(a)(9), a general policy of obtaining the fair market value for public lands and resources, "unless otherwise provided for by statute." FLPMA is also called the BLM Organic Act because Title III consolidated and articulated many of the management responsibilities of the BLM. FLPMA also amended, repealed, and/or replaced many of the previous public land laws, including authorities for federal land acquisitions, disposals, exchanges, and rights-of-way; for range management; and for special area protection (including withdrawals) and advisory groups in decision-making. FLPMA requires resource management planning for the public lands, but the planning guidance for the public lands in FLPMA is substantially less detailed than is the planning guidance for national forests in the NFMA. Appendix B. History of Transfer and Merger Proposals Federal forestry began in the Department of Agriculture almost by accident—money for a forestry study was added to the Agriculture appropriations bill in August 1876, after a bill directing a forestry study by the Department of the Interior had stalled in the House Committee on Public Lands. The forest reserves were established in the Interior Department, because the General Land Office was already responsible for those lands. Discussions about bringing USDA's foresters and Interior's forests together began early in the 20 th century. In December 1901, three months after becoming President, Theodore Roosevelt sent a message to Congress stating that the forest reserves belonged in the Department of Agriculture, and the Secretary of the Interior supported transferring the reserves to Agriculture. Although there was substantial congressional opposition to the transfer, at least partly because of concerns over the anticipated control by Gifford Pinchot (Chief of the USDA Bureau of Forestry), the transfer was enacted in 1905. Taft and Wilson Administrations Proposals to transfer the FS to DOI, to combine it with a DOI agency, or to establish a new land and resources conservation department, began soon thereafter. The first effort to transfer the national forests back to Interior was begun in 1911 by DOI Secretary Walter Fisher in the Taft Administration, and bills to effect the transfer were introduced in the 64 th , 65 th , and 66 th Congresses (1916-1920), during the Wilson Administration. At about the same time, the FS disputed the need for a DOI agency to administer the national parks and national monuments (many of which were established within the national forests), claiming that the FS could administer these recreation lands; nonetheless, Congress established the National Park Service in 1916. Harding Administration The second attempt was in the Harding Administration in 1921 by DOI Secretary Albert Fall. The President delayed action, and Fall turned to Congress, asking that the national forests in Alaska be transferred to Interior. The dispute simmered until Harding visited Alaska in the summer of 1923, and then publicly questioned such a transfer. It is unclear whether this resulted from firsthand observations or from revelations of the impending Teapot Dome scandal (wherein Secretary Fall was convicted of accepting bribes for fraudulent oil leases on federal lands in Wyoming), but Harding's death a week later effectively ended the effort. Hoover Administration President Hoover appeared interested in federal reorganization, but problems associated with the Great Depression overwhelmed his Administration. President Hoover did issue an Executive Order on December 9, 1932, transferring the General Land Office to the Department of Agriculture. This proposal was only offered after an attempt to transfer the public domain land to the states was widely rejected and President Hoover had been defeated in his reelection bid. However, this attempt to reorganize federal land management (and other reorganization recommendations) was disapproved by H.Res. 350 on January 19, 1933. Roosevelt Administration Transfer of the FS to DOI was debated for several years under President Franklin Roosevelt. DOI Secretary Harold Ickes was at the center of the controversy that began in 1933 with the transfer of 16 national monuments from the FS to the National Park Service; FS concerns were exacerbated in 1934, when the Natural Resources Board (chaired by Ickes) recommended creating additional National Park System units from existing national forest lands. In 1936, the Brownlow Committee on Executive Reorganization recommended transferring the FS to Interior. However, the open dispute between Ickes and the FS delayed action, and events leading to World War II distracted the President from internal affairs. In addition, bills to establish a Department of Conservation and Works, using DOI and the FS as a foundation, were introduced in the Senate in 1935 and in the House in 1936. The Senate passed its bill on May 13, 1936, but not until it had been amended to only change the name of the Interior Department to the Department of Conservation. The House bill was reported by the Public Lands Committee on March 9, 1936, but objections were raised and it did not come to a floor vote. Truman Administration In 1947, during the Truman Administration, Congress established the Commission on Organization of the Executive Branch of Government, chaired by ex-President Herbert Hoover. In 1949, this first Hoover Commission (a second Hoover Commission to examine federal government organization was created in 1953) recommended that federal land management be concentrated in the Department of Agriculture, with all forest and range management in one agency; this view was presented by the Task Force on Agriculture in Appendix M of the report. Separately, the Task Force on Natural Resources, in Appendix L of the report, proposed a Department of Natural Resources, including a Forest and Range Service created by combining the FS and BLM. These reports were presented to Congress and to President Truman, but no direct actions were taken on them. Eisenhower Administration President Eisenhower's Advisory Committee on Government Organization concurred with the Hoover Commission recommendation for combining forest and range management in the Department of Agriculture. The committee asserted that this transfer could be done without separate legislation under then-existing reorganization authority, but that the proposal would be highly controversial. The Senate Committee on Interior and Insular Affairs and House Committee on Government Operations held joint hearings in November 1955 and February 1956; the former issued a report recommending consolidation of all federal forestry functions within the FS. Following responses to the committee recommendations on federal timber sale policies, the Senate Interior Committee issued a report in 1958 reconfirming its recommendation for consolidating federal forestry within the FS: We recommend the consolidation in the Forest Service of the forestry functions and the surface resource management responsibilities for commercial forest land under the jurisdiction of the Bureau of Land Management and the Bureau of Indian Affairs. DOI and the Bureau of the Budget (predecessor to the Office of Management and Budget) opposed the recommendation in a letter to the committee chairman. Despite this opposition, President Eisenhower proposed Reorganization Plan No. 1 of 1959 to transfer certain DOI functions (specifically, "responsibilities with respect to certain land or timber exchanges and land sales .... [and] the use and disposal of mineral materials ...") to the Secretary of Agriculture. Upon further study, however, the President decided not to transmit the reorganization plan to Congress because of differing Agriculture and Interior timber sale practices, and the possibility for disrupting the timber sales programs. Senate Interior Committee Chairman James Murray concurred with the President's decision, but suggested that the problem was from not following the committee's recommendations: Mr. President, the Administration has just discovered what the Congress told them 3 years ago. The Federal timber selling agencies are not coordinated in their activities and to launch on a consolidation without first harmonizing statutes, regulations, and procedures would create chaos for the dependent timber industry. Kennedy Administration The Kennedy Administration gave little attention to resource management issues. However, to further this "era of good feeling," the Agriculture and Interior Secretaries sent a letter to the President, known as the "Treaty of the Potomac," proposing greater cooperation and an end to proposals to transfer lands among agencies. Nonetheless, in 1964, Congress established the Public Land Law Review Commission to review management of the remaining public domain lands administered by the BLM. The commission submitted its report to President Nixon and to Congress in June 1970. One recommendation was to transfer the FS to DOI, to be renamed the Department of Natural Resources. The similar land uses and management objectives for the BLM and FS were cited as supporting rationale, but a merger of these two agencies was not explicitly proposed. No legislative proposals were presented to effect this recommendation. Nixon Administration While the Public Land Law Review Commission was completing its report, President Nixon's Advisory Council on Executive Organization, under Roy Ash, considered two options: establishing a Department of Environment and Natural Resources (DENR) or a Department of Natural Resources (DNR). These would have created a Cabinet-level department combining the FS, the Soil Conservation Service, and certain other USDA functions; all DOI agencies; certain functions of the Army Corps of Engineers; the National Oceanic and Atmospheric Administration of the Department of Commerce; and other agencies. (The proposed DENR would also have included the 44 federal agencies involved in monitoring, research, standard-setting, and enforcement of pollution abatement programs; the DNR proposal, with a separate Environmental Protection Agency for the pollution functions, was considered a fallback position from the full DENR proposal. ) President Nixon issued Reorganization Plan #3 in 1970, which established the Environmental Protection Agency, and in March 1971 presented his DNR proposal to Congress and the public. Several bills were introduced in the 92 nd Congress to establish a Department of Natural Resources or Natural Resources and Environment. The House Committee on Government Operations and Senate Committee on Government Affairs held hearings on the proposals. Problems of disrupting agency operations, and pros and cons of disrupting current interest group-agency relationships, were discussed by the witnesses. It was variously argued that a DNR could facilitate the implementation of national policies, but might stifle national discussions of policies by keeping the debates within one department. Finally, the DNR proposal was seen as likely to fragment congressional oversight of resource activities because more committees would have jurisdiction over portions of the department's functions. Despite the interest in reorganizing federal land and resource responsibilities, no bills were reported by committee during the 92 nd Congress. In June 1973, during the 93 rd Congress, President Nixon presented a revised reorganization proposal, with a Department of Energy and Natural Resources; however, the natural resources portion of the revised proposal was substantially the same as the previous proposal. Legislation was introduced, but no bills that would establish a new department with a natural resource focus were reported by committee in the 93 rd Congress. In 1976, Congress moved away from merging the BLM and FS by enacting FLPMA and NFMA—separate major management laws for the two agencies—signed into law on consecutive days. Congress explicitly retained and amended the separate management functions of the BLM in FLPMA. While much of the guidance for multiple-use, sustained-yield management in FLPMA was based on FS experience with the laws governing the national forests, substantial differences were enacted for BLM management of the public lands. Carter Administration President Carter established a comprehensive government reorganization project soon after he came to office, and one study centered on restructuring federal management of natural resources. On March 1, 1979, President Carter announced a reorganization plan to create a Department of Natural Resources from the existing DOI plus the USDA FS and the National Oceanic and Atmospheric Administration from the Department of Commerce. The FS, BLM, and the Conservation Division of the U.S. Geological Survey were to be combined into a National Forest and Land Administration. This reorganization was proposed under the authority of the Reorganization Act of 1946 (which delegated certain restructuring authority to the President), and was thus deemed not to require legislation. However, Members of Congress objected, arguing that the proposal exceeded presidential authority. The substance of the reorganization also raised congressional concerns. Both the House and the Senate Agriculture Committees held hearings on President Carter's reorganization plan. Many points, supporting and opposing the reorganization, were raised, but a recurrent theme was the potential dilution and/or degradation of FS expertise and professionalism if the agency were to be merged with the BLM, whose smaller staff managed more acreage. The substantial congressional opposition and other legislative priorities led Carter to withdraw the DNR proposal before any substantive congressional action had occurred. Reagan Administration On January 30, 1985, the Reagan Administration announced a proposal to exchange certain federal lands between the FS and BLM. This proposal did not involve a merger of the two agencies, as did the previous reorganizations. Instead, it was considered a land consolidation, with more than 25 million acres of land transferred to management by the other agency (10 million to the BLM and 15 million to the Forest Service). This proposed "interchange" would have required legislation to change the land jurisdictions, but sharing of personnel was to proceed administratively. Joint BLM/FS public hearings were held in the summer of 1985 in the areas affected by the interchange on the state-by-state implementation plans. The Administration proposed legislation to adjust the land jurisdictions in 1986 and completed a legislative environmental impact statement to support the proposal, but could not get the proposal introduced. Bush I Administration In a widely-publicized proposal in 1991, House Budget Committee Chair Leon Panetta proposed eliminating eight Cabinet departments by consolidating existing agencies and departments, including combining DOI, USDA, and the Department of Energy into a Department of Natural Resources. He introduced a bill in 1992 (102 nd Congress) to establish a Commission on Executive Organization to consider such a consolidation, but no hearings were held on the bill. Clinton Administration On March 3, 1993, President Clinton established the National Performance Review (NPR), headed by Vice President Al Gore. In September 1993, NPR released its report From Red Tape to Results: Creating a Government that Works Better and Costs Less . The DOI supporting report contained 14 recommendations, including DOI06: Rationalize Federal Land Ownership. This report recommended "trial pilot coordinated management areas, preferably watershed based." These tests were to address various concepts, including FS and BLM "cooperative ecosystem-based management, ... shared public service, administrative, and program activities ... [and] to reengineer ... public service activities to develop single processes used by both agencies." The report also recommended an evaluation after 18-24 months to assess if broader application was warranted and if legislation was needed to expand the applications. In 1997, the FS and the BLM began a cooperative program, known as Service First , that allows pilot tests of joint permitting and leasing programs, reciprocally delegating duties and responsibilities (e.g., allowing a BLM employee to conduct a cultural resource assessment for an FS timber sale), and co-locating facilities. The program was authorized for FY1998—FY2002 in the FY1998 Interior appropriations act ( P.L. 105-83 ). Specifically, § 331 states that: ... the Secretaries of the Interior and Agriculture may make reciprocal delegations of their respective authorities, duties and responsibilities in support of joint pilot programs to promote customer service and efficiency in the management of public lands and national forests: Provided, That nothing herein shall alter, expand or limit the existing applicability of any public law or regulation to lands administered by the Bureau of Land Management or the Forest Service. The authority was extended and expanded in § 330 of the Interior appropriations act for FY2001 ( P.L. 106-291 ) and amended to further extend and expand the program in § 428 of the Interior appropriations act for FY2006 ( P.L. 109-54 ); it is currently due to expire at the end of FY2008. The agency budget justifications and websites provide no data on the nature and extent of Service First projects.
|
The Forest Service (FS) in the Department of Agriculture and the Bureau of Land Management (BLM) in the Department of the Interior are both directed to manage lands for multiple uses and sustained yields, but their unique histories have led to different laws, regulations, practices, and procedures in managing resources. The similar missions and neighboring and intermingled lands in separate Cabinet departments have led to frequent proposals, dating back to 1911, to transfer one agency to the other department or to consolidate them into one agency. Proponents and critics cite various benefits and problems to a transfer or merger of the agencies. General questions over the nature of the change—which agency, if either, would remain and in which department—would affect the ramifications of a transfer or merger. Commonly cited benefits of a merger are possibly improved service to users and the public and greater efficiency in federal land management. However, such benefits are likely only if the legal authorities governing BLM and FS management and planning were consolidated, and this could be a daunting challenge. Furthermore, institutional differences, congressional committee jurisdictions, and compensation to state and local governments for the tax-exempt status of federal lands would complicate a merger. In some locations, the agencies are implementing a Service First program of joint facilities and cooperative management efforts as a step toward more efficient federal land management. The possibility of merging the BLM and FS has arisen most recently because of concerns that high and growing expenditures on wildfire suppression are affecting other land and resource management activities. A distinct, combined federal fire suppression agency, separate from both the FS and the BLM, would reduce the impact of wildfire costs on BLM and FS budgets, but wildfire is integral to most wildland ecosystems, and a separate fire agency would likely emphasize suppression, rather than management to reduce wildfire damages. This report is an update of out-of-print CRS Report 95-1117, The Forest Service and Bureau of Land Management: History and Analysis of Merger Proposals, by [author name scrubbed] and [author name scrubbed] (1995).
|
U.S. military operations as part of the Global War on Terrorism (GWOT) began on October7, 2001, and continue today. The military component is just one aspect in this endeavor, which alsoinvolves diplomatic, intelligence, law enforcement, and financial efforts to defeat terrorists aroundthe world. This report focuses on U.S. military operations in four areas -- Afghanistan, Africa, thePhilippines, and Colombia -- although the U.S. military is likely engaged in a variety of activitiesin other countries or regions that are considered part of the GWOT by the Administration. Whilesome consider military operations in Iraq as part of this war, many do not, and because of thecomplexity of this issue, Iraq is treated separately and in greater detail in other CRS reports. (2) Congress has a wide ranging interest in U.S. military operations in these regions. NATOassumption of responsibility for Afghanistan and its impact on U.S. military operations,counternarcotics operations in Afghanistan, and the apparently emerging long-term military strategyfor Africa -- raise a variety of issues for potential congressional consideration. (3) There are approximately 19,000 U.S. military personnel in and around Afghanistan. Troopscurrently in Afghanistan represent the sixth major troop rotation in Operation Enduring Freedom(OEF) since the United States became involved in the fall of 2001. At present, the majority of U.S.ground forces come from the Army's Italy-based 173rd Airborne Brigade and the 1st Brigade of theFort Bragg, North Carolina-based 82nd Airborne Division and Marine elements from the Second (II)MEF from Camp Lejeune, North Carolina. U.S. Special Forces are also operating in Afghanistanand are primarily concerned with capturing or killing Taliban and Al Qaeda leaders. In addition,Army units from the Florida National Guard's 53rd Infantry Brigade have been deployed to train theAfghan National Army (ANA). (5) Drawdown of U.S. Forces in Afghanistan. InDecember 2004, the Department of Defense (DOD) designated the 3rd and 4th Brigades of the 10thMountain Division from Ft. Drum New York and Ft. Polk, Louisiana and elements of the division'sheadquarters as the primary ground forces and command headquarters for OEF 7. (6) On December 20, 2005, DODannounced that one battalion-sized infantry task force from the 4th Brigade stationed at Ft. Polkwould deploy to Afghanistan to assist in the transition of coalition operations in southernAfghanistan in mid-2006 to NATO. (7) DOD attributes this reduction to NATO's growing presence inAfghanistan as well as continued growth and progress of the Afghan National Army (ANA) andAfghan National Police. (8) DOD's decision to deploy only a portion of the 4th Brigade is expected to bring U.S. troop levels --currently at approximately 19,000 -- to approximately 16,500; a reduction of 2,500 troops. (9) Security for Parliamentary Elections. U.S. andCoalition forces, in conjunction with the Afghan National Army (ANA) and National Police,provided security for Afghanistan's September 18, 2005 nationwide National Assembly andProvincial Council elections. Reports suggest that security efforts were relatively effective, despitea number of insurgent harassing attacks prior to the election, and about 16 of 6,270 elections stationswere not opened because of security-related problems. (10) Shortly after the elections, Afghan President Hamid Karzaireportedly questioned the need for further international military operations within Afghanistan,suggesting that instead a "stronger political approach focusing on shutting down guerilla trainingcamps and outside financial support" would be more effective. (11) President Karzai alsosuggested that airstrikes were no longer needed -- a view shared by many as airstrikes have beenresponsible for the deaths and injury of numerous Afghan civilians and has been a past point ofcontention between the United States and the Afghan government. Although insurgents failed to follow through on their vows to disrupt September's elections,U.S. military officials contend that the insurgents have recently reasserted themselves -- killinghundreds of civilians, government workers, soldiers and police in bombings and ambushes insouthern and eastern Afghanistan. (12) The commander of U.S. troops in Afghanistan, Army Lieutenant General Karl Eikenberry, reportedlysuggested that this pattern would continue and that U.S. and coalition forces would continue to stayon the offensive against insurgents. Operational Issues. Changing Insurgent Tactics? A number of reportsnote that in the past months, insurgent tactics have shown an increase in the use of suicide androadside bombings, not unlike the tactics being used by insurgents in Iraq. (13) There have been over 20suicide attacks in Afghanistan since September 2005 including car bomb attacks against U.S. andNATO convoys -- resulting in four NATO deaths -- as well as individuals with explosives strappedto their bodies throwing themselves at vehicles or detonating their explosives in crowds. Most ofthese bombings failed to hit their intended targets but instead killed or wounded Afghan civilians.In one of the more successful attacks, on September 28, 2005, an insurgent dressed in an ANAuniform, blew up a motorcycle near Afghan troops boarding transportation outside their base inKabul, killing 9 soldiers and injuring 28. A top Taliban commander reportedly stated that he hadmore than 200 insurgents willing to become suicide attackers against U.S. and allied forces but theAfghan government dismissed this claim as "propaganda"suggesting instead that this was anindication of the insurgent's weakening military power. While U.S. military officials postulate that insurgents no longer have a pool of resources tomount a serious offensive they also acknowledge that insurgent forces are "far from being on theropes." (14) The U.S.military asserts that the insurgents are recruiting younger fighters and staging smaller-scale attacks, often times using a hit-and-run approach as opposed to the major combat operations of the past.According to an unnamed Afghan source with supposed ties to Taliban insurgents, the Taliban havedivided up into groups of 18 to 20 fighters and in each unit there is an Al Qaeda member fromPakistan or an "Arab" who teaches the group tactics developed in Iraq. According to this source,"rogue" elements from Pakistan's Intelligence Service help to further refine these tactics as wellprovide these groups sanctuary and training in Pakistan, provided these groups return to Afghanistanto fight U.S. and allied forces. In instances where U.S. forces have engaged insurgents, they noted that insurgents were"extremely resolute and fought to the last man." Insurgents were also characterized as well-organizedand reacted well to battlefield situations. Despite this perceived proficiency, the U.S. Army claimsto have killed more than 1,200 insurgents in 2005 -- including a number of senior commanders. U.S.forces have reportedly used small U.S. formations such as platoons (16 to 50 soldiers)to draw outinsurgent forces, who will often "swarm" into larger formations to overwhelm the smaller U.S. unit.The smaller U.S. unit then engages the insurgent forces to "fix" it, while other infantry units andU.S. airpower engage and destroy it. Combat Operations Against Insurgents. U.S. andcoalition forces continue combat operations, primarily in the border provinces where the Talibancontinue to exert a degree of control. On August 31, 2005, U.S. and ANA forces, backed by attackhelicopters, raided a Taliban camp in the mountains of southern Afghanistan, killing nine suspectedinsurgents. (15) Thiscamp was believed to have sheltered 80 insurgents using it as a base camp to launch attacks inUruzgan province. (16) On September 4 and 5, U.S. and Afghan forces conducted raids in Zabol and Kandahar provinces,killing 25 suspected Taliban and capturing dozens more. (17) Pakistani Involvement. Prior to Afghanistan's September 18 parliamentaryelections, Pakistan reportedly deployed thousands of reinforcements to its borders to help preventinsurgent attacks. (18) According to Pakistani defense officials, about 5,000 additional troops were sent to the NorthwestFrontier Province and approximately 4,500 additional troops were sent to Baluchistan. (19) On September 13,Pakistan conducted an operation with thousands of troops and helicopter gunship support in NorthWaziristan, reportedly destroying a "major Al Qaeda hideout" and arresting 21 suspectedmilitants. (20) OnSeptember 29, Pakistan began a series of attacks in North Waziristan region and reportedlyencountered considerable resistance from insurgents, resulting in the deaths of at least five Pakistanisoldiers and an unknown number of insurgents. (21) Despite the significant presence of the Pakistani Army inPakistan's Tribal Zone bordering Afghanistan, the Taliban and Al Qaeda are said to be rallying inthe Waziristan region. (22) According to reports, there appears to be evidence that Arab, Uzbek, and Chechen fighters linkedto Al Qaeda are operating in that area and openly recruiting local tribesman to fight in their "jihad"against the Pakistani Army and U.S. forces in Afghanistan. (23) This has supposedlyresulted in fighting between local tribesman that have aligned themselves with the Pakistani Armyand those siding with the insurgent. (24) Renewed Fighting. U.S. and Afghan forces continuedoffensive operations against insurgents after Afghan parliamentary elections and on September 23coalition ground forces, backed by helicopter gunships, killed 14 suspected Taliban fighters inUruzgan province. (25) On September 24, a U.S. Army CH-47 Chinook helicopter was shot down by insurgents in southernZabul province, killing all five crew members. (26) On October 8, a U.S. soldier patrolling in Helmand provincestepped on a land mine and became the 200th U.S. service member killed in Afghanistan since theU.S. invaded in 2001. (27) On October 11 in Helmand province, insurgents ambushed a convoy of 150 Afghan police officers,killing 19 officers. (28) U.S. Desecration of Taliban Dead. In mid-October, allegations thatU.S. soldiers had burned the bodies of two dead Taliban fighters and then used their corpses forpropaganda purposes against the insurgents emerged after the event was broadcasted on Australiantelevision. (29) According to reports, U.S. soldiers from the 173rd Airborne Brigade burned the two bodies --supposedly for hygiene reasons as none of the local inhabitants would claim the bodies and affordthem a Muslim burial -- and then U.S. Psychological Operations soldiers used the bodies to tauntinsurgent fighters believed to be in the area. Cremation is prohibited by the Muslim faith and respectfor the body of the dead is also a central tenet of the religion. This act was strongly condemned byAfghan President Karzai and raised fears that such an act would further damage the United State'simage to Muslims, given the Abu Ghraib prisoner abuse scandal as well as other allegations ofprisoner abuse in both Afghanistan and Iraq. U.S. CENTCOM, which commands operations in Iraqand Afghanistan, quickly condemned the actions of the U.S. troops involved, reportedly stating that"desecration, abuse or inappropriate treatment of enemy combatants were never condoned and thatthese actions violated U.S. policy and the Geneva Convention." U.S. Army Major General JasonKamiya, the commander of Joint Task Force 76, the U.S.-led force that operates in eastern andsouthern Afghanistan, reportedly halted all tactical psychological operations the day after he wasinformed of the incident and ordered an immediate investigation. It is not known if those soldiersinvolved were punished for the incident, but extensive training was ordered to deal with what U.S.military officials described as an "emerging gap" between Afghanistan's Islamic culture and whatis permissible under the Geneva Convention. Continued Offensive Operations Against Insurgents. On October 16, U.S. forces - mainly U.S. Marines from the 3rd Marine Regiment, 3rd MarineDivision, from Kaneohe Bay, Hawaii - conducted a seven day battalion-level (800 Marines)offensive operation with about 300 ANA soldiers and U.S. Army forces and U.S. air support. (30) Dubbed Operation Pil (theDari word for "elephant") this operation was aimed at disrupting enemy activities and sanctuariesin Afghanistan's Kunar province. No U.S. troops were killed during the operation and there were noestimates of the number of enemy killed. On October 29, a U.S. and British soldier were killed - theAmerican during a patrol in Khost province and the British soldier while on patrol in the city ofMazar-e Sharif. (31) OnOctober 30, two U.S. soldiers with the Alabama National Guard's 926th Engineers were reportedlycharged with assaulting two Afghan prisoners and both soldiers -- still serving in Afghanistan --could face court-martial. (32) On December 5, two U.S. CH-47 Chinook helicopters were hitby enemy fire - one in Kandahar province and one in Uruzgan province - and made emergencylandings, resulting in minor injuries to their occupants. (33) On December 6, U.S. and Afghan forces reportedly killed nineTaliban insurgents in Uruzgan province and 13 insurgents were killed in joint operations inKandahar province on December 7. (34) On December 15, one U.S. soldier was killed during a firefightin Kandahar province and another was killed on December 28 by a roadside bomb while anotherwas killed in a vehicle accident. (35) According to reports, 2005 was the deadliest year for the U.S.military in Afghanistan with 91 service members killed as of December 29, 2005 by fighting andaccidents. (36) Predator Strike in Pakistan. On January 13, 2006, anarmed CIA Predator unmanned aircraft reportedly launched an airstrike on the Pakistani village ofDamadola near the Afghan border, possibly killing four top Al Qaeda leaders but also killing 13 Pakistani villagers -- sparking angry, nation-wide protests in Pakistan. (37) The target of the raid, AlQaeda's alleged second-in-command, Ayman al-Zawahri, apparently escaped or was not present atthe insurgent's meeting. Those four Al Qaeda leaders believed to have been killed in the raidincluded a supposed chemical weapons expert, a public relations and recruitment chief, and AlQaeda's operations chief responsible for planning attacks on U.S. and coalition forces on the Afghanborder. If these reports are true, some experts believe that this could be a significant blow to AlQaeda as these men were considered very experienced leaders who will be difficult to replace. Permanent Presence and Bases inAfghanistan? (38) There are indications that the United States may seek permanentmilitary bases in Afghanistan. The United States is upgrading military facilities in Afghanistan --primarily at the airbases of Bagram and Kandahar, which are currently being equipped with newrunways. At Bagram airbase, the United States hopes to have a new 11,800-foot runway built byMarch 2006, along with a hospital, and facilities to accommodate 1,000 service members. (39) At Kandahar airbase, U.S.forces are expanding and widening the damaged 7,900-foot runway for both military and civilian airtraffic. (40) Afghan leadersare said to be seeking a "long-term strategic partnership" with the United States and other friendlycountries to avoid a strategic disengagement by the international community like the West's 1990sdisengagement that helped to bring the Taliban to power. Senior U.S. military and governmentofficials have acknowledged that bases, and perhaps pre-positioned U.S. military equipment, are apossibility, but note that there are numerous regional sensitivities to such a plan. Some believe thatthe importance of these bases in Afghanistan was emphasized when Uzbekistan evicted the U.S.military from a key airbase in July 2005 -- a base that had been used to ship troops, equipment, andsupplies to forces to Afghanistan. (41) ISAF is a NATO-led organization, consisting of approximately 9,000 troops from 26 NATOnations, as well as troops from nine partner and two non-aligned countries. (42) The United States hasapproximately 200 troops assigned to ISAF, but these troops serve primarily in staff and supportroles. ISAF operates under a series of U.N. mandates and conducts security patrols in Kabul andsurrounding districts and runs several Provincial Reconstruction Teams (PRT) located throughoutAfghanistan. In addition, ISAF coordinates Civil Military Cooperation projects throughout the areaof operations. (43) ISAFcurrently does not participate in offensive operations against the Taliban and Al Qaeda -- theseoperations are carried out by the U.S.-led Combined Joint Task Force (CJTF)-180 and forces from19 other countries (44) (including some countries that have other forces assigned to ISAF) and the ANA. Current Situation. The Italian Rapid DeploymentCorps will command ISAF until May 2006 and then relinquish command to the British-ledmulti-national Allied Command Europe Rapid Reaction Corps (ARRC), which will command ISAFfor nine months. (45) InFebruary 2005, NATO agreed to expand ISAF coverage into southern Afghanistan, providingsecurity assistance to an estimated 50 percent of Afghanistan. (46) On September 28, theGerman Parliament voted in favor of extending Germany's mandate in Afghanistan until October2006 and will expand its forces assigned to ISAF from 2,250 to 3,000 troops. (47) France reportedlyannounced on December 18 that it would send an additional 450 troops by mid-2006 to support the600 French troops that are currently part of ISAF. (48) France also has about 200 special forces troops deployed insouthern Afghanistan. (49) Despite these commitments of additional troops, there continues to be a great deal of concernamongst certain U.S. allies about ISAF working more closely with the U.S. counterterrorism effortin Afghanistan. France, Germany, and Spain do not want ISAF leadership to also take overleadership of counterterror operations - a position supported by the United States and GreatBritain. (50) Reportedly,discussions were underway to find a way whereby France and Germany would permit NATO tocommand both ISAF and counterterror operations but not participate directly in theseoperations. (51) On November 14, Taliban insurgents killed a German ISAF member and wounded two othersin a suicide car attack in Kabul. (52) This attack, along with other recent incidents, have raisedsecurity concerns amongst NATO nations. The Netherlands, one of a reported thirteen nations thatwill lead NATO's expansion in 2006, has raised questions publically about the sufficiency of plannedNATO forces to handle serious trouble. (53) The Dutch plan to deploy about 1,000 to 1,400 troops tosouthern Afghanistan, and Britain and Canada are also expected to send additional forces to theregion; non-NATO members New Zealand and Australia might also provide forces for theexpansion. (54) OnJanuary 10, 2006, the Australian Defense Minister reportedly announced that Australia would sendan additional 110 special forces soldiers and two helicopters in support of 190 Australian troopsalready in Afghanistan. (55) By adding an additional 6,000 troops to the 9,000 already a partof ISAF, the United States may be able to decrease the number of forces it has in Afghanistan. In February 2005, NATO and the United States agreed to merge ISAF and the U.S.-ledOperation Enduring Freedom (OEF) under NATO command. (56) This merger is expectedto occur in mid to late 2006 and essentially involves NATO expansion into southern Afghanistanand other volatile regions of the country such as the Pakistani border region. Command arrangementsfor this merger and peacekeeping versus counterterror roles quickly became points of contention formany NATO countries who felt that placing both missions under a single NATO commander wouldbe counterproductive and that having NATO troops keeping the peace and at the same timeconducting combat operations against insurgents would result in widespread Afghan resentment andoverall mission failure. On November 14, NATO agreed to a plan where there would be a singlechain of command for all operations under an ISAF commander, but a deputy commander would bemade responsible for counterinsurgency operations. (57) Under this plan, NATO agreed that British, Dutch, andCanadian troops would spearhead NATO's move into southern Afghanistan while Germany wouldtake over the north, and Italy and Spain would retain responsibility for western Afghanistan. (58) Dutch Concerns Over Deploying to SouthernAfghanistan. The Netherlands currently has approximately 625 troops currentlyserving in Afghanistan and under NATO's expansion plan, are due to provide an additional 1,000to 1,400 troops to serve in Urzuzgan province in the south. (59) The Dutch government,based on a Dutch intelligence service report, are concerned that their forces may be operating in aparticularly dangerous area and have sought assurances that additional military support would beavailable in the event of significant levels of violence in the region. (60) The Dutch government hasgiven Parliament - who are reportedly deeply divided over the issue -- the authority to approve orreject the deployment and a vote on the issue is scheduled for February 2. (61) This situation is causingdifficulty amongst other NATO members, the majority of whom suggest that they would be"hard-pressed" to make up for the Dutch shortfall should the Dutch Parliament vote "No" to sendingforces to the southern region. (62) In this event, the United States, already operating in the region,might be required to make up for the shortfall of forces, possibly affecting recently announced plansto decrease force levels by 2,500 troops. NATO Secretary General Jaap de Hoop Scheffer, a formerDutch defense minister, is reportedly putting pressure on the Dutch government to honor its troopcommitment and former U.S. Ambassador to the Netherlands, Paul Bremer, reportedly suggestedthat the U.S. Congress might act against Dutch economic interests if Dutch troops are not deployedas planned. (63) While NATO Secretary General Jaap de Hoop Scheffer, stated that "NATO is committed forthe long term" in Afghanistan (64) some believe that a substantial U.S. military presence will berequired throughout the duration of the NATO-led mission to insure long-term NATO commitment.There are no treaty requirements for NATO members to contribute troops to Afghanistan and NATOhas had difficulties in the past trying to muster sufficient troops and military resources for operationsusing this "pass the hat" approach. Some question how effective NATO will be in its new role, particularly when many of its members are unwilling to place their troops in potentially hostilesituations and only a few member nations are willing to commit their forces to counterterror andcounterinsurgency operations. If only a few NATO's 26 members are willing to engage incounterterror and counterinsurgency operations, then NATO's ability to sustain these operations overan extended period -- against an insurgency that has shown a great deal of resiliency and has shownno signs relenting their attacks against coalition forces -- could be called into question. PRTs are small, civil-military teams originally designed to extend the authority of the Afghancentral government beyond Kabul and to facilitate aid and reconstruction projects. PRTs haveenabled coalition forces to extend a degree of security to outlying regions and have also permittedU.S. forces to establish personal relationships with local Afghan leaders which some believe hashelped to diminish insurgent influence in a number of regions. (65) As of July 2005, therewere 22 PRTs -- 13 supervised by the Coalition and nine by NATO. (66) The 13 PRTs run by theCoalition are located in the south and east -- generally considered to be moderate to high threat areas. Twelve of the PRTs are U.S. and one is run by New Zealand. The nine PRTs administered by NATOare located in the north and west in low to moderate threat areas and cover approximately 50 percentof Afghanistan. Efficacy of PRTs. While overall, the PRTs havebeen described as successful in accomplishing their main missions and have played an importantsupporting role in other endeavors such as training, counter narcotics, and election support, someNATO PRTs have been described as "risk averse" and overly controlled by their nation'spolitical-military leadership. If all PRTs eventually transition to NATO control, some question ifthey can perform as well as PRTs run by the United States and the United Kingdom. One senior U.S. defense official, acknowledging the record of success of PRTs, suggests thatPRTs operate in a "muddled" fashion which has prevented them from having a much greater effecton Afghanistan's future. (67) He attributes this lack of efficacy to four basic factors:inconsistent mission statements; unclear roles and responsibilities; ad hoc preparation; and -- mostimportantly -- limited resources both human, equipment and financial. (68) In order for PRTs toachieve their full potential the Defense official suggests the following improvements: Either create more PRTs or extend the operational reach of the current 22 PRTswith mini-PRTs into key districts throughout Afghanistan; Each PRT should be equipped the best communications possible, additionaltransportation assets, and receive substantially more funding for a diverse array ofprojects; PRTs need a broad range of development and civilian governance expertiseand civilians with the PRTs must have both the authority and resources to play a leadershiprole; The civil-military coordination on PRTs must improvesignificantly; PRTs need to improve their ability to measure the effectiveness of theiractivities. PRTs must determine what activities have the greatest impact on the locals by employinga more rigorous cause and effect analysis; and PRTs should place greater emphasis on capacity-building programs thatimprove local governance and help to link local officials and institutions to the Afghan centralgovernment. (69) Training of the ANA commenced shortly after U.S. and coalition forces defeated Talibanforces in early 2002. The Bonn II Conference on rebuilding Afghanistan in December 2002mandated a 70,000 strong Afghan National Army. (70) Although the Afghan National Army initially experienceddifficulties in terms of morale and desertion at its inception, most analysts agree that the multi-ethnicANA has developed into a credible fighting force and eight of the ANA's most experiencedbattalions have been deployed to bases in the provinces where they routinely work with U.S. andNATO forces. (71) WhileANA soldiers are described as "fearless fighters who learn very quickly," there have been somedifficulties to overcome. (72) U.S. military officials assert that Afghanistan's lack of aprofessional army for the past 13, years, a 20 percent literacy rate amongst recruits, no barracks ormodern equipment, plus an inadequate logistics system have hampered the growth of the ANA. (73) In February 2005, the U.S. military doubled the number of tactical trainers that are embeddedwith ANA units from 300 to 600 soldiers. (74) The majority of these U.S. trainers come from the U.S. ArmyNational Guard and about 16 of these trainers are assigned to each new ANA battalion and assist thebattalion as it undergoes its 14-week basic training course and then remain with the battalion, serving as leadership mentors when the battalion deploys for operations. (75) As of December 20, 2005,the Afghan Army reportedly consisted of almost 27,000 officers and soldiers supported by about55,000 members of the Afghan National Police. (76) While the U.S. military trains the soldiers for the ANA, Francealso assists in training senior officers; Britain trains the non-commissioned officers; and othercountries such as Romania and Mongolia train the ANA on its Soviet-era equipment such as artilleryand tanks. (77) OnOctober 9, Russia reportedly announced that it will supply the ANA with $30 million worth ofequipment - including four helicopters, dozens of vehicles, and communications equipment. (78) In March 2005, U.S.officials began training six ANA battalions simultaneously -- up from 4 battalions per trainingrotation, and they hope that the ANA will reach its mandated strength of 70,000 by the end of 2006-- a full year earlier than previously planned. (79) In addition to infantry units, the ANA has fielded two combatsupport battalions with a 122 mm towed D-30 artillery battery and 82 mm mortars. (80) The ANA has also fieldeda tank battalion, equipped primarily with T-62, T-55, and T-54 Soviet-era tanks, and is to eventuallyalso field a mechanized infantry battalion equipped with U.S.-made M-113 armored personnelcarriers. (81) The Afghan government reportedly seeks to equip its military with high-tech weaponry and develop specialized units. Afghan officials would like to acquire U.S. Apache helicopters, A-10ground attack aircraft, as well as transport aircraft and armored vehicles. (82) According to U.S. militaryofficials, the United States and Afghanistan are discussing the possibility of providing the Afghanmilitary with transport aircraft and helicopters. (83) The Afghans would also like for the United States to assist increating and training commando, engineer, and intelligence units for the ANA. (84) Afghanistan's opium industry is estimated to employ directly or indirectly anywhere between20 to 30 percent of the Afghan population and provides for almost 60 percent of Afghanistan's grossdomestic product (GDP). (86) The cultivation of poppies -- used in making opium for heroin-- which was regulated and taxed under Taliban rule, flourished after the elimination of the Talibanregime. (87) Accordingto a United Nations (U.N.) report, Afghanistan's poppy harvest rose by 64 percent in 2004 -- makingAfghanistan the world's leading source for opium and heroin. (88) In August 2005, the U.N.reported that opium production had decreased by 21 percent from its 2004 level but, even with thisdecrease, Afghanistan still ranks as the world's largest opium supplier, accounting for 87 percent ofthe world's supply, according to the U.N. (89) There is reportedly evidence that the Taliban are orderingincreased poppy production from Afghan farmers in remote regions beyond the government's controlas a means to make money to finance their operations and also to weaken the Afghan centralgovernment. (90) NATO'sSupreme Commander, U.S. Marine General James L. Jones, has reportedly stated that drugs are agreater threat to Afghan security than a resurgent Taliban. (91) In 2005, DOD increased its counternarcotics role in Afghanistan. The U.S. military inAfghanistan supported efforts by Afghan and U.S. agencies such as the Drug Enforcement Agency(DEA) by providing helicopter and cargo aircraft transport and planning and intelligenceassistance. (92) The U.S.Army has reportedly provided training to DEA agents deploying to Afghanistan on weapons, nightvision devices, and how to spot landmines. Britain is in command of the Coalition's military counternarcotics efforts in Afghanistan. Reports suggest that Britain will step up military efforts next year when the ARRC takes overcommand of ISAF and Britain deploys additional forces to Afghanistan. (93) British troops willsupposedly deploy to southern provinces as well as Helmand province in the southwest -- aninsurgent stronghold as well as the center of the country's opium trade. As part of thiscounternarcotics emphasis, Britain is reportedly establishing a joint intelligence fusion center withthe United States to focus on drug-related intelligence and British military officials are trying to gaina better understanding of the "Afghan narco-economy and its links to terrorism." (94) Largely facilitated byCongress, Colombia -- which has resumed diplomatic relations with Afghanistan -- is preparing toassist Afghanistan by providing its counternarcotics expertise to Afghan police and militaryforces. (95) Raids byAfghan police and Coalition forces have enjoyed mixed success, with large amounts of narcoticsbeing seized but often times drug producers and traffickers have eluded capture -- sometimes fleeingacross the border to Pakistan. (96) The U.S. military has only played a supporting role in counternarcotics operations inAfghanistan, despite recognition by some U.S. military officials that drugs are currentlyAfghanistan's primary security problem. With Britain supposedly taking a more active role incounterdrug operations and a decrease of U.S. military presence in southern Afghanistan, some assertthat the United States has all but ceded its counternarcotics responsibilities to NATO and the Afghancentral government. (97) NATO's Supreme Commander has reportedly stated that NATO does not have sufficient funds toaddress Afghanistan's drug trafficking and the Afghan government has been reportedly less thansatisfied with the international community's efforts, particularly in providing alternatives for farmerswho grow poppies. (98) Some suggest that a more aggressive policy towards the Afghan opium problem might be moreeffective in limiting insurgent activities by taking away a significant means of their financial support. The United States is deeply concerned about the potential for Africa to become a breedingground for terrorists -- citing its vast ungoverned spaces and unprotected borders. Somalia has beenreferred to as a "lawless haven for terrorists," (100) and reports suggest that Al Qaeda has opened recruiting basesin Nigeria, Somalia, Tanzania, and Uganda. (101) One report suggests that there is evidence of 17 trainingcenters in Kenya, possibly set up by groups related to Al Qaeda. (102) Others, however,disagree and contend that the region is not the terrorist zone that some U.S. officials assert. (103) These critics suggestthat there are some groups with ties to Al Qaeda in the region but no actual Al Qaeda groups or evenfranchise groups and that U.S. military and financial support to some of the region's military forcescould actually "fuel radicalism where it scarcely exists." (104) The U.S. European Command (U.S. EUCOM), which oversees military operations in mostof Africa, has reported that nearly 400 foreign fighters captured in Iraq have come from Africa andthat some of these veterans of Iraq are returning to places like Morocco and Algeria where theiracquired skills, such as operational planning and bomb making, could be used against theirrespective governments. (105) While terrorism is cited as the primary reason for U.S. militaryoperations in Africa, access to Africa's oil -- which presently accounts for 15 percent of the U.S. oilsupply and could reach 25 percent by 2015 -- is also considered a primary factor for growing U.S.military involvement in the region. (106) In October 2002, the United States established Combined Joint Task Force (CJTF) Horn ofAfrica (HOA) to combat terrorism in the region. For the purpose of this operation, the Horn ofAfrica is defined as "the total airspace and land areas out to the high-water mark of Kenya, Somalia,Ethiopia, Sudan, Eritrea, Djibouti, and Yemen." (107) CJTF-HOA is headquartered at Camp Lemonier in Djiboutiand consists of approximately 1,400 personnel including U.S. military and Special Operations Forces(SOF), U.S. civilian, and coalition force members. (108) In addition to CJTF-HOA, Combined Task Force (CTF)150is a naval task force consisting of ships from Australia, Canada, France, Germany, Italy, Pakistan,New Zealand, Spain, the United Kingdom and the United States, and has the task of monitoring,inspecting, boarding, and stopping suspect shipping not only in the Horn of Africa region, but alsoin support of Operation Iraqi Freedom. (109) Originally, the reported mission of CJTF-HOA was to conductraids on Al Qaeda targets in the region - particularly Somalia - but due to a lack of targets, themission has instead evolved into gathering intelligence, military training for some of the region'smilitary forces, and building infrastructure and goodwill to create an environment hostile to terroristorganizations. (110) A New Regional Command? DOD isreportedly considering putting Africa -- currently the responsibility of both U.S. European Commandand U.S. Central Command -- under a single, unified command. (111) U.S. EUCOM, basedin Stuttgart, Germany, is responsible for more than 90 countries, with 42 of these countries in Africa,while U.S. CENTCOM - primarily responsible for Afghanistan, Iraq, Iran, and other Persian Gulfcountries -- is responsible for Egypt, Sudan, Ethiopia, Somalia, Kenya, and Djibouti. U.S.CENTCOM, which is focused on wars in Afghanistan and Iraq, supposedly has little in terms ofmanpower and resources to devote to Africa and officials suggest that while such a proposal has beendiscussed for many years, that "the time has arrived to do something." One suggestion would involveexpanding the area that CJTF- HOA is responsible for, taking advantage of the command structurepresently in Djibouti. Some say this suggestion has merit as one official noted that "competingresources leave little room for new staffs and command elements." While CJTF-HOA might formthe basis for a new regional "U.S. Africa Command," analysts suggest that, at present, the commandis under-resourced and low on DOD's priority list -- noting that the command has only three CH-53transport helicopters and one C-130 transport at its disposal and the troops that are assigned toCJTF-HOA arrive on very short 4 to 6 month rotations. (112) While CJTF- HOA and Camp Lemonier may provide a basisfor such a command, most agree that additional personnel augmentation and resources would berequired. CJTF-HOA Change of Command. In 2006 theU.S. Navy will take over command of CJTF-HOA and assume responsibility for its mission fromthe U.S. Marines Corps, in part to free up Marine forces currently stretched by operations inAfghanistan and Iraq, (113) and the creation of a 2,500 Marine Special OperationsCommand. In addition, the United States has reportedly expressed an interest in expanding activitiesinto Uganda, Tanzania, and possibly Eritrea as well as bringing in troops from foreign nations intoCJTF-HOA, which has 15 officers from various nations serving on its staff but no foreign troopsunder its command. DOD is also reportedly looking for alternative sites for CJTF-HOAheadquarters, as Djibouti has reportedly doubled its yearly rent for the facilities at Camp Lemonierto $ 30 million U.S. dollars. Candidates for new headquarters locations include Ethiopia, Kenya, andUganda but each location has its own political sensitivities. U.S. officials note that CJTF-HOA couldbe headquartered on a U.S. Navy command ship at sea, such as the USS Mount Whitney, as it waswhen CJTF-HOA was first formed in 2002. The government of the Philippines, a long-time major non-NATO ally of the United States,faces an insurgency threat from four primary groups -- three Islamic groups who seek anindependent state in Mindanao and one Communist group which seeks a Marxist state. (115) One group inparticular, the Abu Sayyaf Group (ASG), has reported financial and training links to Al Qaeda andhas become the focus of the Administration's counterterror efforts in the region. (116) Estimates vary on thesize of Abu Sayyaf -- ranging from one thousand to a couple of hundred fighters -- and theiractivities were largely aimed at the Philippine government until 2001 when allegations emerged thatAbu Sayyaf had been involved in planning the assassination of the Pope during a planned visit to thePhilippines and also had plans to hijack and destroy 12 U.S. airliners. (117) Philippine authoritiesreportedly suspect that Abu Sayyaf had a role in the October 2002 bombing near a Philippinemilitary base, which killed three Filipinos and one U.S. Army Special Forces soldier. (118) Another group, the Moro Islamic Liberation Front (MILF), with an estimated 10,000 fighters,is presently involved in negotiations with the Philippine government, but there is reported evidencethat the MILF provides training facilities to the Al Qaeda affiliate Jemaah Islamiyah -- an Islamicgroup based largely in Indonesia. (119) U.S. military operations in the Philippines are limited by the Philippine constitution (foreignmilitary forces are not permitted to participate in combat operations on Filipino territory) toconducting training in counterinsurgency and counterterrorism tactics, advising Filipino units, andparticipating in civil-military operations. The focus of civil-military operations is to limit theinfluence of insurgents with the local population, particularly in the southern region where most AbuSayyaf and other Islamic insurgent group activity is focused. The United States has been conducting large joint training exercises with the Philippinessince 1981 called the Balikatan exercises (120) as well as a variety of other training exercises. On October 22,2005 the U.S. Navy's Forward Deployed Amphibious Readiness Group and the 31st MarineExpeditionary Unit (MEU) arrived in the Philippines to begin Amphibious Landing Exercise(PHIBLEX) 06. (121) In addition to amphibious operations, U.S. and Filipino military personnel also planned to conductcommunity service projects at a number of Filipino elementary schools and medical civil actionprograms during the exercise. On January 16, about 30 U.S. Army special forces soldiers from theFt. Lewis, Washington-based 1st Special Forces Group and about 250 Filipino soldiers began smallunit tactics, marksmanship, and combat lifesaver training about 560 miles southeast of Manila in anarea known to be frequented by Abu Sayyaf and Jemaah Islamiyah. (122) The U.S. specialforces units also planned to conduct medical missions in the local communities in an effort to winover the local Muslim populations. (123) The United States has frequently conducted lower-leveltraining exercises with specialized Filipino counterterrorism and counterinsurgency forces. (124) This training, typicallyinvolving no more than 100 U.S. Special Forces troops at one time, focuses on the training ofindividuals and small units on planning, tactics, and techniques and also on specializedcounterterrorism equipment provided to the Philippine Armed Forces. Reportedly, the United Stateshas also begun counter-drug training with the Philippines, which is considered a major drugtranshipment center and a major regional producer of marijuana. (125) The Balikatan exercise for 2006 is scheduled to start on Febraury 20 and run for two weeks,involving more than 5,000 U.S. military personnel. (126) In addition to ground, air, and naval exercises, U.S. andFilipino forces plan to conduct humanitarian, medical, and engineering operations on Jolo island-- an area where Islamic insurgents are particularly active. (127) Some suggest that U.S. involvement in the Philippines is part of a greater U.S. strategy tocombat Islamic terrorism throughout Southeast Asia. (128) Some U.S. officials reportedly believe that Abu Sayyaf andthe Moro Islamic Liberation Front have established connections with Jemaah Islamiyah, an Al Qaedaaffiliate operating across Indonesia and the Philippines, who are believed to be responsible for astring of bombings including Bali in 2002 and the Davao bombings in 2003. (129) A May 2005 reportsuggests that Abu Sayyaf has developed a "training relationship and operational alliance" withJemaah Islamiyah that could lead to new capabilities for Abu Sayyaf. (130) While some note therelative success of joint U.S.-Filipino training exercises in combating Abu Sayyaf, others warn thatincreasing U.S. involvement could "complicate" the Philippine's insurgency dilemma and alsopossibly fuel anti-American sentiment in the region, which could form the basis "of a newpan-Islamic solidarity in the region." (131) Some experts contend that not all militant Muslim groupsoperating in Southeast Asia are aligned with Al Qaeda, and it is important that U.S. counterterrorefforts in the region "do not motivate these potential affiliates to join the Al Qaeda cause." (132) Colombia occupies a unique position in the Administration's global war on terror in that itstargeted terrorist groups are Marxist as opposed to Islamic-based and have no reported links to AlQaeda or other Islamic groups. U.S. military involvement began in 2000 under "Plan Colombia" andwas limited to training Colombian counternarcotics units, although U.S. forces now train theColombian military in counterinsurgency operations. Colombia has been involved for almost fortyyears in what some describe as a civil war and others describe as a counterinsurgency campaignagainst three major groups. The first two groups, the Revolutionary Armed Forces of Colombia (FARC) and the National Liberation Army (ELN) started in the 1950s as Marxist revolutionarygroups but reportedly have lost most of their ideological support and have transformed into violentcriminal organizations. (134) The other group, the rightist United Self-Defense Forces ofColombia (AUC) is a conglomerate of illegal self-defense groups formed in rural areas where theColombian government did not exert a strong presence. (135) All three groups allegedly fund their activities through drugrevenues (136) and areon the Administration's official list of terrorist organizations. (137) These groups alsocurrently hold a number of Colombian and foreign hostages whom they use as negotiating leverage-- including three U.S. defense contractors who were taken by the FARC in February 2003 whentheir plane was shot down. (138) On December 12, 2005, the Colombian government said thatit would withdraw its forces from a contested area if the FARC would agree to talks intended toexchanged jailed rebels for 59 hostages being held by the FARC -- including the three U.S. defensecontractors. (139) The majority of U.S. military personnel in Colombia are from the U.S. Army's 7th SpecialForces Group stationed at Fort Bragg, North Carolina. About 200 special forces soldiers are currentlyserving as trainers, where they are limited to training in garrison and planning support atheadquarters, and another 200 troops provide "information support" providing intelligence,leadership, and planning support. (140) U.S. forces reportedly do not accompany or serve as advisorsto Colombian units conducting combat operations. (141) While some have criticized the military contribution made byU.S. trainers as "small," U.S. forces in Colombia claim that the training that they have provided tothe Colombian military has resulted in killing or capturing more than 600 insurgents, the confiscationof huge amounts of arms and ammunition, and the destruction of numerous drug labs. (142) On December13, 2005,a U.S. Navy SH-60B Seahawk helicopter crashed shortly after taking off from the frigate USSDeWert, killing its three-person crew. (143) The USS DeWert was reportedly involved in counterdrugoperations at the time of the helicopter's crash. (144) On December 12, after extensive negotiations, 1,923 members of the United Self DefenseForces of Colombia (AUC) demobilized, also surrendering a large arsenal of weapons andequipment, including two helicopters. (145) Reportedly, the demobilized fighters will receive a $168 permonth stipend from the Colombian government, as well as housing, healthcare, schooling, and newidentities to reintegrate them back into Colombian society. (146) Approximately 8,000AUC paramilitaries remain to be demobilized. (147) On December 16, the National Liberation Army (ELN) andthe Colombian government announced that talks had been convened in Havana, Cuba to begin aformal peace process. (148) The ELN is believed to have about 4,000 members and peacetalks held in 2003 failed, reportedly due to an inability to agree to a framework for negotiations. (149) The FARC, after having spent the last two years on the defensive as a result of the Colombiangovernment's "Plan Patriota" to recapture FARC-held territory, have launched an aggressivecountry-wide campaign against the Colombian government, likely aimed to influence Colombia's2006 presidential elections. (150) According to reports, the FARC has restructured from a larger"front" (about 100 or so guerillas) to companies of 54 and squads of 12 to avoid casualties inflictedby Colombian air force bombings directed by U.S. intelligence sources. The FARC has alsoincreased the use of improvised explosive devices, landmines, and snipers, particularly in areaswhere force ratios do not favor FARC offensive actions against government forces. Since February2005, more than 100 members of the Colombian military have been reported killed by the FARC and732 soldiers have been reported killed since January 2004 -- with more than a third of them killedby land mines and explosive devices. On December 27, 2005 the FARC reportedly killed 24Colombian soldiers who were protecting coca-eradication workers near the Town of Vista Hermosain southern Colombia. (151) This attack was preceded 10 days earlier by an attack thatkilled eight Colombian police officers and some suggest that these attacks will continue during therun up to Colombia's presidential primary in March 2006 and continue through the national electionin May. (152) Congress may opt to examine a number of issues concerning NATO's assumption ofcommand of ISAF and Operation Enduring Freedom in 2006. Some possible issues include: Is there a formal transition plan for the transfer of command toNATO?; What will be the U.S. military role in the NATO commandstructure?; How much say will NATO have in security and stability operations andoffensive operations designed to destroy the Taliban/Al Qaeda insurgency? Will NATO be able to"overrule" the United States or change existing policies? Will NATO assumption of command leadto a less vigorous pursuit of insurgents?; What are NATO's long-term plans to provide adequate forces for security andstability and offensive operations? Has NATO secured commitments from NATO members fortroops and military resources for at least the next ten years or will NATO continue to "pass the hat"to obtain forces needed for Afghanistan?; Does NATO have a comprehensive and effective counternarcotics plan forAfghanistan?; and Does NATO have a long-term strategy to transition all security and offensivemilitary operations to the Afghan government and its armed forces andpolice? Congress might act to review current Administration and DOD policy concerning the U.S.military role in Afghan counternarcotics operations. While the insurgency remains a threat, theperformance of the ANA and the progress made toward governance, suggest that the Afghan nationalgovernment and Coalition are successfully meeting these challenges. Some suggest that, despite theprogress made to date, Afghanistan's burgeoning drug trade has the potential to undermine theAfghan government and provide the Taliban with the financial resources needed to perpetuate theinsurgency indefinitely. The current U.S. military role in counternarcotics operations is limited to training, planningsupport, and the transport of police and troops. The rationale provided in the past for limited U.S.military involvement in Afghan counterdrug operations was that active involvement "was notachievable given U.S. force levels in Afghanistan" and that it could "significantly undermine itscounterinsurgency campaign." (153) While the United States has gone from a "no participation"policy to a supporting role, critics suggest that a more active role is now essential. Some suggest thatU.S. strategy in this regard is contradictory -- senior U.S. military leadership describes the Afghandrug trade as the most significant security problem facing Afghanistan yet it appears that somebelieve that the U.S. is ceding its responsibilities in counternarcotics operations at a time that suchefforts should be intensified. It is possible that Congress may explore in greater detail how Africa not only fits into theAdministration's long term strategy for the war on terror but also what the Administration's specificstrategy is for Africa, if such a strategy exists. While Combined Joint Task Force Horn of Africa(CJTF-HOA) has been in existence for almost three years, little is publicly known about theselong-term commitments to the region in terms of overall strategy and what resources -- both militaryand financial -- would be required to implement such a strategy, particularly if the Administrationintends to expand operations to other African nations. Congress may also choose to review with DOD, the prospects for establishing a separateregional command for Africa. While there appears to be a number of arguments favoring such acourse of action, there are also political and resource issues that might be examined in great detail.Security for such a headquarters, if it is placed in Africa, could also be a significant issue fordiscussion, given the volatile nature of the region. Removing Africa from U.S. CENTCOM's andU.S. EUCOM's responsibility could also have political and resource implications. Reports that Abu Sayaaf and Jemaah Islamiyah are developing a training relationship andoperational alliance suggest to some the potential for an increase in terrorist activities throughoutSoutheast Asia. While the majority of these activities would likely be against regional governments,the potential exists for attacks against U.S. concerns and citizens in the region. U.S. military presenceand ongoing operations in the region are considered by some as modest at best and might do littleto deter attacks or assist U.S. regional allies in pursuing those responsible. Given this possibility,Congress might act to review the adequacy of U.S. military forces in the region as well as theircurrent mandate in terms of training and advising regional military forces. Congress may decide to examine the progress being made against the FARC by theU.S.-trained Colombian military. While reports of demobilization and peace talks by the otherinsurgent groups are considered promising by some, others note that the FARC continues itscampaign against the Colombian government, adopting some of the tactics employed successfullyby insurgents in Afghanistan and Iraq. Some reports also suggest that while Colombian militaryoperations against the FARC have enjoyed a degree of success, that joint U.S.-Colombiancounternarcotics operations have done little to stem the supply of cocaine. (154) Critics note that profitsfrom drug operations finance the FARC and suggest that drastically reducing narcotics-related profitswould have a significant impact on the FARC's ability to sustain operations against the Colombianmilitary.
|
U.S. military operations in Afghanistan, Africa, the Philippines, and Colombia are part of theU.S.-initiated Global War on Terrorism (GWOT). These operations cover a wide variety of combatand non-combat missions ranging from combating insurgents, to civil affairs and reconstructionoperations, to training military forces of other nations in counternarcotics, counterterrorism, andcounterinsurgency tactics. Numbers of U.S. forces involved in these operations range from 19,000to just a few hundred. Some have argued that U.S. military operations in these countries areachieving a degree of success and suggest that they may offer some lessons that might be applied inIraq as well as for future GWOT operations. Potential issues for the second session of the 109thCongress include NATO assumption of responsibility for operations in Afghanistan, counterdrugoperations in Afghanistan, a long-term strategy for Africa, and developments in Colombia and thePhilippines. This report will not discuss the provision of equipment and weapons to countries wherethe U.S. military is conducting counterterrorism operations (1) nor will it address Foreign Military Sales (FMS), which are alsoaspects of the Administration's GWOT military strategy. This report will be updated on a periodicbasis.
|
India—South Asia's dominant actor with about 1.3 billion citizens and the world's third-largest economy by purchasing power—has been characterized as a nascent great power and "indispensable par tner" of the United States. Many analysts view India as a potential counterweight to China's growing international clout. For more than a decade, Washington and New Delhi have pursued a "strategic partnership." In 2005, the United States and India signed a ten-year defense framework agreement to expand bilateral security cooperation; in 2015, the agreement was renewed for another decade. Bilateral trade in goods and services has grown significantly, valued at over $115 billion in 2016, more than double the amount in 2006. Indians accounted for 70% of all H1-B (non-immigrant work) U.S. visas issued in FY2016, and more than 165,000 Indian students are attending U.S. universities, second only to Chinese. The influence of a relatively wealthy community of about 3 million U.S. residents of Indian descent is reflected in Senate and House India caucuses, among Congress's largest country-specific caucuses. President Barack Obama sought to build upon the deepened U.S. engagement with India that began under President Bill Clinton in 2000 and expanded under President George W. Bush. An annual, bilateral Strategic Dialogue, established in 2009, met five times before its September 2015 "elevation" as the "Strategic and Commercial Dialogue" (S&CD). Indian Prime Minister Narendra Modi—the Bharatiya Janata Party (BJP) leader who took office in May 2014—made his first visit to the United States as prime minister in September 2014, when U.S. and Indian leaders issued a vision statement entitled "Forward Together We Go." President Obama made his second state visit to India in 2015, becoming the first U.S. President to visit India twice while in office. The resulting Joint Statement's 59 points were the most extensive and detailed ever produced by the two countries. The two countries issued a new "Joint Strategic Vision for the Asia-Pacific and Indian Ocean Region," which affirms the importance of safeguarding maritime security and includes language that could be seen as directed at a Chinese audience, with direct reference to the disputed South China Sea. Following the second S&CD in August 2016, U.S. officials issued a Joint Statement with their Indian counterparts that expressed "deep satisfaction" with the course of bilateral ties. Cooperation has come through dozens of institutionalized dialogue mechanisms, as well as through people-to-people contacts; investment partnerships, infrastructure and "smart cities" collaboration; environment; science, technology, and space; health and education; persistent efforts to bolster a growing defense partnership through trade and joint exercises; and myriad cooperative initiatives in energy and climate. India's decades of economic growth and new status as a donor government have contributed to a reduction in U.S. foreign assistance to India over time, from more than $150 million in FY2005 to $85 million in FY2016. President Donald Trump's Administration has requested $33.3 million in aid for FY2018 (see Table 2 ). To date, the Administration has made public only one major policy change likely to affect aspects of the course and scope of the U.S.-India partnership: a June announcement of U.S. withdrawal from the Paris Agreement on climate change, discussed below. New Delhi is closely monitoring other potential shifts in U.S. policy. While the Trump Administration has yet to name key policy figures for South Asia—including an Ambassador to New Delhi and relevant assistant secretaries for the region at the Departments of State and Defense—analysts have speculated on President Donald Trump's potential approach to the region. To date, the President himself has offered only limited indicators of how he might engage India going forward, but in an initial telephone conversation with Prime Minister Modi he referred to India as "a true friend and partner in addressing challenges around the world." In a February phone conversation with his Indian counterpart, Defense Secretary James Mattis said the Trump Administration would build upon the "tremendous progress in bilateral defense cooperation made in recent years." During an April visit to New Delhi and other regional capitals, the President's National Security Advisor, H.R. McMaster, met with Prime Minister Modi and other top Indian leaders to convey to them "the importance of the U.S.-India strategic relationship" and to reaffirm India's designation as a Major Defense Partner. President Trump is scheduled to meet with the visiting Indian leader in the White House in late June. Numerous Indians appear to perceive President Trump as a "strong leader" with strident views on the threat posed by Islamist militancy. In this respect, many reportedly see in him a worthy partner for their own leader, one who may take a more adversarial posture toward India's key rival, Pakistan (recent reporting suggests that the President's Afghanistan policy may entail just this ). Some observers have thus anticipated what they refer to as a Trump-Modi "bromance" rooted in the two leaders' status as strong nationalists and their emphases on "majority grievance politics." However, expectations some have of personal bonhomie between the two leaders may be thwarted by substantive differences over immigration, trade, and relations with other countries, not least Iran, a major energy supplier for India. India's interest in continued immigration flows—especially as related to the movement of information technology (IT) professionals, and issuance of related H1-B and other visas to Indian nationals—has New Delhi wary of any restrictive new U.S. policies. Some Indians variously express concerns that the Trump Administration could strike a broad "G-2"-like deal with Beijing, that India may rank low on the White House's priority list, and that the U.S. President's India team may be thin and ill-prepared. Some observers have been comfortable with the Trump Administration's relative "silence" and "slow start" on India to date, with expectations that long-standing strategic considerations will continue to obtain and bring the two countries closer. Others note President Trump's sometimes combative style and warn that his "America First" policies and Prime Minister Modi's "Make in India" policies may prove difficult to reconcile. From a broad perspective, many independent analysts in both capitals express hope that the current U.S. Administration will continue the India-friendly approach taken by its two predecessors, perhaps especially to include an avoidance of the kinds of "transactional" expectations that, these observers argue, may impede progress. Regardless of policy preferences, most analysts in India stress the importance of having a consistent and credible U.S. actor in the region. President Trump's June announcement of U.S. withdrawal from the Paris Agreement on climate change generally was received poorly in India, where both government and private sector are focused in earnest on developing renewable energy sources (see the "Energy and Climate Issues" section below). During his announcement, President Trump singled out India, claiming that the country "makes its participation contingent on receiving billions and billions and billions of dollars in foreign aid from developed countries." The claim was later discredited. India's external affairs minister responded by telling reporters there was "absolutely no reality" in the U.S. President's allegations. U.S. immigration policies and laws, and signs of anti-immigrant sentiment in the United States, receive headline coverage in India, where concerns about new restrictions on the former and increasing incidence of the latter are acute. The U.S. Administration's immigration policies, especially as related to the H-1B visa for highly-skilled foreign workers, are watched closely in India (see also the "Temporary Workers in the United States" section below). In recent years, Indian nationals have accounted for the great majority of such U.S. visa issuances—70% in FY2016—as well as work visas for their spouses. Critics of the H-1B program, a grouping that has included President Trump, contend that there is no shortage of qualified American workers to fill domestic jobs and that technology companies could be more energetic in efforts to recruit them. This argument is contested by many sector executives, who report that the number of Americans with necessary skills is insufficient. The President's April Executive Orders that seek to ensure only the "most skilled and highest-paid" foreign workers receive U.S. visas are aimed at protecting American jobs in the IT sector. Indian opposition parties have urged Prime Minister Modi to press the American leader to reconsider his decision on limiting the issuance of H-1-Bs. Representatives of India's IT sector—which employs some 4 million Indians and finds 60% of its business in the U.S. market—seek to promote the idea that it is a net generator of American jobs and raises billions of dollars in annual U.S. local, state, and federal tax revenue. According to one widely-cited 2011 analysis published by the American Enterprise Institute, "Immigrants with advanced degrees boost employment for U.S. natives," with each H-1B worker creating an average of 1.83 jobs for Americans. Any relevant U.S. policy shifts raise new concerns for some Indian technology companies, as well as some other observers who see a link between any efforts to slow and/or reduce the issuance of such nonimmigrant work visas and the broader anti-immigrant advocacy seen in politics. Pending legislation in Congress would raise the minimum annual wage for H-1B holders, currently $65,000 ( H.R. 670 , for example, would double that to $130,000, but IT firms resistant to such increases reportedly seek to keep the level closer to $75,000). Some analysts argue that the higher wages could erode U.S. competitiveness and so result in a net loss of jobs. In February, an inebriated man in a Kansas bar reportedly verbally harassed two Indian nationals who were in the United States as tech workers on H-1B visas. The man reprtedly suggested they did not belong in the country before allegedly shooting both with a handgun, killing one and injuring the other. The incident sparked a wave of outrage in the Indian media, with many linking it to a perceived xenophobic populism in Donald Trump's presidential campaign (a similar incident in Washington state in March left a Sikh U.S. citizen of Indian origin with a gunshot wound). Alleged anti-immigrant hate crimes in the United States capture the attention of many in India, with attendant worries that the United States may be becoming less safe for India's visiting, students, scholars, and tech workers. Many prospective 2017 graduate students reportedly adjusted their plans as a result. Early 2017 growth data have dented India's claims to be the world's fastest-growing major economy, with China reclaiming the title, at least temporarily. India's growth rate in the first quarter of 2017 was 6.1%, bringing an annual rate of 7.1%, down from 8% the previous fiscal year. May 2017 marked the third anniversary of Narendra Modi's seating as India's prime minister, spurring numerous assessments of the self-proclaimed reformer's progress at the national level. Conclusions on Modi's performance to date are decidedly mixed; one representative accounting finds little movement on the opening of markets, but sees considerable progress on liberalization and the reduction of FDI restrictions. Moreover, the rapid expansion of India's work force—roughly 1 million new workers enter the market each month —lead to complaints of "jobless growth" and persistent worries that India's "demographic dividend" could become a "demographic debacle." In part, India's economic slowdown resulted from the Modi government's demonetization policy—implemented with two-hour's notice in November 2016—which was meant to cleanse the national economy of counterfeit and black market currency. It entailed the government's announcement that 500 and 1,000 rupee notes would cease to be legal tender. The policy likely was harmful to India's short-term economic growth. In the longer term, however, lack of consistently robust investment, traceable largely to the existence of large-scale nonproductive loans, may be behind an apparent sputtering in India's growth rate. Some analysts contend that only deeper reforms will allow the economy to expand faster, and that the federal government needs to further remove bureaucratic obstacles, strengthen judicial and dispute resolution bodies, and ease restrictive land and labor laws. India's domestic commerce has long been complicated by inconsistent levies among the myriad state governments. After years of debate, the federal government succeeded in passing new legislation to establish a uniform Goods and Services Tax (GST). In May, following lengthy negotiations among all state finance ministers, the federal Finance Ministry finalized the GST rate schedule for more than 1,200 items in 5 brackets, effectively creating a single market with a greater population than the United States, Europe, Brazil, Mexico, and Japan combined. Implementation is expected to begin within months, with many analysts optimistic about the potential spike in interstate trade that could result. Moreover, a newly implemented bankruptcy law may improve the attractiveness of India's credit markets, which currently house more than $100 billion in gross nonperforming loans. India's federal system provides significant power to the various states, and state-level politics has significant influence on both the course of national politics and on the relative levels of legal and regulatory constraints on commerce within the states. Elections to seat legislatures in five Indian states took place in March 2017, most notably in Uttar Pradesh (UP), the country's most populous state with more than 200 million residents and nearly 15% of parliamentary seats (see Figure 1 ). In an unexpected sweep, the BJP had won 71 of those 80 seats in the 2014 national elections—up from only 10 in 2009. The March polls were widely expected to provide a crucial measure of existing political support for the federal government of Prime Minister Modi and his party, especially in the wake of its controversial autumn 2016 "demonetization" policy. The long-dominant Indian National Congress Party, which had been ousted at the federal level in 2014, looked to the March elections as an opportunity to recover from recent setbacks. The relatively new and corruption-focused Aad Aami Party, which runs the Delhi state government, hoped to expand its base. Meanwhile, the large caste-based regional parties traditionally strong in UP saw the elections as a chance to push back against the "BJP wave." All of these contenders were disappointed when the BJP took 325 of UP's 403 legislature seats (the Congress Party was able to find some solace in displacing the BJP-allied government in Punjab). The win solidified the BJP's status as the country's dominant political party, as well as Modi's apparent status as the country's most popular politician. It also appeared to indicate that Modi in a strong position for reelection in 2019 federal elections. The UP win will most likely lead to a BJP majority in Parliament's upper house in coming years, potentially facilitating passage of pending economic reform legislation. Meanwhile, the results brought into high relief the weakened position of India's opposition parties. Numerous commentators argue that apparent the new dominance of Prime Minister Modi and the BJP bode poorly for the future of India's democratic and pluralist traditions. This relates to some of the human rights concerns expressed by some in the U.S. Congress, among others. Modi, a self-avowed Hindu nationalist, had a controversial past as chief minister of Gujarat, but as a national politician has postured himself as a provider of economic growth and development rather than as a religious ideologue. That posture may be changing in 2017: his decision to install a Hindu cleric and hardliner, Yogi Adityanath, as UP chief minister surprised and baffled analysts, with one U.S.-based observer calling it a "regressive choice" and another labeling it "interesting and risky." There are new fears of rising Hindu chauvinism among many in the country's large Muslim minority of roughly 200 million persons, as well as significant Christian and other minority communities. (See also the "Human Rights Concerns in India" section below.) India's long-held focus on maintaining "non-alignment" in the international system—more recently conceived by Indian officials as "strategic autonomy"—is, in the current century, shifting toward increased bilateral engagements, perhaps especially with the United States and with greater energy under the Modi government. At present, the most important state actors when India looks outward are Pakistan (which is often described by New Delhi as "an epicenter of terrorism" and urgent "threat") and China (a growing "challenge" now increasingly present in India's neighborhood). India shares lengthy disputed borders with both countries and sits astride vital sea lanes. New Delhi has long sought a permanent seat on the UN Security Council, a goal for which the U.S. government indicated support in 2010, when President Obama told a joint session of India's Parliament that he looked forward, "in the years ahead ... to a reformed UN Security Council that includes India as a permanent member." New Delhi today insists that it has all necessary credentials, as well as support from four of the five current permanent members (the outlier, China, has not publicly opposed). What follows is a brief review of five key Indian bilateral relations having direct bearing on perceived U.S. national interests, those with Pakistan, Afghanistan, China, Japan, and Iran. New Delhi is also pursuing an "Act East" policy in Southeast and East Asia that in some aspects dovetailed with the Obama Administration's policy of "rebalance" toward Asia. The India-Pakistan border and disputed territory of Kashmir have been sites for multiple wars and are regularly identified as a potential nuclear "flashpoint." Both countries formally claim sovereignty over the former princely state, with India controlling roughly two-thirds of that territory, including the Muslim-majority Valley region (see Figure 2 ). New Delhi has long been wary of close U.S.-Pakistan relations, especially those involving significant transfers of funds and equipment to the Pakistani military. The decades-long history of India-Pakistan rivalry and conflict is again in a delicate phase in the early 2017, with lethal gun and artillery duels across the Kashmiri Line of Control (LOC) that separates Indian and Pakistan forces more frequent. Since taking office in 2014, Prime Minster Modi's government has tread cautiously with Pakistan while some of his Hindu nationalist ministers have issued belligerent rhetoric about Pakistan's assumed status as a hotbed of anti-India terrorists. Sporadic high-level engagement was cut off in mid-2015, but year's end saw new signs of Indian willingness to negotiate, culminating with Modi's surprise Christmas Day 2015 visit to Pakistan. The opening of 2016, however, again brought the fragile process into question following a January attack on an Indian military base at Pathankot, Kashmir, by Pakistan-based militants that left seven Indian soldiers dead. Then, in September, 4 heavily-armed militants raided an Indian base in Uri, Kashmir, and killed 19 soldiers before dying themselves after a day-long gun battle. Following the latter attack, New Delhi claimed to have launched a "surgical strike" against militant targets in Pakistan-held Kashmir, spurring Islamabad to condemn India's alleged "naked aggression." New Delhi blamed both the Pathankot and Uri attacks on the Pakistan-based Jaish-e-Mohammed terrorist group and insists that the Islamabad government cooperate in bringing alleged conspirators to justice. Many analysts saw the attacks as expressions of opposition to the India-Pakistan peace process emanating at least in part from Pakistan's military and intelligence institutions. A top Trump Administration official recently noted Pakistan's "failure to curb support to anti-India militants" and made note of "New Delhi's growing intolerance of this policy." Violent street protests in India's Muslim-majority Jammu and Kashmir state spiked after the mid-2016 killing of well-known young militant leader Burhan Wani in a firefight with Indian security forces (the region's sovereignty is disputed by Pakistan, which has actively supported armed separatist militants there). Scores of protesters were killed and many others maimed by police using controversial "non-lethal" pellet ammunition. In the spring of 2017, new discord is emerging with apparently rising levels of anger among youth in the Kashmir Valley, as well as civilian support for insurgency. A new spike in street protests came in May with the killing of another well-known militant commander and childhood friend of Wani's. Most recently, India's military says it destroyed several militant outposts on the Pakistani side of the LOC (Islamabad denies the claim) and Pakistan says five Indian soldiers were killed in a June gun battle at the LOC (New Delhi denies the claim). The long-standing U.S. position on Kashmir is that the issue should be resolved between India and Pakistan while taking into account the wishes of the Kashmiri people. In April 2017, U.S. Ambassador to the United Nations Nikki Haley told reporters that the Trump Administration would seek to "find its place to be a part of" efforts to de-escalate India-Pakistan tensions, suggesting that the United States might alter its policy of not engaging in the bilateral dispute. While Pakistan welcomed the statement, India quickly rejected any notion of third-party mediation of what New Delhi insists is a strictly bilateral dispute. The U.S.-led effort to stabilize Afghanistan has faced numerous setbacks, and a top U.S. military commander told a Senate panel in February that U.S. and allied forces there face a "stalemate." New Delhi takes a keen interest in maintaining positive relations with the Kabul government, and India is the largest regional contributor to Afghan reconstruction, pledging at least $2 billion toward that effort since 2001. Indian leaders say they envisage a peaceful Afghanistan that can serve as a hub for regional trade and energy flows. Geography dictates that Afghanistan serve as India's trade and transit gateway to Central Asia, but Pakistan blocks a direct route, so India has sought to develop Iran's Chabahar Port on the Arabian Sea as a means of bypassing Pakistan (see Iran discussion below). By many accounts, India and Pakistan are vigorously jockeying for influence in Afghanistan, and high-visibility Indian targets have come under attack there, allegedly from Pakistan-based and possibly -supported militants. Indian leaders remain deeply skeptical of an apparent U.S. reliance on Pakistani interlocutors there and have taken some moves toward providing security-related assistance to the Kabul government. Many Indians now welcome a substantive and lasting U.S. presence in Afghanistan, a notable shift from only a few years ago. India's relations with China have been fraught for decades, with signs of increasing enmity in recent years. A brief, but bloody 1962 India-China War left in place what is among the world's longest disputed international borders, with Beijing today formally claiming the entirety of India's Arunachal Pradesh state as its territory, calling it "South Tibet." The Chinese also take issue with the presence of the Dalai Lama and a self-described "Central Tibetan Administration" and "Tibetan Parliament in Exile" on Indian soil. The Dalai Lama's April 2017 visit to the Buddhist temple in Tawang, Arunachal Pradesh, spurred Beijing to issue a formal protest, demanding that New Delhi "stop using the Dalai Lama to do anything that undermines China's interests." It was the first such protest in nine years, and India's insistence on allowing the visit may reflect a Modi government response to China's newly expanded investment in Pakistan. China has long been a major supporter of Pakistan—providing advanced weapons, nuclear technology, and fulsome foreign investment—and is increasing its presence in the Indian Ocean region in ways that could potentially constrain India's regional influence. The China Pakistan Economic Corridor (CPEC) is a Chinese initiative to develop energy, commercial, and infrastructure links between its western Xinxiang province and Pakistan's Arabian Sea coast. CPEC is a major facet of China's broader Belt and Road Initiative (BRI), also known as the One Belt One Road (OBOR). Formally launched in late 2014, the effort may see Beijing invest up to $60 billion in Pakistan. India formally objects to the BRI and refrains from any participation due to complaints that the transit lines run across territory claimed by India. Combined with ongoing Chinese outreach to other South Asian littoral states, notably including port projects in Sri Lanka and Bangladesh—and a recent sale of a pair of Chinese-built diesel-electric submarines to the latter—the CPEC and BRI have New Delhi watchful for further signs that Beijing seeks to "contain" Indian influence. By some accounts, China has shifted from establishing a presence in South Asia and the Indian Ocean region to seeking preeminence there, as manifested in the BRI, thus sharpening India-China competition. In 2017, two key issues appear to be obstructing a turn to friendlier India-China ties. One entails Beijing's status as the sole member of the UN Security Council refusing to allow the United Nations to designate Pakistani national Masood Azhar, leader of the anti-Indian terrorist group Jaish-e-Mohammed, as a "global terrorist" (China claims there is insufficient evidence to do so). Another grows from China's role as the most influential state to oppose India's accession to the Nuclear Suppliers Group, which many Indian analysts view as another of China's numerous efforts to prevent India from increasing its global influence and prestige. Despite these multiple sources of bilateral friction, China has emerged as India's largest trade partner in recent years. Greater Chinese investment capital, technology, and management skills is welcomed by many in India, and China has pledged to invest hundreds of billions of yuan in India over the next five years. New Delhi officials regularly state a desire to maintain non-adversarial, if not friendly relations with Beijing. In June, India (along with Pakistan) became a full member of the Shanghai Cooperation Organization (SCO). India's deepening engagement with Japan is an aspect of New Delhi's broader "Act East" policy. Relations only began to blossom in the current century after being significantly undermined by India's 1998 nuclear weapons tests. Today, leaders from both countries acknowledge numerous common values and interests as they engage in a "strategic and global partnership" formally launched in 2006. A bilateral free trade agreement was finalized in 2011. Japanese companies have made major investments in India over the past decade, most notably with the $100 billion Delhi-Mumbai Industrial Corridor project. U.S., Indian, and Japanese naval vessels held unprecedented combined naval exercises in the Bay of Bengal in 2007, trilateral exercises that continue. In 2015, then-Secretary of State Kerry hosted his Indian and Japanese counterparts for the inaugural U.S.-India-Japan Trilateral Ministerial, a dialogue that has sought to highlight the growing convergence of the countries' respective interests in the Indo-Pacific region and to be a platform for strengthened three-way cooperation. Indian Defense Minister Arun Jaitley was in Tokyo in May to discuss with his Japanese counterpart ways to further bolster their bilateral military engagement. India's relations with Iran traditionally have been positive and are marked by what successive governments in both capitals call "civilizational ties." As India has grown closer to the United States and other Western countries in recent decades, however, its Iran policy has become more nuanced. New Delhi fully cooperated with U.S.-led sanctions by significantly reducing its importation of Iranian oil before 2016, at some cost to its relationship with Tehran, and had previously withdrawn from a project to construct a pipeline to deliver Iranian natural gas to India through Pakistan (the "IPI" pipeline). Yet Iran remains a vital source of hydrocarbon fuels to meet India's booming energy needs, and New Delhi has committed some $500 million to develop Iran's Chabahar port, in large part to provide India with access to Central Asian markets bypassing Pakistan. Current uncertainty about U.S. policy may be causing significant delays in Chabahar's development, with international bankers reportedly unwilling to finance contracts that could run afoul of unilateral U.S. sanctions. The Obama Administration focused increased attention on development of closer U.S.-India defense relations during 2016; then-Secretary of Defense Ashton Carter was in India in mid-year for his fourth meeting with his Indian counterpart. The visit produced a Joint Statement reviewing "important steps" taken over the preceding year and identifying priorities for the next, including expanding collaboration under the Defense Technology and Trade Initiative (DTTI), supporting New Delhi's "Make in India" efforts to boost indigenous manufacturing, and new opportunities to deepen cooperation in maritime security and maritime domain awareness, among others. Before leaving office, Secretary Carter met with his Indian counterpart twice more, and departed lauding the strategic and technological progress made during his tenure. Proponents of deeper bilateral defense engagement—government officials and independent analysts, alike, in both capitals—expressed appreciation for the principal-level attention Carter brought to India within the U.S. government; some privately express alarm that may not be the case going forward. While DTTI engagement remains robust at the middle levels, the absence of senior-level confirmed appointees in several leadership positions in the U.S. administration is seen by some as likely to obstruct better progress, and there currently are no new arms sales in the pipeline meeting the threshold for congressional notification. President Obama recognized India as a "major defense partner" during Prime Minister Modi's June 2016 visit to Washington, DC, a designation allowing India to receive license-free access to dual-use American technologies that was formalized by Congress in December. The DTTI and Joint Technical Group (JTG) both met in New Delhi in mid-2016, with U.S. officials accompanied by representatives of several American defense firms. During the visit India inked a $1.1 billion contract to purchase an additional four Boeing P-8I Poseidon maritime patrol aircraft. The India-U.S. Defense Policy Group—moribund after India's 1998 nuclear tests and ensuing U.S. sanctions—was revived in 2001 and has met annually since. Its four subgroups—a Military Cooperation Group, a Joint Technology Group, a Senior Technology Security Group, and a Defense Procurement and Production Group—have met throughout the year. In 2005, the United States and India signed a ten-year defense pact outlining planned collaboration in multilateral operations, expanded two-way defense trade, increased opportunities for technology transfers and co-production, and expanded collaboration related to missile defense. In 2015, the pact was both enhanced and renewed for another ten-year period. U.S.-India security cooperation has blossomed in the 21 st century in a relatively new dynamic of both Asian and global geopolitics. This new U.S defense engagement with India has developed despite a concurrent U.S. rapprochement and military alliance with India's main rival, Pakistan. U.S. diplomats have rated military cooperation among the most important aspects of transformed bilateral relations, viewed the bilateral defense partnership as "an anchor of global security," and extoled India's growing role as a net provider of security in the Indian Ocean Region (IOR, see Figure 3 ). However, other observers call attention to what they view as significant and ongoing limitations on India's ability to fully embrace this role. Despite general optimism among U.S. officials and independent boosters about India's potential in this realm, some analysts contend that India's ability to influence regional security dynamics significantly will continue to remain limited in coming years and decades. Moreover, signs that "New Delhi remains a priggish suitor in the face of Washington's ardent embrace," as articulated by one analyst—a perceived Indian hesitance rooted largely in wariness about U.S.-Pakistan ties and an aversion to antagonizing China—may present further obstacles. Some Indian observers continue to express concern that the United States is a fickle partner on which India may not always rely to provide the reciprocity, sensitivity, and high-technology transfers it seeks, and that may act intrusively in defense affairs. This contributed to New Delhi's years-long political resistance to signing three "foundational" defense cooperation accords with the United States (more recently called "facilitating" agreements by U.S. officials): the Communications Interoperability and Security Memorandum of Agreement (CISMoA), the Basic Exchange and Cooperation Agreement for Geospatial Cooperation (BECA), and the Logistics Exchange Memorandum of Agreement (LEMoA). In what could represent a meaningful step forward in confidence-building between the two defense establishments, New Delhi in August 2016 signed a LEMoA. The accord has yet to be operationalized, however, and reports suggest that New Delhi is showing little interest in finalizing a CISMoA or BECA. Since 2002, the United States and India have held a series of increasingly complex combined bilateral exercises involving all military services. Such engagement has been a key aspect of U.S.-India relations in recent years—India now conducts more exercises and personnel exchanges with the United States than with any other country. Navy-to-navy collaboration—with annual, large-scale, and now multilateral "Malabar" joint exercises—appears to be the most robust in terms of exercises and personnel exchanges. Operational readiness focuses on humanitarian relief and disaster assistance in the IOR. The 2015 iteration saw Japanese naval units rejoin the exercise after an eight-year hiatus, establishing a more formal trilateral effort; 2016 Malabar exercises saw phases in both the East China and Philippine Seas, near contested South China Sea waters. With renewed talk of a "maritime quadrilateral" that would incorporate Australian naval forces, Chinese analysts have taken an even more acute interest in the development, and the Beijing government has made its displeasure known. Along with major annual naval exercises, regular "Red Flag" air-to-air combat exercises allow U.S. air forces to engage late-model Russian-built Indian platforms, and "Yudh Abhyas" Special Forces simulations, held annually in jungle or mountain settings to mutually develop counterinsurgency and counterterrorism combat skills, have grown from platoon- to battalion-level exercises since their 2004 inception. Pentagon officials typically praise Indian performance in such engagements. Defense trade is another key new aspect of the bilateral relationship, with India now a major purchaser in the global arms market and a lucrative potential customer for U.S. companies. Under the Obama Administration, the United States sought to help India modernize its defense capabilities and technologies so that New Delhi could "carry out its expanding global role." India's military is the world's third-largest, and New Delhi seeks to transform it into one with advanced technology and global reach, reportedly planning up to $100 billion on new procurements over the next decade to update its mostly Soviet-era arsenal. The two nations have signed defense contracts worth about $11 billion since 2008, up from $500 million in all previous years combined. U.S.-based firms Lockheed Martin and Boeing have made proposals to the Indian government on the potential co-production on Indian soil of advanced F-16 or F/A-18 combat aircraft (see text box below). In November, India signed a long-awaited $737 million contract to purchase 145 M777A2 ultralight howitzers built primarily by a Mississippi-based subsidiary of Briton's BAE systems. Washington has in recent years sought to identify sales that can proceed under the technology-sharing and co-production model sought by New Delhi while also urging reform in India's defense offsets policy. In 2016, New Delhi announced a new policy—"Defense Procurement Procedure 2016"—that is geared toward creating new partnerships for indigenous defense firms, rather than mere weapons purchase agreements. Under the rubric of "Make in India," priority will be given to indigenously designed, developed, and manufactured hardware. For many observers, reform of India's defense procurement and management systems—including an opening of Indian firms to more effective co-production and technology sharing initiatives—is key to continued bilateral security cooperation, making high-level engagement on the DTTI a priority. Former Secretary Carter—who led the U.S. DTTI delegation in his previous role as Deputy Secretary—called the initiative complementary with India's Make in India effort. Progress has been identified in the areas of jet engine manufacturing, and aircraft carrier design and construction, among others. Both Washington and New Delhi have reported effective cooperation in the areas of counterterrorism and intelligence sharing, and the January 2015 Joint Statement included a bilateral commitment to make the partnership "a defining counterterrorism relationship for the 21 st century" that will combat the full spectrum of terrorist threats. Homeland security cooperation has included growing engagement between respective law enforcement agencies, especially in the areas of mutual legal assistance and extradition, and on cyberterrorism. Terrorist groups operating from Pakistani territory are of special interest, with Washington and New Delhi pursuing "joint and concerted efforts to disrupt" those entities. The inaugural U.S.-India S&CD of 2015 had seen then-Secretary of State Kerry and Indian Minister of External Affairs Swaraj issue a stand-alone "U.S.-India Joint Declaration on Combatting Terrorism" meant to pave the way for greater intelligence sharing and capacity-building. With the August 2016 S&CD summit, the Joint Statement even more directly than before emphasized bilateral attention to Pakistan-based threats, as the two sides reiterated their condemnation of terrorism in all its forms and reaffirmed their commitment to dismantle safe havens for terrorist and criminal networks such as Da'esh/ISIL, Al-Qa'ida, Lashkar-e-Taiba, Jaish-e-Mohammad, D Company and its affiliates and the Haqqani Network. [They] called on Pakistan to bring the perpetrators of the 2008 Mumbai and 2016 Pathankot terrorist attacks to justice. In mid-2016, both governments welcomed cooperative initiatives to combat the threat of terrorists accessing and using nuclear and other radiological materials, exchange terrorist screening information, expedite mutual legal assistance requests, and develop further counterterrorism exchanges and programs. Bilateral law enforcement cooperation has come through the India-U.S. Homeland Security Dialogue, an engagement deferred several times in 2016. The U.S.-India Cyber Dialogue's fifth meeting, in September 2016, was a whole-of-government session to "exchange and discuss international cyber policies, compare national cyber strategies, enhance efforts to combat cybercrime, and foster capacity building and R&D, thus promoting cybersecurity and the digital economy." The U.S. and Indian governments have seen a shared threat emanating from at least one indigenous Indian terrorist organization: the Indian Mujahideen (IM), described as having close links to other U.S.-designated Foreign Terrorist Organizations (FTOs) based in Pakistan. Myriad Islamist militant and terrorist groups—most of them operating from Pakistan or Afghanistan—also are identified as mutual threats. These include Al Qaeda (with an Indian-oriented affiliate, Al Qaeda in the Indian Subcontinent (AQIS)), and the Islamic State (IS, also known as ISIL, ISIS, or the Arabic acronym Da'esh ), with a foothold in eastern Afghanistan and active across the Afghanistan-Pakistan border as ISIL-Khorasan, but appearing to have a nominal presence in India to date. Numerous anti-India FTOs originate and continue to be active in Pakistan. Despite some reports of progress in the areas of intelligence and counterterrorism cooperation—in 2016, Secretary Kerry told an Indian audience that American and Indian intelligence agencies "now exchange information constantly" —there has been asymmetry in the willingness of the two governments to move forward: Washington has tended to want more cooperation from India and is willing to give more in return, while it appears that officials in New Delhi remain hesitant and their aspirations are more modest. Indian wariness is likely to some degree rooted in lingering distrust of U.S. intentions, not least in Washington's ongoing security cooperation with Pakistan. Structural impediments to future cooperation also exist, according to observers in both countries. Perhaps leading among these is that India's state governments are the primary domestic security actors, and there is no significantly resourced and capable national-level body with which the U.S. federal government can coordinate. India conducted what it termed a "peaceful" nuclear explosive device in 1974; New Delhi tested such devices again in 1998. According to public estimates, the country appears to have been increasing its nuclear arsenal, which currently consists of approximately 110-120 warheads, and continues to produce weapons-grade plutonium. Its ballistic missile arsenal can deliver warheads on targets more than 5,000-km away—a range that encompasses China's eastern population centers. It includes air, sea, and land-based platforms, with India having completed this triad with successful submarine launches in late 2016. New Delhi has stated that it will not engage in a nuclear arms race and needs only a "credible minimum deterrent," but India has never defined precisely what this language means. New Delhi has neither acceded to the nuclear Nonproliferation Treaty (NPT) nor accepted International Atomic Energy Agency (IAEA) safeguards on all of its nuclear material and facilities. U.N. Security Council Resolution 1172, adopted after New Delhi's 1998 nuclear tests, called on India to accede to the NPT and take other actions which New Delhi has refused, such as ratifying the Comprehensive Test Ban Treaty (CTBT) and refraining from developing nuclear-capable ballistic missiles. According to an Indian official, "India attaches the highest priority to global, non-discriminatory, verifiable nuclear disarmament and the complete elimination of nuclear weapons in a time-bound manner." Indeed, New Delhi has issued proposals for achieving global nuclear disarmament. For example, a 2007 working paper to the Conference on Disarmament (CD) called for the "[n]egotiation of a Nuclear Weapons Convention prohibiting the development, production, stockpiling and use of nuclear weapons and on their destruction, leading to the global, non-discriminatory and verifiable elimination of nuclear weapons with a specified timeframe." India's Permanent Representative to the CD reiterated this proposal in March 2017. Additionally, India has, despite its refusal to sign the CTBT, committed itself to a voluntary unilateral moratorium on nuclear testing. Some observers see a "slow-moving" nuclear arms race between India and Pakistan. Islamabad is expanding its nuclear arsenal, which probably consists of approximately 130-140 nuclear warheads, according to one estimate. U.S. officials have expressed concern that a conventional conflict between India and Pakistan could result in those countries' use of nuclear weapons. India and Pakistan do have some measures in place designed to help prevent nuclear conflict. For example, the two governments agreed in 2004 to establish a "dedicated and secure hotline" between the two Foreign Secretaries "to prevent misunderstandings and reduce risks relevant to nuclear issues." The two countries also notify each other of imminent missile test in advance in accordance with an October 2005 bilateral missile pre-notification agreement. Following Washington's urging, the Nuclear Suppliers Group (NSG) decided in 2008 to exempt India from the portions of its export guidelines that required India to have comprehensive IAEA safeguards. The United States subsequently agreed to support India's membership in the group. According to a November 8, 2010, White House fact sheet, the United States "intends to support India's full membership" in the NSG, as well as the Missile Technology Control regime (MTCR), the Australia Group, and the Wassenaar Arrangement "in a phased manner and to consult with regime members to encourage the evolution of regime membership criteria, consistent with maintaining the core principles of these regimes." India became a member of the MTCR in June 2016. The United States has continued to express support for India's membership in the other three export control regimes. The Trump Administration is reviewing this policy. The NSG has discussed India's membership on several occasions, but has not yet decided on the matter. New Delhi appears not to meet the group's membership criteria. "Factors taken into account for participation" in the NSG include adherence to and compliance with the NPT, one of the treaties establishing Nuclear-Weapon-Free Zones, or "an equivalent international nuclear non-proliferation agreement," according to the NSG. Similarly, the Wassenaar Arrangement's Guidelines and Procedures specify a number of factors for consideration "[w]hen deciding on the eligibility of a state for participation," one of which is "adherence" to the NPT. Participation in the Australia Group does not appear to include this requirement. The United States has viewed India—one of the world's fastest-growing economies and its third-largest on a purchasing power parity (PPP) basis—as an important strategic partner in advancing common interests regionally and globally. In a January 2017 call between President Trump and Prime Minister Modi, the two sides discussed "opportunities to strengthen the partnership between the United States and India, including the economy.... " Despite its large economy and population, India is a relatively small U.S. trading partner. Two-way goods and services trade between the United States and India stood at about $115 billion in 2016 ( Figure 1 )—about one-fifth of U.S.-China goods and services trade that year. India ranked as the 9 th largest source of U.S. goods imports and 18 th largest goods export market. It is also a top U.S. partner for trade in services. Meanwhile, the United States is India's largest country destination for goods exports (the EU as a whole is India's largest destination) and second largest source of goods imports after China. Many observers contend there would be potential for greater bilateral trade between the United States and India if India's extensive trade and investment barriers were lessened. In 2013, the two countries expressed interest increasing their annual bilateral trade five-fold to $500 billion, including through increased engagement and initiatives. However, India's uneven economic reform and the limited effectiveness of bilateral engagement present potential obstacles to further expanding U.S.-India commercial ties. India has made strides in trade liberalization since it began adopting market-oriented reforms in the 1990s. Under the Modi government, India's Foreign Trade Policy for 2015-2020 aims to increase India's exports of goods and services globally from $466 billion in 2013-2014 to about $900 billion by 2019-2020 and to raise India's share in world exports from 2% to 3.5%. The Modi government has announced a number of domestic initiatives, such as Make in India, Digital India, and Smart Cities, to support India's manufacturing sector and promote jobs. These initiatives may support new foreign investment opportunities. Nevertheless, protectionist policies persist in India. Some observers have attributed this to India's poverty challenges, concerns about the international competitiveness of its manufacturing and agriculture sectors, and regional economic competition with China, with which India has a large merchandise trade deficit. President Trump's call for a shift in the direction of certain aspects of U.S. trade policy raises further questions about the prospects for enhancing bilateral trade and investment. Enforcement of U.S. trade laws is a key trade priority for the Administration, with a focus on addressing "unfair" trade practices. In one development, on March 31, 2017, President Trump directed key agencies to prepare a report within 90 days on significant trade deficits with U.S. trading partners, including a focus on unfair trade practices and the impact of the trade deficit on U.S. production, employment, wages, and national security. The U.S. merchandise trade deficit with India was $24.4 billion in 2016—the 10 th largest. The United States and India have engaged on trade and investment issues internationally in a number of ways. The Trump Administration may continue past forms of engagement and/or pursue new ones. Potential avenues for moving forward include the following. The Trade Policy Forum (TPF), chaired by the U.S. Trade Representative (USTR) and the Indian Minister of Commerce and Industry, has been a prominent bilateral dialogue in the relationship. The USTR's 2017 Trade Policy Agenda states that the United States plans to partner with India on issues of mutual interest ahead of the 2017 TPF. The TPF could provide a key forum to engage on bilateral trade issues. Some stakeholders see dialogues themselves as progress in a trade relationship that can sometimes be fractious, while others are keen to see dialogues yield more tangible outcomes. Other bilateral dialogues include the CEO Forum, which allows U.S. and Indian business leaders to discuss issues of joint interest and develop recommendations to both governments on commercial issues. Since 2009, the United States and India have engaged in negotiations on a BIT, though momentum has been uneven and negotiations presently appear to be stalled. The United States pursues BITs to obtain commitments on market access and rules to promote investment and protect investors, enforced by investor-state dispute settlement (ISDS), which enables investors to take host states to arbitration for alleged violations of obligations. In recent years, each side has reviewed and revised its model BIT, the template it uses for investment negotiations. India's Model BIT, for instance, requires investors to exhaust domestic judicial remedies before seeking ISDS arbitration, which the U.S. approach has not required, in part due to the potential bias foreign investors may face when seeking redress in the host state's domestic court. If negotiations resume under the Trump Administration, questions persist about whether the two countries can bridge key differences in their model BIT templates. Separately, India announced its intention to replace its existing BITs with new treaties based on its new Model BIT. India's posture may reflect, in part, ISDS claims it has faced in recent years under current investment treaties. As World Trade Organization (WTO) members, the United States and India negotiate multilaterally to liberalize trade, but their differing views on key issues have impeded the Doha Round. Many issues remain outstanding. One breakthrough was the 2013 WTO "Bali package" which included a new Trade Facilitation Agreement (TFA) to remove customs barriers. The TFA entered into force in February 2017 with ratification by two-thirds of WTO members, including the United States (January 2015) and India (April 2016). In other developments, India proposed negotiating a new WTO "services TFA" to address temporary entry and stay of natural persons, cross-cutting issues of transparency, and other services trade issues. Such issues could touch on especially politically sensitive aspects of U.S.-India trade relations. Yet, India is not participating in the plurilateral Trade in Services Agreement (TiSA) negotiations outside the WTO among the United States and 22 other WTO members, as India favors engaging under the WTO framework and the Doha Round. Outcomes for the 11 th WTO Ministerial in December 2017 are uncertain. The Trump Administration's position on potential WTO issues is unclear. India's priorities include reaching a permanent solution on public stockholding for food security purposes. The United States and India also are active users of the WTO dispute settlement process to address trade-related complaints with each other based on their WTO obligations. (See examples below.) The United States has 14 FTAs in force with 20 countries, but not with India, which has its own network of trade agreements. The two sides have been involved in separate regional integration efforts. The United States and 11 other Asia-Pacific countries (not including India) signed the Trans-Pacific Partnership (TPP) in February 2016, but the Trump Administration, which has stated a preference for negotiating bilateral rather than multi-party FTAs, withdrew the United States as a signatory in January 2017. India reportedly viewed TPP with caution, wary of potential trade diversion such as for the apparel and textiles sector and labor-intensive sectors. India, for its part, has been involved in ongoing negotiations for a Regional Comprehensive Economic Partnership (RCEP) with China, the ASEAN countries, Japan, South Korea, Australia, and New Zealand. RCEP is not expected to be as extensive commitments as TPP on tariff liberalization and other areas. Some observers hold that India's cautious approach to RCEP, motivated in part by concerns about expanding market access to China, may dilute any final agreement. While TPP partners may move forward with an agreement similar to TPP, some analysts contend that a lack of U.S. participation may mean that RCEP (if completed) could take a more prominent role in establishing regional trade norms. Through these various avenues, the United States and India have sought to address a range of issues present in their bilateral trade and investment relationship. Key issues include the following. India has comparatively high average tariff rates. Under WTO commitments, India's simple average bound tariff rate is significantly higher than its simple average most-favored-nation (MFN) applied rate ( Figure 5 ), which fuels uncertainty for U.S. businesses because India can make adjustments to its tariff regime. For example, India has adjusted upwards the tariffs it applies on telecommunications equipment imports in recent years (from 0% to 7.5% or 10%). India also maintains high duties on medicines (over 20% in some cases). India's agricultural tariffs are much higher than its non-agricultural tariffs. For example, by product group, India's average MFN rate is 68.6% for beverages and tobacco and in the 30% range for animal products, dairy products, and cereals and preparations. India's central government has been working with state governments to adopt a national goods and services tax (GST) to replace various central and state-level indirect taxes, including charges on imports, which could streamline India's complex tax structure. India plans to implement the GST in mid-2017. U.S. firms face various barriers to accessing India's services market. These include India's limits on foreign ownership, such as in financial services and retail; local presence requirements, such as in banking and insurance; restrictions on foreign participation, including in education and legal services; and other regulatory issues. India also remains critical of the effect of U.S. temporary visa and social security policies on Indian nationals working in the United States . In March 2016, India filed a WTO dispute settlement case against the United States , alleging that certain U.S. fees for worker visas violate WTO General Agreement on Services (GATS) obligations. The United States has asserted that its visa program is WTO-consistent. As noted above, Indian officials have expressed concerns about legislation pending in the 115 th Congress to revise H-1B visa categories for professional specialty workers. India continues to seek a "totalization agreement" with the United States to avoid dual taxation of income of Indian workers in the United States. A Social Security ("totalization") agreement would allow the United States and India to coordinate the collection of payroll taxes and payment of benefits under each country's Social Security system for workers who split their careers between the two countries. The two sides, under the Obama Administration, resolved to continue discussing the elements required for such an agreement. In addition to tariff and non-tariff barriers, including sanitary and phytosanitary (SPS) standards in India, limit market access for U.S. agricultural exports. The United States challenges SPS barriers when they are not based on a scientific, risk-based perspective. The WTO Dispute Settlement Body (DSB) decided in 2015 that India's ban on importing U.S. poultry and live swine due to avian influenza concerns violated the WTO SPS Agreement. India's purported compliance with the decision remains a point of debate in WTO proceedings, as the United States has argued that India's revised import measures are not based on a scientific risk assessment or international standards. Other issues include each side's views of the other's agricultural support programs as market-distorting. India's view of its subsidies as a food security issue complicates matters. The treatment of IPR is a major bilateral trade issue. Many U.S. business groups and some Members of Congress remain concerned about what they see as the inadequacy of India's IPR protection and enforcement. U.S. Trade Representative Robert Lighthizer said he was committed to addressing India IPR issues during his nomination hearing for the USTR position. Both countries adhere to the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), but their views differ on the approach to IPR protection. India remained in 2017 on the Priority Watch List of the "Special 301" annual report by USTR tracking U.S. trading partners' IP protection and enforcement practices. The 2017 Special 301 Report acknowledged some developments in India welcomed by the United States, such as India's efforts to improve its trade secrets regime and state-level IP enforcement actions. At the same time, the report emphasized ongoing concerns with India's IP regime. In the case of patents, the report highlighted U.S. concerns with India's standards limiting the patentability of potentially beneficial pharmaceutical innovations, burdensome patent administration and dispute resolution system, and insufficient protection against unfair commercial use and unauthorized disclosure of test or other data used to obtain marketing approval for patents. The risk of compulsory licensing or revocation of patents by the Indian government remains a concern. Compulsory licensing concerns have intensified since 2012, when India allowed a local pharmaceutical company to produce a generic version of a kidney cancer drug by German pharmaceutical Bayer. The Indian government notes its right to use flexibilities provided under the WTO TRIPS Agreement to issue compulsory licenses subject to certain conditions. One reason for India's views on IPR with respect to pharmaceutical products is that it has sought to balance IPR protections with the need to provide access to medicines for its 1.3 billion people. This can be in tension with the U.S. approach, which has tended to view protection of IP as advancing access to medicines through stimulating pharmaceutical innovations. The prevalence of counterfeit and pirated goods in India, both in physical markets and over the Internet, raises concerns about protection of copyrights and trademarks. India has not yet completed enactment of anti-camcording legislation addressing illicit videotaping of movies in theaters. India also has not joined the World Intellectual Property Organization (WIPO) "Internet Treaties," which has provisions on IP protection in the digital environment not addressed in the TRIPS Agreement. In May 2016, India published a new National IPR Policy to promote IP for growth and development while protecting the public interest. Some U.S. industry groups, while welcoming of the policy, say it fails to address India's biggest IP issues. USTR characterized the National IPR Policy as "largely avoiding discussing specific legal and policy issues" raised by U.S. and other stakeholders while devoting resources to improving IP administration and promotion commercialization and public awareness. USTR also noted that the current policy does not preclude India from adopting "more concrete reforms." A mounting issue is "forced" localization barriers to trade and indigenous innovation trends in India (e.g., requirements for in-country testing and data or server localization). These are measures designed to protect, favor, or stimulate domestic industries, service providers, or IP at the expense of imported goods, services, or foreign-owned or developed IP . While some localization measures may serve privacy or national security objectives, they also can be discriminatory barriers to trade. In November 2011, India issued a "National Manufacturing Policy" to develop its manufacturing base and boost its employment. The policy calls for greater use of local content requirements in government procurement in certain sectors, such as information communications technology and clean energy. India's Preferential Market Access mandate, which is based on this policy, imposes local content requirements for electronic products. These and other developments continue to raise concerns for the U.S. regarding localization barriers to trade in India. In September 2016, the WTO Appellate Body upheld a decision in favor of the United States that India's local content requirements on solar technology violated WTO non-discrimination rules. Separately, a WTO panel formed in March 2017 to examine India's complaint that U.S. state-level renewable energy measures are contingent on domestic content requirements and inconsistent with WTO rules. The bilateral investment relationship is small but growing ( Figure 6 ), with India representing a fraction of U.S. outward and inward foreign direct investment (FDI). India has pursued reforms to attract FDI, such as steps to increase foreign investment limits in the insurance and defense sectors, but barriers remain. Key services industries in India, such as banking and insurance, are heavily dominated by the Indian government. Although India increased the cap on foreign investment in Indian insurance companies from 26% to 49%, it also imposed a new requirement for "Indian control" of such companies (e.g., conditions on Board of Directors members). There continue to be limits on foreign ownership in other sectors as well, such as financial services, retail, and audiovisual services. India's business environment presents barriers to FDI in sectors such as education and architecture. Foreign participation is prohibited in some sectors, such as legal services. India's limited regulatory transparency and judicial infrastructure for resolving investment disputes further challenges U.S. investors. U.S. FDI in India and Indian FDI in the United States are associated with U.S. jobs and exports in a range of economic sectors, but the former have prompted concerns among some analysts about offshoring of U.S. jobs to India. U.S.-India BIT negotiations (see above), if continued, may address these issues. India has long sought membership in the Asia-Pacific Economic Cooperation (APEC), a grouping of 21 economies, including the United States and China. Under the Obama Administration, the United States stated that it welcomed India in APEC. Some bills introduced in the 114 th Congress aimed to facilitate India's membership ( H.R. 4830 , S. 2857 ), y et questions have arisen about whether India demonstrates sufficient commitment to economic liberalization to warrant APEC membership. The U.S. GSP program provides non-reciprocal, duty-free access to the U.S. market for certain products from eligible developing countries. The program was most recently extended until December 31, 2017 ( P.L. 114-27 ). India was GSP's largest beneficiary in 2016, with about 10% of U.S. goods imports from India under GSP. Debate exists over removing India from GSP due to U.S. concerns about shortfalls in India's IPR regime and other issues. The extent to which a country is providing adequate and effective IPR protection is a discretionary requirement for designating a country as a GSP beneficiary. Some U.S. commercial exports to and direct investment in India have benefited from U.S. government trade financing and promotion assistance, including through the agencies below, which provide support on a demand-driven basis (see Table 1 ). Ex port -Im port Bank (Ex-Im Bank) activities in India have included support for solar technologies and power turbine exports. In more recent years limited Ex-Im Bank activity in India may reflect, in part, that the agency has not been fully operational since 2014. O verseas Private Investment Corporation (O PIC ) activities in India include support for microfinance lending, lending for small- and medium-sized enterprises (SMEs), and solar power projects. U.S. Trade and Development Agency ( TDA ) funding in India has spanned sectors such as aviation, energy, and infrastructure (e.g., India's Smart Cities project). The institutional structures of all three agencies could be subject to congressional consideration, the outcomes of which could have implications for federal support for U.S.-India trade and investment. Obstacles to initiating bilateral nuclear energy commerce have been a years-long challenge for both U.S. officials and for U.S. companies eager to enter the Indian market, but wary of exposure to regulation by strict liability laws. During meetings in New Delhi in 2015, President Obama and Prime Minister Modi announced a "breakthrough" compromise in the form of an Indian Memorandum of Law, which required no new legislation. Yet the announcement came with few details, and many analysts predicted that India's legal labyrinth would continue to deter American suppliers from entering the market. However, late in 2015, Pennsylvania-based Westinghouse Electric (a unit of Japan's Toshiba Corporation) moved to sign a contract for construction of six new nuclear reactors in India's southern Andhra Pradesh state. The 2016 U.S.-India Joint Statement indicated that contractual arrangements would be finalized by mid-2017, with work underway to establish "a competitive financing package based on the joint work by India and the U.S. Export-Import Bank." However, Westinghouse's March 2017 bankruptcy declaration has dealt a major blow to these plans. As noted above, an issue of keen interest to some potential workers from India is access to visas for temporary work in the United States, also referred to as nonimmigrant visas. Reforming the H-1B visa has been of interest to Congress for a number of reasons. Some are concerned that employers hiring H-1B nonimmigrants are displacing U.S. workers and that there are not sufficient mechanisms in place to protect U.S. workers. However, others argue that the need for more H-1B nonimmigrant workers is justified because there may not be enough qualified U.S. workers to fill open positions. Another criticism of the H-1B visa stems from an apparent lack of accountability and oversight of employers. This concern has been exacerbated by companies that contract H-1B workers through staffing companies. Those concerned about fraud and abuse within the H-1B visa category have cited a need for more stringent requirements for employers, the closing of perceived legislative "loopholes" that may disadvantage American workers, and increased oversight and investigative authority for relevant agencies, such as the Department of Labor. In April, U.S. Citizenship and Immigration Services (USCIS) announced that the agency will be taking "multiple measures to further deter and detect H-1B visa fraud and abuse." USCIS stated that it will continue its site visits to H-1B petitioners and the worksite of H-1B employees. More specifically, apart from random site visits, USCIS will be targeting employers with larger proportions of H-1B employees in their workforce, employers that place H-1B workers off-site (i.e., at another location or with another company), and cases where the employer's information cannot be validated through commercially available information. In addition, USCIS has created an email address that allows individuals to submit reports of suspected H-1B fraud or abuse. Most recently, the Department of Labor published a brief highlighting recent cases of H-1B fraud that have been successfully investigated; the cases involved several Indian nationals. India's large economy and its leader's aspirations to lift millions out of poverty make for growing energy demands, and India remains highly dependent on imported energy sources. Coal-fired capacity continues to account for the bulk (more than two-thirds) of India's total power installation. While India has embarked on a plan to dramatically increase renewable energy sourcing, it is also seeking to extend access to electricity to the roughly 20% of citizens who lack it. This effort, along with rapidly expanding Indian demand for space cooling capabilities, indicates that the country's power usage rates will continue to grow into the foreseeable future. It remains unclear whether significant U.S.-India cooperation on clean energy development and other related projects pursued under the Obama Administration will continue under the Trump Administration. The U.S.-India Energy Dialogue, through which such projects as the eight-year-old Partnership to Advance Clean Energy (PACE) were coordinated, was considered by Indian officials to be a vital forum for bilateral engagement. Many experts have argued that India's status among the world's emitters of greenhouse gases—by one accounting it contributed 6.8% of global CO2 emissions in 2015 —makes it a necessary participant in any comprehensive solution to the problems posed by climate change. India's CO2 emissions increased 67% from 1990 to 2012 and today are roughly the same as Russia's, meaning the country can variously be ranked third, fourth, or fifth in the world depending on the aggregation or disaggregation of European Union member-state data. However, India's large population makes it the world's tenth-largest emitter on a per capita basis. India signed the Paris Agreement on climate change in April 2016 and ratified the Agreement in October. By some metrics, India and China are outpacing the United States on efforts to address climate change. During a visit to Paris shortly after the June announcement of U.S. withdrawal from the Agreement, Prime Minister Modi reportedly told the French president that India intended to "go above and beyond" the agreement's targets. New Delhi has pledged to boost India's use of non-fossil fuel energy to 40% by 2030. Within this renewables mix will be greatly expanded power generation from solar, wind, and nuclear sources. India may be in the midst of one of history's largest energy transformation project, with a rapidly growing renewables sector. Indians are also working to address the huge power losses that come through wastage. The country has seen at drastic decline in the cost of generation from solar and wind sources; a kilowatt hour of solar power that recently cost 12 cents now costs less than 4, about one-quarter cheaper than the same amount of energy from coal. This has led the Indian government to cancel some planned new coal plant projects and cut its coal production target by nearly 10%. According to successive U.S. State Department Country Reports on Human Rights Practices , many of India's citizens suffer human rights abuses: The most significant human rights problems involved instances of police and security force abuses, including extrajudicial killings, torture, and rape; corruption, which remained widespread and contributed to ineffective responses to crimes, including those against women, children, and members of Scheduled Castes (SCs) or Scheduled Tribes (STs); and societal violence based on gender, religious affiliation, and caste or tribe. Other human rights problems included disappearances, hazardous prison conditions, arbitrary arrest and detention, and lengthy pretrial detention. Court backlogs delayed or denied justice, including through lengthy pretrial detention and denial of due process. The government placed restrictions on foreign funding of nongovernmental organizations (NGOs), including some whose views the government believed were not in the "national or public interest," curtailing the work of civil society. There were instances of infringement of privacy rights. The law in six states restricted religious conversion, and there were reports of arrests but no reports of convictions under those laws. Some limits on the freedom of movement continued. Rape, domestic violence, dowry-related deaths, honor killings, sexual harassment, and discrimination against women and girls remained serious societal problems. Child abuse, female genital mutilation and cutting, and forced and early marriage were problems. Trafficking in persons, including widespread bonded and forced labor of children and adults, and sex trafficking of children and adults for prostitution, were serious problems. Societal discrimination against persons with disabilities and indigenous persons continued, as did discrimination and violence based on gender identity, sexual orientation, and persons with HIV. A lack of accountability for misconduct at all levels of government persisted, contributing to widespread impunity. Investigations and prosecutions of individual cases took place, but lax enforcement, a shortage of trained police officers, and an overburdened and under resourced court system contributed to infrequent convictions. International human rights watchdogs also identify widespread abuses. Press freedoms in India also appear to be under threat. Although religious discrimination and intolerance of social dissent are hardly new to India, the 2014 elevation of the Hindu nationalist BJP to majority status at the federal level—the party won 52% of Parliament's lower-house seats in 2014 elections—triggered concerns among human rights advocates that agents of Hindu nationalist majoritarianism would be empowered. Born as the political wing of the Rashtriya Swayamsevak Sangh (RSS or "National Volunteer Organization"), a militant Hindu and social service group—the BJP is a primary political purveyor of Hindutva or "Hindu-ness" in Indian society. Prime Minister Modi is a life-long RSS member, and his 2014 election victory evoked fears that a victorious BJP would pursue Hindu majoritarian policies. Three years later, expressions of repression and bigotry persist, and may be recently compounded by the BJP's sweeping win in March 2017 state elections in Uttar Pradesh. This win led the party to seat a controversial Hindu nationalist, Yogi Adityanath, as state chief minister. Adityanath, a cleric described as "a deeply divisive figure for his militant, misogynistic, and anti-Muslim rhetoric," has moved to crack down on butchers who sell beef (cows are sacred in Hinduism) and men loitering in public, a moral campaign that critics say targets Muslims. Some observers are concerned that the BJP may now intend to pursue a Hindu majoritarian approach to governance that could significantly erode India's secular, pluralist traditions. Most recent U.S. congressional attention to human rights issues in India has fallen into one of four general categories: religious freedom (communal repression or violence targeting India's religious minorities, anti-conversion laws, cow protection); human trafficking/slavery; female infanticide and feticide; and legal constraints on the operations of health and human rights NGOs in India. Some Members have noted the abuses listed by the U.S. Committee on International Relations Freedom's annual reports, and attacks on India's Christian minority have generated some constituent interest. Distress over the scope of India's human slavery problem has repeatedly been voiced by the current Chairman and Ranking Member of the Senate Foreign Relations Committee, among others. Given traditional societal discrimination against females, uneven female-to-male ratios persist in India, and the incidence of female infanticide and gender-selective abortions remains a serious human rights issue. Finally, senior Members of the House have taken direct interest as the New Delhi government enforces restrictive laws on NGO operations in India that have served to constrain and even curtail the provision of charitable health and other human services there. A total of about $16.6 billion in direct U.S. aid went to India from the country's 1947 independence through 2016, nearly all of it in the form of economic grants and more than half as food aid. In 2007, in response to several years of rapid Indian economic expansion and New Delhi's new status as a donor government, the State Department announced a 35% reduction in assistance for India. The bulk of the cuts came from Development Assistance and food aid programs. Another smaller decrease came in 2008 in recognition of the continuing growth of the Indian economy and the ability of the New Delhi government to fund more development programs. Under the Obama Administration, however, increases in GHCS funds, along with some added Development Assistance, reverted aid close to its levels of the early 2000s. In 2011, the most recent year that India received U.S. food aid, the U.S. Agency for International Development identified India as one of two emerging market countries to join the ranks of donors of humanitarian and development assistance (the other being Brazil), and noted that much of this has been delivered in the form of in-kind food aid. The Trump Administration's approach to the U.S.-India relationship remains uncertain, and New Delhi is closely monitoring potential shifts in U.S. policy. As described in this report, key legislative and oversight considerations for Congress in U.S.-India relations include the following: what levels of U.S. foreign assistance to provide India; whether to continue bilateral clean and renewable energy cooperation programs even in the absence of the Administration's support for the Paris Agreement; whether to enact legislation tightening U.S. immigration policy, especially with respect to H-1B visas; how vigorously to support bilateral defense trade with India, including whether to allow or otherwise seek to influence potential future major arms sales and/or co-production agreements, such as the one recently proposed for F-16 combat aircraft; what avenues of engagement on U.S.-India trade and investment issues to support, including whether to advocate for continuing U.S.-India BIT negotiations; whether to renew U.S. support for APEC membership for India; whether to support U.S. trade promotion and financing programs, such as Ex-Im Bank, OPIC, and TDA, that have been active in India; whether to reconsider India's GSP status in light of concerns with the country's IPR protection and enforcement; whether to continue efforts supporting India's membership in the Nuclear Suppliers Group and other expert control regimes; and how to respond to human rights abuses in India, among others. With these and other issues confronting Congress, U.S.-India relations are likely to remain a prominent area of legislative interest for the 115 th Congress.
|
India will soon be the world's most populous country, home to about one of every six people. Many factors combine to infuse India's government and people with "great power" aspirations: the Asian giant's rich civilization and history, expanding strategic horizons, energetic global and international engagement, critical geography (with more than 9,000 total miles of land borders, many of them disputed) astride vital sea and energy lanes, major economy (at times the world's fastest growing) with a rising middle class and an attendant boost in defense and power projection capabilities (replete with a nuclear weapons arsenal and triad of delivery systems), and vigorous science and technology sectors, among others. In recognition of India's increasingly central role and ability to influence world affairs—and with a widely-held assumption that a stronger and more prosperous democratic India is good for the United States in and of itself—the U.S. Congress and two successive U.S. Administrations have acted both to broaden and deepen America's engagement with New Delhi. Such engagement is unprecedented after decades of Cold War-era estrangement and today takes place "across the spectrum of human endeavor for a better world," as described in a 2015 U.S.-India Declaration of Friendship. Washington and New Delhi launched a "strategic partnership" in 2005, along with a framework for long-term defense cooperation that now includes large-scale joint military exercises and significant defense trade. Bilateral trade and investment have increased while a relatively wealthy Indian-American community is exercising newfound domestic political influence, and Indian nationals account for a large proportion of foreign students on American college campuses and foreign workers in the information technology sector. Yet more engagement has meant more areas of friction in the partnership, many of which attract congressional attention. India's economy, while slowly reforming, continues to be a relatively closed one, with barriers to trade and investment deterring foreign business interests. Differences over U.S. immigration law, especially in the area of nonimmigrant work visas, remain unresolved; New Delhi views these as trade disputes. India's intellectual property protection regime comes under regular criticism from U.S. officials and firms. The June 2017 announcement of U.S. withdrawal from the Paris Agreement on climate change dismayed many in India and brought into question significant ongoing bilateral collaboration in the energy field. Other stumbling blocks—on localization barriers and civil nuclear commerce, among others—add to sometimes argumentative associations. Meanwhile, cooperation in the fields of defense trade, intelligence, and counterterrorism, although vastly superior to that of only a decade ago, runs up against the obstacles variously posed by India's bureaucracy, limited governmental capacity, difficult procurement process, seemingly incompatible federal institutions, and a lingering shortage of trust, not least due to America's ongoing security relationship with and aid to India's key rival, Pakistan. Finally, Members of Congress take notice of human rights abuses in India, perhaps especially those related to religious freedom. Despite these many areas of sometimes serious discord, the U.S. Congress has remained broadly positive in its posture toward the U.S.-India strategic and commercial partnership. Meanwhile, the Trump Administration has thus far issued amicable rhetoric overall (with some lapses) that suggests an intention to maintain the general outlines of recent U.S.-India ties. This report reviews the major facets of current U.S.-India relations, particularly in the context of congressional interest. It discusses areas in which perceived U.S. and Indian national interests converge and areas in which they diverge; other leading Indian foreign relations that relate to U.S. interests; the outlines of bilateral engagement in defense, trade, and investment relations, as well as important issues involving energy, climate change; and human rights concerns. This report will be updated.
|
Investor-state dispute settlement (ISDS) provisions in international investment agreements (IIA) enable an aggrieved investor, with an investment located in the territory of a foreign host government, to bring a claim against that government for breach of an investment agreement before an international arbitration panel. The United States has negotiated a number of bilateral investment treaties (BIT) and free trade agreements (FTA) that contain ISDS arbitration procedures for resolving investors' claims that a host country has violated substantive obligations intended to protect foreign investors and investments from discriminatory, unfair, or arbitrary treatment by the host government. Although an investor submitting a claim under a U.S. IIA must typically consent to the mandatory procedural rules contained therein, the parties to an investment dispute generally may jointly choose the forum as well as many of the procedural rules under which the tribunal conducts the arbitration. The primary forum for investment arbitration is the International Centre for Settlement of Investment Disputes (ICSID), which is affiliated with the World Bank. The Centre was established by the 1965 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention). Under most IIAs, the investor and respondent country may agree that the tribunal will conduct the proceedings according to certain procedural rules, such as the ICSID Rules of Procedure for Arbitration Proceedings; the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules; or the ICSID Additional Facility Rules for disputes in which either the investor's home country or the host country, but not both, is a member of ICSID. Ongoing trade negotiations among the United States and several Pacific Rim countries regarding the proposed Trans Pacific Partnership (TPP) agreement —and between the United States and the European Union with respect to the proposed Transatlantic Trade and Investment Partnership (T-TIP) agreement —have rekindled debate over the value of including ISDS provisions in BITs and trade agreements. Some commentators have argued that ISDS arbitration procedures, along with substantive protections for investors and investments in IIAs, facilitate foreign direct investment (FDI) by depoliticizing investment disputes and providing stability and predictability to investors seeking to conduct business in a foreign nation. Other observers have raised questions about the extent to which ISDS may affect a government's ability to regulate in the public interest. This report focuses on the legal implications of ISDS provisions in U.S. IIAs. Among other things, it discusses who may bring a claim under an IIA; how arbitrators conduct such proceedings; the remedies available to the disputing parties; and how tribunals have interpreted certain substantive obligations contained in U.S. IIAs. Furthermore, the report will discuss the interplay between IIAs containing ISDS provisions, investment arbitration decisions, and domestic law within the United States, as well as recognition and enforcement of arbitral awards against countries in U.S. courts. Notably, the ISDS provisions within one IIA may differ from the ISDS provisions in other agreements. This report will focus on the provisions contained in the investment chapter of NAFTA because nearly all ISDS cases brought by investors against the United States have been brought under that agreement. It will also focus on the investment provisions contained in the United States' 2012 Model BIT, which is the document that U.S. officials use to negotiate U.S. BITs, and the Korea-U.S. free trade agreement (KORUS), which has the most recent congressionally approved FTA investment chapter, to show the types of provisions U.S. diplomats may seek to include in the TPP and T-TIP. Congress plays an important role in the approval and implementation of U.S. IIAs, and, therefore, in the approval of ISDS provisions within those agreements. BITs are ratified through the treaty process established in the Constitution —that is, the Senate must provide its advice and consent to ratification of any agreement reached between the executive branch and negotiators from a foreign country. Furthermore, FTAs, which typically will contain an investment chapter, are often approved as congressional-executive agreements. Such agreements require approval from both houses of Congress prior to being signed into law by the President. Beyond voting on the approval of a negotiated agreement between the U.S. and foreign states, Congress may seek to influence the negotiating objectives of the executive branch through statute, by informal agreements with the executive branch, and through the traditional oversight powers enjoyed by the legislative branch. To hear and decide an ISDS case, a tribunal must have jurisdiction over the dispute between the investor and the respondent state. Although several requirements in IIAs could be considered "jurisdictional," this section focuses on the requirement that the claimant qualify as an "investor" with an "investment" in the respondent host country, as U.S. IIAs define these terms. This section also analyzes whether, and, if so, under what circumstances, investment agreements require a claimant to exhaust available administrative and judicial remedies in the host country prior to bringing an ISDS claim against that country. In addition, this section examines ISDS provisions potentially relevant to the investor practices of "forum shopping" (e.g., pursuing an ISDS case after losing in the host country's domestic courts) and "treaty shopping" (e.g., reincorporating in another country to take advantage of favorable ISDS provisions in that country's IIAs). The definitions of "investor" and "investment" in U.S. IIAs play a key role in clarifying the scope of a tribunal's jurisdiction by indicating "who" may bring an ISDS claim under a particular agreement. One NAFTA tribunal referred to these definitions as the "gateway leading to the dispute resolution provisions." With respect to the definition of "investor," NAFTA limits the scope of investor-state arbitration by establishing that the dispute provisions apply only to "measures adopted or maintained by a Party relating to: (a) investors of another Party; [and] (b) investments of investors of another Party in the territory of the Party ..." NAFTA Articles 1116 and 1117 provide that in order to bring a claim, the claimant must be an "investor" from a nation that is a party to NAFTA, which the agreement defines as "a Party or state enterprise thereof, or a national or enterprise of such Party, that seeks to make, is making or has made an investment." Under this definition, an investor of a party can be an individual; a corporation or other enterprise; or a state-owned enterprise. Importantly, as numerous tribunals have pointed out, "in order to be an 'investor' ... one must make an investment in the territory of another NAFTA State, not in one's own." The definition of "investment" in U.S. IIAs also affects the scope of a tribunal's jurisdiction. The Model BIT provides the following definition of an "investment": "investment" means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk. Forms that an investment may take include: (a) an enterprise; (b) shares, stock, and other forms of equity participation in an enterprise; (c) bonds, debentures, other debt instruments, and loans; (d) futures, options, and other derivatives; (e) turnkey, construction, management, production, concession, revenue-sharing, and other similar contracts; (f) intellectual property rights; (g) licenses, authorizations, permits, and similar rights conferred pursuant to domestic law; and (h) other tangible or intangible, movable or immovable property, and related property rights, such as leases, mortgages, liens, and pledges. Notably, the 2012 Model BIT provides a non-exhaustive list of property interests that may constitute "investments." By contrast, NAFTA sets forth a more limited and closed list of property interests that may constitute "investments." Neither the 2012 Model BIT nor NAFTA's investment chapter considers goods exported by a foreign company into another NAFTA party's territory to be an "investment." In addition, it appears that, at least under NAFTA, the costs of meeting regulatory requirements of the host country to sell products in that country do not constitute an investment. Neither NAFTA nor the 2012 Model BIT requires exhaustion of local administrative or judicial remedies as a prerequisite to a tribunal's jurisdiction over an ISDS claim against a host country. However, at least under NAFTA, it appears that, as a matter of substantive law , an investor seeking to establish a violation of the minimum standard of treatment obligation based on "denial of justice" by a host country's judiciary must have first exhausted its judicial remedies (i.e., pursued all appeals) unless these remedies are not reasonably available. Tribunals have deemed this requirement to be an element of a "denial of justice" claim under NAFTA Article 1105 (minimum standard of treatment) rather than a jurisdictional prerequisite. An additional concern of some commentators is that foreign investors will engage in "forum shopping" and "treaty shopping" under ISDS provisions in IIAs. "Forum shopping" generally refers to a practice in which an investor first pursues compensation in either the host country's local courts or before an ISDS tribunal and, if the investor is unhappy with the outcome, then pursues compensation in the other forum. "Treaty shopping" generally refers to a practice in which an investor (typically, a multinational corporation) attempts to benefit from more favorable substantive and procedural rules in a particular IIA by acquiring, establishing, or using an existing subsidiary in order to bring an ISDS claim against a host country under that IIA. With respect to "forum shopping," U.S. IIAs typically provide that an investor cannot seek local remedies in the form of monetary compensation after consenting to arbitration under the agreement. For example, under the 2012 Model BIT, an investor must, as a condition of pursuing a claim under the ISDS provisions, agree to waive "the right to initiate or continue before any administrative tribunal or court under the law of either Party, or other dispute settlement procedures, any proceeding with respect to any measure alleged to constitute a breach ..." except to the extent that the investor seeks interim injunctive relief during the pendency of the arbitration. However, this does not prevent an investor from seeking local remedies in the form of monetary compensation prior to bringing a dispute before an international investment arbitration tribunal. With regard to "treaty shopping," U.S. IIAs typically contain a provision allowing the host country to deny the benefits of the treaty to an investor of another party (and the investor's investments) if (1) the investor of the other party is an enterprise; (2) non-party investors (i.e., investors from a country not party to the treaty), or investors of the denying party, own or control the enterprise; and (3) the enterprise has "no substantial business activities" in the territory of the other party. In a recent arbitration decision rendered under the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) and the ICSID Arbitration Rules, the tribunal held that a party to the CAFTA-DR may deny benefits to investors and investments under this type of clause even after the investor's dispute arose, so long as such denial occurred prior to the expiration of the time limit for raising jurisdictional objections. KORUS contains language specifically requiring the denying party to the agreement to notify the investor prior to denying it benefits if practicable. In addition to jurisdictional issues, ISDS proceedings have raised questions about the rules governing: (1) the independence and impartiality of arbitrators, including rules addressing their selection and disqualification; (2) the transparency of arbitral proceedings, including access to documents and hearings; (3) early dismissal of frivolous claims; and (4) participation of third parties as amicus curiae ("friends of the court"). This section addresses these questions, as well as whether investment arbitration decisions establish legally binding precedent and whether a party may appeal such decisions. Arbitration rules provide mechanisms to help ensure the independence and impartiality of the arbitrators that hear disputes between investors and states. The methods of selection and disqualification of arbitrators may differ depending on whether the arbitration is conducted under ICSID or UNCITRAL Arbitration Rules, NAFTA, or agreements based on the 2012 Model BIT. Furthermore, the parties may also contract to have the dispute governed by rules other than the ICSID and UNCITRAL Arbitration Rules. The 2012 Model BIT and NAFTA contain nearly identical procedures for the appointment of arbitrators. The text from Article 1123 of NAFTA, which closely resembles the corresponding 2012 Model BIT provision, provides the following: [U]nless the disputing parties otherwise agree, the Tribunal shall comprise three arbitrators, one arbitrator appointed by each of the disputing parties and the third, who shall be the presiding arbitrator, appointed by agreement of the disputing parties. Therefore, typically, the tribunal will consist of three arbitrators. Both NAFTA and the 2012 Model BIT also provide that the Secretary-General of ICSID will be the appointing authority if the disputing parties cannot agree on a presiding arbitrator or if a party fails to appoint an arbitrator within a certain amount of time after the claim is submitted for arbitration. Under NAFTA, any arbitrator appointed by the Secretary-General must be chosen from a roster of potential arbitrators established by the parties to the agreement. Further, the appointed arbitrator should not be a national of the disputing parties. However, under the 2012 Model BIT, the Secretary-General decides whom to appoint as the parties do not establish a list of potential arbitrators. Neither NAFTA nor the 2012 Model BIT addresses disqualification of arbitrators; however, the ICSID Arbitration Rules or the UNCITRAL Arbitration Rules address this issue. Under the UNCITRAL Arbitration Rules, "[a]ny arbitrator may be challenged if circumstances exist that give rise to justifiable doubts as to the arbitrator's impartiality or independence." Furthermore, arbitrators are required to disclose any reasons that may raise justifiable doubts as to their impartiality both prior to and, if such circumstances arise after the dispute has begun, during the proceedings. In order to disqualify an arbitrator, the challenging party must provide notice of the challenge promptly after the circumstance calling into question the arbitrator's qualifications arises. The notice must be provided to all other parties and all arbitrators on the panel. If all parties agree to the challenge, the arbitrator shall be replaced; if the parties do not agree, then the appointing authority, which under NAFTA and the 2012 Model BIT is the Secretary General of ICSID, shall make a decision on the challenge. Under the ICSID Convention and ICSID Arbitration Rules, "a party may propose to a Commission or Tribunal the disqualification of any of its members on account of any fact indicating a manifest lack of the qualities required by paragraph (1) of Article 14." Article 14, in turn, requires arbitrators to be "persons of high moral character and recognized competence ... who may be relied upon to exercise independent judgment." Similar to the UNCITRAL Arbitration Rules, ICSID procedures require arbitrators to disclose to the disputing parties and the Secretary General any prior relationships with the disputing parties, and any other reason why a party may question the arbitrator's independence. A party to the dispute challenges the qualification of an arbitrator by submitting its concerns to the Secretary General; the arbitrator in question has the right to respond to such a submission. At that point, the remaining arbitrators vote on whether the arbitrator in question should be disqualified. If they are unable to reach a determination, or if a majority of arbitrators are challenged, the Chairman of the Administrative Council makes the ultimate decision on disqualification. Grounds for removal vary from case to case and may appear inconsistent between cases on similar questions regarding an arbitrator's impartiality or independence. For example, while some panels have determined that an arbitrator's participation in a previous tribunal that found against a particular party is not grounds for disqualification, others have reached the opposite conclusion under similar factual circumstances, finding that an arbitrator's participation in a panel that found against the respondent-state on an issue involving similar facts was grounds for disqualification. It appears that many challenges to an arbitrator's qualifications to sit on a tribunal arise from prior existing relationships between the arbitrators and the disputing parties. For example, one arbitrator, in 2013, was disqualified from Blue Bank v. Venezuela because the arbitrator in question was a partner at a law firm that was representing the claimant in a different ISDS proceeding against Venezuela that dealt with issues similar to the case he was set to decide. However, tribunals have also held that "the mere existence of some professional relationship with a party is not an automatic basis for disqualification of an arbitrator." In one case, the arbitrator in question advised the disputing parties that one of the partners in his law firm had worked for the claimant-company's predecessor on an unrelated tax issue but the panel did not find this relationship warranted disqualification. However, prior relationships with disputing parties are not the only reason that an arbitrator can be disqualified. Arbitrators can also be removed from a panel if they have biases against the law in dispute or the specific subject at issue. One such example, involving a successful challenge, came when the United States, during a NAFTA arbitration conducted under the UNCITRAL Arbitration Rules, challenged the appointment of an arbitrator who had previously given a speech on the U.S. law at issue in the dispute. The arbitrator, in his speech, referred to the U.S. law in question as "harassment." The ICSID Secretary General, who was authorized to make the final determination on the issue as the appointing authority, informed the arbitrator that ICSID would be issuing an opinion upholding the challenge. In response, the arbitrator resigned and the ICSID did not issue a written opinion on the matter. In cases where the qualification of an arbitrator has been challenged under the ICSID rules, tribunals have held that the requirement that an arbitrator be able to provide "independent judgment" means that the arbitrator must "be both independent and impartial." At least one tribunal has held that the analysis for independence and impartiality are separate questions. An analysis of independence requires examination of whether the arbitrator has a relationship with one of the disputing parties, while the impartiality of an arbitrator concerns whether he or she is biased toward one of the disputing parties. Therefore, despite differences in language, both the UNCITRAL and ICSID Arbitration Rules require arbitrator independence and impartiality. Tribunals have differed in their interpretation of the ICSID Convention disqualification language "manifest lack of the qualities required." Some tribunals have interpreted this in a way that imposes a high burden of proof on the party attempting to disqualify an arbitrator. That tribunal noted that in order to show a "manifest lack" of impartiality, the party would have to show a clear or obvious inability for the arbitrator to judge impartially. In a similar vein, another panel provided that "the party challenging an arbitrator must establish facts, of a kind or character as reasonably to give rise to the inference that the person challenged clearly may not be relied upon to exercise independent judgment in the particular case where the challenge is made." On the other hand, other tribunals appear to have interpreted the provision to impose less of a burden on the challenging party. One tribunal stated "if the facts would lead to the raising of some reasonable doubt as to the impartiality of the arbitrator or member ... a challenge by either party would have to be upheld." This tribunal's use of a "reasonable doubt" standard appears to contradict other tribunals' requirement that a party "clearly" or "obviously" demonstrate that an arbitrator would be biased. However, even that tribunal held that the mere appearance of partiality is not enough to disqualify an arbitrator—nor is any mere speculation or inference. A common concern regarding ISDS relates to the level of transparency to which arbitration disputes are subject. Similar to the rest of the discussion involving ISDS, the level of public access to tribunal decisions depends on the IIA that the dispute is brought under, and the set of arbitration rules the tribunal follows when presiding over the dispute. Commentators have noted that NAFTA contains some of the strongest transparency requirements among IIAs that have been entered into over the past decades. The United States, Canada, and Mexico released, through the Free Trade Commission, an interpretation of the NAFTA investment chapter. The interpretation provides: Each Party agrees to make available to the public in a timely manner all documents submitted to, or issued by, a Chapter Eleven tribunal, subject to redaction of: (i) confidential business information; (ii) information which is privileged or otherwise protected from disclosure under the Party's domestic law; and (iii) information which the Party must withhold pursuant to the relevant arbitral rules, as applied. Further, NAFTA hearings are often open to the public as the United States has agreed to allow such hearings to be open, subject to exceptions that protect confidential information. Accordingly, the public has some access to the oral and written submissions by the disputing parties, challenges to arbitrators, interim decisions of the tribunals, and awards under NAFTA. These documents are available on the U.S. Department of State website. The 2012 Model BIT also contains provisions relating to transparency. Article 29 of the 2012 Model BIT, entitled Transparency of Arbitral Proceedings, provides that "pleadings, memorials, and briefs submitted to the tribunal," along with "orders, awards, and decisions of the tribunal" shall be made available to the public. Furthermore, amicus curiae submissions, submissions provided by non-disputing parties to the agreement, and transcripts of hearings may also be made publicly available. Finally, the 2012 Model BIT provides for hearings to be open to the public. All of these transparency provisions are subject to exceptions to protect confidential information, such as trade secrets or essential security interests. Under the ICSID Arbitration Rules, the transparency provisions are less robust than what the United States has negotiated in recent IIAs, such as the KORUS and CAFTA-DR investment chapters. ICSID provides basic information on its website with regard to each dispute, including the fact that a dispute is being heard, the names of the arbitrators hearing the case, and whether the dispute is ongoing or completed. However, ICSID awards are only made publicly available if both disputing parties consent. Importantly, if the disputing parties do not consent to the publication of the full award decision, ICSID Arbitration Rules still provide for publication of "excerpts of the legal reasoning of the Tribunal." However, commentators have noted that "oral and written submissions of the disputing parties and their experts and witnesses ... almost always remain confidential." It is worth noting that if the United States enters into a dispute that is governed by specific transparency provisions set forth in an IIA, the IIA's transparency provisions would control even if the arbitration is conducted under the ICSID Arbitration Rules. UNCITRAL amended its Arbitration Rules in 2013 by adding Rules on Transparency in Treaty-Based Investor-State Arbitration (Rules on Transparency). The Rules on Transparency will apply to all arbitrations conducted under treaties governed by UNCITRAL Arbitration Rules that were entered into after April 1, 2014, "unless the Parties to the treaty have agreed otherwise." In order to facilitate states to agree to follow these new transparency rules, states can sign the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration, known as the Mauritius Convention on Transparency (Mauritius Convention). The Mauritius Convention opened for signature on March 17, 2015 and provides for the Rules on Transparency to apply to IIAs entered into by both parties prior to April 1, 2014 by stipulating that if both parties have signed the Mauritius Convention, they will be deemed to have agreed to apply the Rules on Transparency to such IIAs. The United States signed the Mauritius Convention on March 17, 2015, but the Senate has yet to ratify it and the Mauritius Convention has yet to enter into force. The new UNCITRAL Rules on Transparency contain requirements similar to NAFTA and the 2012 Model BIT. The Rules on Transparency require that written statements of the disputing parties, written statements by non-disputing state parties to the treaty, amicus submissions, transcripts of hearings, orders, decisions, and awards be made available to the public. Hearings are also required to be open to the public under the new rules. Importantly, there are exceptions to the publication requirements for confidential information. Prior to the Rules on Transparency, UNCITRAL provided for hearings to be closed to the public, unless the parties agreed otherwise, and did not provide for publication of arbitral materials. A claim in an ISDS case might be considered "frivolous" when "it is clearly insufficient on its face ... and is presumably interposed for mere purposes of delay or to embarrass ..." Frivolous claims may present a concern in investment arbitration because, even if a host country wins an ISDS case, it may spend millions of dollars in costs and attorneys' fees on its defense. Thus, a tribunal should arguably dismiss frivolous claims at an early stage of the proceedings. Recent U.S. IIAs contain provisions addressing dismissal of frivolous claims and the shifting of costs and attorneys' fees to parties that bring such claims. For example, the 2012 Model BIT sets forth an expedited procedure by which a tribunal may determine as a "preliminary question any objection by the respondent that, as a matter of law, a claim submitted is not a claim for which an award in favor of the claimant may be made ..." The tribunal must assume the truth of the claimant's factual allegations in support of its claim, as set forth in its notice of arbitration or statement of claim, but may consider "any relevant facts not in dispute." The 2012 Model BIT states that the tribunal may award reasonable costs and attorneys' fees to the prevailing party after considering whether the claimant's claim or the respondent's objection was "frivolous." Two recent cases under U.S. IIAs that contain similar language to the 2012 Model BIT regarding "preliminary questions" (CAFTA-DR and the U.S.-Peru Trade Promotion Agreement) suggest that a tribunal may be reluctant to dismiss the investor's claims under these provisions at such an early stage of the proceedings. Aside from provisions in IIAs, the ICSID and UNCITRAL Arbitration Rules contain certain provisions that may allow for early dismissal of frivolous claims. ICSID Rule 41(5) provides that, unless the parties otherwise agree to a different procedure, a party may raise a preliminary objection "no later than 30 days after the constitution of the Tribunal, and in any event before the first session of the Tribunal" that a claim is "manifestly without legal merit." The rule states that "[t]he Tribunal, after giving the parties the opportunity to present their observations on the objection, shall, at its first session or promptly thereafter, notify the parties of its decision on the objection." The UNCITRAL Arbitration Rules do not specifically address frivolous claims but do provide the tribunal with broad authority to "conduct the proceedings so as to avoid unnecessary delay and expense and to provide a fair and efficient process for resolving the parties' dispute." Furthermore, as discussed below, the ICSID and UNCITRAL Arbitration Rules leave tribunals with a large degree of discretion in apportioning costs and attorneys' fees, which may allow tribunals to require an investor bringing a frivolous claim to bear most or all of the costs of the arbitration. However, some commentators have argued that the current rules for disposing of frivolous claims are insufficient. They have proposed the creation of a diplomatic screening mechanism in which officials of the investor's home country and the respondent host country could agree to dismiss an investor's claim. Similar to submissions of amicus briefs to the United States Supreme Court, ISDS arbitration tribunals may allow interested persons, who are not parties to the dispute, to present their views to the tribunal. The rules governing the submission of third-party statements vary depending on whether the arbitration is governed by the ICSID Arbitration Rules, the UNCITRAL Arbitration Rules, or some other arbitration provision. NAFTA is generally silent on amicus submissions but provides that NAFTA parties, even when they are not involved in the particular dispute in question, may "make submissions to a Tribunal on a question of interpretation of this Agreement," while the 2012 Model BIT provides that a non-disputing state that is a party to the treaty "may make oral and written submissions to the tribunal regarding interpretation" of such treaty. The 2012 Model BIT further provides that the presiding arbitration tribunal "shall have the authority to accept and consider amicus curiae submissions from a person or entity that is not a disputing party." In contrast, KORUS provides more discretion to the tribunal regarding amicus curiae submissions. It states that, "[a]fter consulting the disputing parties, the tribunal may allow a party or entity that is not a disputing party to file a written amicus curiae submission with the tribunal regarding a matter within the scope of the dispute." It also provides a set of factors to be considered in determining whether to permit an amicus curiae filing including, the extent to which: the submission would assist the tribunal in determining a factual or legal issue related to the proceeding by bringing a perspective, particular knowledge, or insight that differs from that of the disputing parties; the submission would address a matter within the scope of the dispute; and the third party has a significant interest in the proceeding. Further, KORUS requires the tribunal to ensure that the submission does not disrupt the proceeding or unduly burden or unfairly prejudice either disputing party, and that the disputing parties are given an opportunity to present their observations on the amicus curiae submission. Under the ICSID and UNCITRAL Arbitration Rules, allowing submission of amicus briefs seems to be a relatively recent development. It appears that the first instance of an arbitration tribunal accepting amicus briefs during an investor-state arbitration occurred in 2001 in Methanex Corp. v. United States , which was a NAFTA dispute conducted under the UNCITRAL Arbitration Rules. In that case, the tribunal determined that it had the power to allow submission of third-party briefs pursuant to the tribunal's authority under Article 15(1) of the UNCITRAL Arbitration Rules to "conduct the arbitration in such manner as it considers appropriate." Since that case, there have been significant changes to both the ICSID and UNCITRAL Arbitration Rules to provide for third-party submissions. The ICSID Arbitration Rules were amended in 2006 to permit submission of amicus briefs expressly. ICSID arbitration tribunals have interpreted the ICSID Arbitration Rules in a manner that requires a third-party to ask for leave to provide written statements for the tribunal's consideration. Pursuant to Rule 37, the tribunal must consult with the disputing parties prior to permitting the submission. However, notably, the disputing parties do not have a "veto" power – that is, the tribunal may allow third-party submissions over the objection of a party to the dispute. For example, in Biwater Gauff Ltd. v. United Republic of Tanzania , one of the first tribunals to consider Rule 37 granted permission to five amicus petitioners over the objection of the claimant, Biwater Gauff. When considering whether to grant the petition, the tribunal must consider if the non-party has a significant interest in the proceeding, if the submission would assist the panel in deciding factual or legal issues related to the proceeding, and if the submission would address an issue within the scope of the case. At least some tribunals have held a broad view with regard to the requirement that the submission be within the scope of the dispute at issue. Notably, under the ICSID Arbitration Rules, the grant of permission to provide amicus submissions does not permit the nonparty to attend closed hearings or get access to documents that have not been made publicly available. The new UNCITRAL Rules on Transparency provisions on third-party submissions, discussed above, are similar to the ICSID rules. The UNCITRAL Rules on Transparency provide clear authority and procedural requirements for accepting written statements from third-parties and non-disputing states that are parties to the treaty in question. A third-party must apply to the tribunal to make a submission, the tribunal must consult with the disputing parties, and the tribunal must consider whether the submission would be able to assist the tribunal in making a determination on the dispute. A notable difference between the UNCITRAL Rules on Transparency and the ICSID Arbitration Rules is that the UNCITRAL Rules on Transparency require third-party submissions to be made public. When rendering decisions in ISDS cases, investment arbitration tribunals do not establish legally binding precedent. Thus, investment arbitration tribunals do not have to follow the decisions of prior tribunals in the way that, for example, U.S. federal courts must adhere to the decisions of the U.S. Supreme Court. However, arbitrators serving on ISDS tribunals have noted that a tribunal departing from a holding of a prior tribunal (particularly, in a case brought under the same IIA) may feel inclined to explain its reasoning in detail. As the NAFTA tribunal in the case of Glamis Gold v. United States wrote: The fact that any particular tribunal need not live with the challenge of applying its reasoning in the case before it to a host of different future disputes (the challenge faced by standing adjudicative bodies) does not mean such a tribunal can ignore that challenge. A case-specific mandate is not license to ignore systemic implications. To the contrary, it arguably makes it all the more important that each tribunal renders its case-specific decision with sensitivity to the position of future tribunals and an awareness of other systemic implications. Thus, the extent to which investment arbitration tribunals follow precedent remains within each tribunal's discretion. However, some commentators would argue that arbitrators should still take into account the holdings of prior tribunals. As the Glamis Gold tribunal put it, a NAFTA tribunal, "while recognizing that there is no precedential effect given to previous decisions, should communicate its reasons for departing from major trends present in previous decisions, if it chooses to do so." Other commentators argue that there may be some value in evaluating each case on its own merits without being tied to precedent. Currently, U.S. IIAs lack a mechanism under which a disputing party may appeal a decision of an investment arbitration tribunal. Under ICSID Arbitration Rules, a committee may be established to consider annulment of an award on five limited grounds. However, these committees are not supposed to serve as appellate bodies. In addition, in cases in which an investor seeks enforcement of the award in a national court against the host country, it is possible that the court might refuse to recognize or enforce the award, although U.S. law generally permits such refusal only in limited circumstances when, for example, an international treaty governs enforcement of an arbitral award. The United Nations Conference on Trade and Development (UNCTAD), ICSID, and other commentators have suggested that establishing an international appellate system for ISDS arbitral decisions could improve the overall operation of investment agreements. For example, an appellate mechanism might bring some coherence to inconsistent tribunal decisions, resulting in greater certainty for investors and host countries regarding their rights and obligations under IIAs. However, to date, there does not appear to have been any concrete progress toward establishing such a body. Some observers have noted that including an appeals process could lead to additional delays and costs for disputing parties. In addition, some commentators have questioned whether a global appellate body would be able to reconcile inconsistent decisions based on numerous investment treaties that provide different substantive and procedural rights to investors. While NAFTA does not mention an appeal process, the 2012 U.S. Model BIT provides that if "an appellate mechanism for reviewing awards rendered by investor-State dispute settlement tribunals is developed in the future under other institutional arrangements, the Parties shall consider whether awards rendered under Article 34 should be subject to that appellate mechanism." The Model BIT also provides that the parties should "strive to ensure" that any appellate process agreed to is transparent. In addition to establishing some of the procedural rules governing ISDS proceedings, IIAs also set forth substantive obligations that a host country has agreed to undertake with respect to foreign investors and investments within the country's territory. These obligations include (1) according foreign investors a "minimum standard of treatment" under customary international law; (2) expropriating an investment only in limited circumstances and upon payment of adequate compensation; and (3) refraining from discrimination against foreign party investors or investments as compared to domestic investors or investments (or non-party investors or investments). This section discusses how tribunals deciding cases under U.S. IIAs have interpreted these obligations, which account for most of the claims brought against the United States under U.S. IIAs (see Table 1 ). Notably, U.S. IIAs typically contain other obligations for a host country such as limitations on trade-distorting performance requirements and rules regarding transfer of funds into and out of the host country. In addition, recent U.S. IIAs may also contain obligations pertaining to labor and the environment, as well as exceptions for prudential financial measures, taxation measures, and national security. The inclusion of a "minimum standard of treatment" (MST) obligation in IIAs is intended to establish a floor for the standard of treatment accorded by a host country to foreign investments. The MST generally requires "treatment in accordance with international law, including fair and equitable treatment and full protection and security." Scholars analyzing decisions regarding the MST under NAFTA have suggested that the MST may impose obligations on host countries similar to those imposed on the U.S. federal and/or state governments under the Procedural Due Process Clause, Substantive Due Process Clause, Ex Post Facto Law Clause, Equal Protection Clause, Contracts Clause, Administrative Procedure Act, and various constitutional rights confirmed in Supreme Court decisions. A series of early NAFTA tribunal awards in investment cases caused concerns that tribunals had too quickly found violations of the MST. To address these concerns, the NAFTA Free Trade Commission, which may act on behalf of the three NAFTA parties, issued a binding interpretation on July 31, 2001, under Article 2001 of NAFTA. The interpretation provided the following with regard to the MST: 1. Article 1105(1) prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to investments of investors of another Party. 2. The concepts of "fair and equitable treatment" and "full protection and security" do not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens. 3. A determination that there has been a breach of another provision of the NAFTA, or of a separate international agreement, does not establish that there has been a breach of Article 1105(1). The interpretation sought to clarify and reaffirm that the host country's MST obligations depend on the content of customary international law, which, in this case, looks to how other countries have treated aliens in the past out of a sense of legal obligation ( opinio juris ). However, tribunals appear to disagree over what constitutes an authoritative source of customary international law, including whether prior arbitral awards or provisions of other investment treaties may represent authoritative sources. The 2012 Model BIT includes language similar to the NAFTA Free Trade Commission's interpretation. Thus, despite attempts to clarify the MST obligation by state parties to IIAs and tribunals, its precise content remains unclear, even under NAFTA. For example, tribunals disagree over whether the customary international law standard remains "frozen in time" at the high threshold established in the 1926 case of Neer v. United Mexican States , or whether the standard has evolved over time. However, NAFTA tribunals seem to agree that to violate the MST, a host country does not necessarily have to act in bad faith. It also appears that violations of an investor's "legitimate expectations" regarding host country treatment of its investment may result in a breach of the MST only if the host country created the expectations to induce the investment and the investor relied on the host country's representations. Although NAFTA tribunals appear to be reluctant to find violations of the MST when a host country's regulations protect public health, they may issue inconsistent statements regarding whether it is appropriate to scrutinize the decisions of domestic regulatory agencies with expertise. Tribunals determining whether a host country's domestic court decision violates the MST may examine whether a "denial of justice" occurred in which the court's decision "shock[ed] or surprise[d]" the tribunal regarding the "judicial propriety" of the outcome. As noted above, in order to succeed on a claim alleging a MST violation due to a "denial of justice," an investor may have to demonstrate that it exhausted all "reasonably available" judicial remedies in the host country. As noted above, U.S. IIAs protect a variety of property interests. For example, under the 2012 Model BIT, an "investment" may include an enterprise; stock; derivatives; construction contracts; or intellectual property rights. The 2012 Model BIT and other U.S. IIAs prohibit the expropriation of covered investments except: (1) for a public purpose; (2) in a non-discriminatory manner; (3) upon payment of prompt, adequate, and effective compensation; and (4) in accordance with due process of law and the MST. Direct expropriation of an investment occurs when the host country deprives the investor of the value of its investment by, for example, transferring title in the investment to the state. By contrast, an indirect expropriation occurs when the investor retains title to the investment but cannot make economic use of the investment for a significant period of time because, for example, of government regulations that substantially interfere with the investor's use of the investment. As with tribunals' interpretations of the MST, some observers raised concerns about early NAFTA decisions interpreting the legal standard for indirect expropriation. For example, in Metalclad Corp. v. Mexico , the tribunal wrote that an indirect expropriation includes "not only open, deliberate and acknowledged takings of property, such as outright seizure or formal or obligatory transfer of title in favour of the host State, but also covert or incidental interference with the use of property which has the effect of depriving the owner, in whole or significant part, of the use or reasonably-to-be-expected economic benefit of property even if not necessarily to the obvious benefit of the host State." To address concerns raised by these decisions, the 2012 Model BIT contains an annex that specifically spells out the factors a tribunal must consider when determining whether an indirect expropriation has occurred. These factors mirror those in the U.S. Supreme Court decision in Penn Central , a case that determined the test for regulatory takings under the Fifth Amendment of the U.S. Constitution. The factors consist of: (i) the economic impact of the government action, although the fact that an action or series of actions by a Party has an adverse effect on the economic value of an investment, standing alone, does not establish that an indirect expropriation has occurred; (ii) the extent to which the government action interferes with distinct, reasonable investment-backed expectations; and (iii) the character of the government action. An investor's reasonable expectations have played a key role in the outcome of arbitral decisions on expropriation. As with many of the NAFTA tribunal decisions involving the MST, for an indirect expropriation claim to succeed, an investor's reasonable investment-backed expectations must generally result from "targeted" promises made by the host state to the investor regarding treatment of its investment. However, when the law in a particular field is uncertain, the investor may have difficulty establishing that it had reasonable investment-backed expectations regarding regulation of its investment. In addition, when an investor enters a heavily regulated field (e.g., manufacture and sale of tobacco products), it may expect that its investment will be further regulated. Recent U.S. IIAs have specifically provided that nondiscriminatory regulatory measures generally do not result in indirect expropriations. For example, the 2012 Model BIT states that: Except in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations . Nondiscrimination provisions are a common feature of international trade agreements. Generally, such provisions prohibit discrimination against foreign entities as compared to similarly situated domestic entities (national treatment) and proscribe discrimination against foreign entities as compared to similarly situated foreign entities of another country (most favored nation or "MFN" treatment). A measure of a host country (e.g., a law, regulation, or practice) may discriminate against a foreign investor or investment on its face ( de jure discrimination) or when applied to the investor or investment ( de facto discrimination). Some U.S. IIAs require that a host country provide the investor or investment with the better of national treatment or MFN treatment for the full life cycle of the investment. To establish a national treatment violation under an IIA, one NAFTA tribunal has indicated that a claimant must show that the investors or investments "(i) were accorded treatment by the Respondent with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments; (ii) were in like circumstances with the identified domestic investors or investments; and (iii) received treatment less favourable than that accorded to the identified domestic investors or investments." Similarly, to prove a violation of MFN treatment, the claimant must establish the same criteria, except that "the applicable comparator in step (ii) above is a foreign (non-US based) investor or its investments." As indicated above, a key element in establishing a violation of these nondiscrimination provisions involves identifying a comparator "in like circumstances" with the claimant or its investment. A tribunal determining whether a comparator is "in like circumstances" with the investor or investment must typically engage in a fact-specific inquiry. At least one NAFTA tribunal has held that the host country must regulate a comparator in the same manner as the claimant or its investment. One controversy involving the MFN treatment standard is whether an investor may claim that it deserves treatment accorded to foreign investors under provisions in another IIA in force for the host country. In ADF Group Inc ., a Canadian investor argued that it should be able to import the purportedly more favorable MST from the U.S.-Albania BIT and U.S.-Estonia BIT into NAFTA. The tribunal appeared to acknowledge that the investor was entitled to the MST in these BITs; however, it disagreed with the investor that these BITs established a more favorable standard for the investor. In a more recent NAFTA arbitration, a tribunal declined to decide the issue but noted that the NAFTA parties agree that the MFN clause cannot be used in this manner. However, the tribunal proceeded to examine whether the United States' treatment of the NAFTA party investor satisfied U.S. obligations in the U.S.-Jamaica BIT. The Constitution governs how federal statutes may be enacted, amended, or repealed. Therefore, in order to amend a duly enacted statute, Congress must follow the processes established in Article I of the Constitution. Because the Constitution is superior to ISDS provisions in BITs and investment chapters in FTAs, such ISDS provisions cannot alter federal law. Although, to date, the United States has yet to lose a claim brought against it under an IIA, if it were to lose a claim in the future, the arbitration panel would not be able to amend, void the application of, or repeal the laws of the United States. Moreover, the United States has negotiated agreements that limit the remedies that an arbitration tribunal may award. For example, in both NAFTA and the 2012 Model BIT, the ISDS provisions state that a tribunal may award only monetary damages and/or restitution of property. Furthermore, if a tribunal elects to award restitution of property, the respondent state has the option of paying monetary damages in lieu of such restitution. NAFTA and the 2012 Model BIT also provide that an arbitration panel cannot award punitive damages. In addition, by limiting the available remedies, these provisions preclude an arbitration tribunal from requiring amendment, repeal, or passage of any statute or regulation in U.S. law. However, a tribunal's inability to change the laws or regulations of the United States directly does not mean that arbitration awards cannot be substantial. For example, in Occidental Petroleum Corp. v. Ecuador , the tribunal ordered Ecuador to pay Occidental $1,769,625,000—over 1 billion dollars—in damages. The tribunal rendered that award, which is one of the largest awards in favor of a claimant under ISDS arbitration, after finding that Ecuador violated an investment agreement by expropriating Occidental's property in response to Occidental transferring some of its economic interests under an oil production contract in contravention of Ecuador law. Therefore, although a tribunal lacks authority to alter a U.S. statute directly, some commentators believe that the possibility for such large monetary damages potentially could influence lawmakers and regulators when they consider proposed laws or regulations that may run afoul of IIA obligations. However, other commentators counter that the federal government faces potential monetary damages under its own domestic legal system for claims filed against the government and that most would not consider this practice a threat to democratic principles. Because the costs and fees associated with investment arbitration may amount to millions of dollars, the manner in which a tribunal apportions costs and fees among the disputing parties can have a significant impact on them. ICSID and UNCITRAL rules provide different methods for the apportionment of the tribunal's costs and the parties' fees. Under the ICSID Convention, the tribunal and Secretary-General of ICSID determine the apportionment of the fees and costs borne by the arbitrators, ICSID Secretariat, and disputing parties. The tribunal sets forth in the award the proportion of costs and fees that each party will bear. The ICSID rules do not express a preference for requiring the losing party to bear more of the costs and fees. By contrast, the UNCITRAL rules establish a more detailed framework for apportionment of arbitration costs and attorneys' fees. Article 40 provides an exhaustive list of the types of expenses that may be eligible for apportionment. Article 41 sets out the rules for determining the fees and expenses of the arbitrators. Attorneys' fees must be "reasonable." With respect to allocation of costs, the UNCITRAL Arbitration Rules appear to leave the tribunal with a large amount of discretion in apportioning the costs of the arbitration. Article 42 of the UNCITRAL rules states the following: (1) The costs of the arbitration shall in principle be borne by the unsuccessful party or parties. However, the arbitral tribunal may apportion each of such costs between the parties if it determines that apportionment is reasonable, taking into account the circumstances of the case. (2) The arbitral tribunal shall in the final award or, if it deems appropriate, in any other award, determine any amount that a party may have to pay to another party as a result of the decision on allocation of costs. Tribunals apportioning costs under ICSID rules have indicated an inclination to award half of the costs of arbitration to each party when the case presented complex and novel questions. Once an investment tribunal has rendered an award in an ISDS case, a respondent state may decide to compensate the investor voluntarily. However, if the state does not do so, an investor may seek to enforce the award against the respondent state in a court with jurisdiction over the state's assets. This section analyzes international treaties and U.S. laws pertaining to the recognition, enforcement, and execution of investment arbitration awards against foreign countries and the United States in U.S. courts. For purposes of this section, "recognition" of an arbitral award rendered by an investment tribunal under a U.S. IAA involves a U.S. court's domestication of the award so that it is equivalent to a judgment of the courts of the United States. "Enforcement" of an award refers to a court "converting the [award] into a judicial judgment that orders an award debtor to comply with the award, including paying any monetary sum due." "Execution" of a judgment refers to measures taken by the investor when the host country declines to pay compensation in accordance with the judgment. The ICSID Convention would appear to limit the ability significantly of an ICSID-member country, such as the United States, to refuse to recognize and enforce an award rendered under the ICSID Convention (i.e., when the investor's home state and the host country are both members of the ICSID Convention and the dispute falls under that Convention). Under ICSID Convention Article 54: Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State. A Contracting State with a federal constitution may enforce such an award in or through its federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state. Furthermore, Article 53 of the ICSID Convention states that the award binds the parties and "shall not be subject to any appeal or to any other remedy except those provided for in this Convention" (e.g., interpretation, revision, or annulment). When implementing the ICSID Convention in federal law, Congress provided that the award of a tribunal under Chapter IV of the ICSID Convention "shall create a right arising under a treaty of the United States." Any requirement that a party pay compensation under an award "shall be enforced and shall be given the same full faith and credit as if the award were a final judgment of a court of general jurisdiction of one of the several States." As commentators have noted, this would appear to establish a limited role for a U.S. court to review an ICSID Convention award. For those arbitrations that do not take place under the ICSID Convention (i.e., either the investor's home country, the host country, or both, is not a party to the ICSID Convention), an investor might be able to pursue recognition and enforcement of an award under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) in states party to the convention. There are 154 countries party to this convention, according to UNCITRAL. The New York Convention, which Congress has implemented in the Federal Arbitration Act (FAA), applies only to recognition and enforcement of awards: (1) "made in the territory of a state" different from the one in which a party seeks recognition and enforcement of the award; or (2) that are considered to be "foreign" awards in the state in which recognition and enforcement is sought. The New York Convention provides that contracting states shall recognize the awards "as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon," subject to certain conditions. The New York Convention supplies somewhat broader means of challenging recognition and enforcement of an award on the grounds that the party seeking to prevent enforcement can show that, for example, the arbitrator exceeded its powers, the responding party was unable to present its case, or recognition or enforcement of the award would be contrary to the public policy of the country where enforcement is sought. Although the ICSID and New York conventions, as implemented in federal law, would appear to limit the grounds on which a U.S. court may refuse to recognize and enforce an arbitral award, neither convention purports to affect contracting states' laws regarding the execution of judgments. With respect to execution of a judgment (resulting from recognition and enforcement of an arbitral award) on the assets of a country located in the United States, the ICSID Convention defers to each member-country's laws, which may provide sovereign immunity from execution on certain assets of a foreign country located in the United States. The ICSID Convention provides that "[e]xecution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought." Moreover, Article 55 of the ICSID Convention provides that "[n]othing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution." Thus, in the case of parties seeking to obtain execution of a judgment on a foreign country's assets in the United States, the protections of the Foreign Sovereign Immunities Act of 1976 (FSIA) could potentially apply. FSIA places limits on the types of property that a federal or state court may order to be seized in satisfaction of a judgment against a foreign country. It also may require the entity seeking execution of a judgment to serve notice on the foreign country prior to execution and to wait until a certain amount of time has elapsed before execution on the country's assets. Generally, enforcement of an arbitral award by execution against U.S. assets of a foreign country is limited to assets of the country used for a "commercial activity in the United States." In addition, certain foreign military and central bank or monetary authority property may retain immunity from execution. As noted above, an ISDS tribunal has never ordered the United States to pay compensation to an investor in an ISDS case. If the United States lost a case, it seems unlikely that it would refuse to compensate a foreign investor. However, in the unlikely event that it did refuse to pay, an investor could potentially seek recognition of an investment arbitration award rendered against the United States in federal court on the grounds that the United States has waived its sovereign immunity from suit under the Tucker Act and the relevant investment treaty. Assuming that the award qualified for recognition and enforcement under the ICSID Convention, New York Convention, or other relevant treaty, then, as discussed above, it appears that the court would have limited grounds on which to refuse recognition and enforcement of the award. However, even if the investor obtained recognition and enforcement of an award, the United States has not waived its sovereign immunity from execution of the award (now a judgment) under the Tucker Act, and thus the investor would appear to be unable to collect on the judgment if Congress has not appropriated funds for payment of the judgment. However, the United States would still have an international obligation to comply with the judgment.
|
Ongoing trade negotiations among the United States and several Pacific Rim countries regarding the proposed Trans Pacific Partnership (TPP) agreement and between the United States and the European Union with respect to the proposed Transatlantic Trade and Investment Partnership (T-TIP) agreement have rekindled debate over the value of including investor-state dispute settlement (ISDS) provisions in bilateral investment treaties (BIT) and trade agreements. Congress plays an important role in the approval and implementation of U.S. international investment agreements (IIA), and, therefore, in the approval of ISDS provisions within those agreements. ISDS provisions in IIAs enable an aggrieved investor, with an investment in the territory of a foreign host government, to bring a claim against that government for breach of an investment agreement before an international arbitration panel. The United States has negotiated a number of BITs and free trade agreements (FTA) that contain ISDS arbitration procedures for resolving investors' claims that a host country has violated substantive obligations intended to protect foreign investors and investments from discriminatory, unfair, or arbitrary treatment by the host government. Under U.S. IIAs, the investor and respondent country may agree that the tribunal will conduct the proceedings according to certain procedural rules, such as the International Centre for Settlement of Investment Disputes (ICSID) Rules of Procedure for Arbitration Proceedings; the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules; or the ICSID Additional Facility Rules for disputes in which either the investor's home country or the host country, but not both, is a member of ICSID. This report focuses on the legal implications of ISDS provisions in U.S. IIAs. Among other things, it discusses who may bring a claim under an IIA; how arbitrators conduct such proceedings; the remedies available to the disputing parties; and how tribunals have interpreted certain substantive obligations contained in U.S. IIAs. Furthermore, the report will discuss the interplay between IIAs containing ISDS provisions, investment arbitration decisions, and domestic law within the United States, as well as the recognition and enforcement of arbitral awards against countries in U.S. courts. Notably, the ISDS provisions within one IIA may differ from the ISDS provisions in other agreements. This report will focus on the provisions contained in the investment chapter of the North American Free Trade Agreement (NAFTA) because nearly all ISDS cases brought by investors against the United States have been brought under that agreement. It will also focus on the investment provisions contained in the United States' 2012 Model BIT, which is the document that U.S. officials use to negotiate U.S. BITs, and the Korea-U.S. free trade agreement (KORUS), which has the most recent congressionally approved FTA investment chapter, to show the types of provisions U.S. diplomats may seek to include in the TPP and T-TIP. Table 1 of this report contains summaries of ISDS cases brought against the United States. Table 2 includes summaries of several ISDS cases under various IIAs that may be of interest to Congress.
|
The Impoundment Control Act (ICA), enacted as Title X of the Congressional Budget and Impoundment Control Act of 1974, established a new framework for congressional notification and review of rescissions requested by a President. The 1974 law requires the President to inform Congress of all proposed rescissions in a special message, containing specified information on each proposed rescission. With regard to congressional oversight of presidential rescissions, the ICA provides that the funds must be made available for obligation unless both houses of Congress take action to approve a rescission request included in the message received from the President within 45 days of "continuous session"; days in which either chamber is in recess for more than three days are not counted. In contrast, "enhanced rescission," briefly available under the Line Item Veto Act (LIVA) of 1996, altered the rescission framework to create a presumption favoring the President. Under enhanced rescission, spending reductions identified in special presidential messages remain permanently cancelled unless Congress enacts a disapproval bill. Should the President veto that disapproval bill, a two-thirds majority in both chambers would be needed to override the veto. As an alternative, "expedited rescission," instead of allowing Congress to ignore presidential recommendations for rescissions, facilitates congressional consideration of the rescission messages and an up-or-down vote by at least one house on the President's proposals. If either house disapproves the request, the other house need take no action because approval by both houses is necessary to make the rescission permanent. Expedited rescission bills focus on procedural changes in Congress and typically contain a detailed schedule to ensure immediate introduction of a measure to approve the President's rescission request, prompt reporting by committee or automatic discharge, special limits on floor amendments and debate, and so on. Under expedited rescission, congressional approval is still necessary to rescind the funding, but the fast-track procedures may help to encourage an up-or-down vote on the President's proposal. The expedited rescission approach has attracted support over the years, because it is generally regarded as transferring less power from Congress to the President than most other approaches that would modify the ICA framework. In 1992, 1993, and 1994, the House passed an expedited rescission bill each year . More recently, in the 109 th Congress the House passed H.R. 4890 , the Legislative Line Item Veto Act, as amended, on June 22, 2006. On January 25, 2011, Senator McCain, along with Senator Carper and 21 other original cosponsors, introduced S. 102 , the Reduce Unnecessary Spending Act of 2011, which incorporates the Administration's expedited rescission proposal from 2010 and is virtually identical to S. 3474 from the 111 th Congress. On March 11, 2011, Congressman Van Hollen introduced a companion bill (by request) as H.R. 1043 , with the same title, but which has two slight differences from the Senate bills and is virtually identical to H.R. 5454 in the 111 th Congress. These measures would amend the ICA of 1974 to provide an expedited process for consideration of certain rescission requests from the President. Within 45 days after signing a bill into law, the President would be able to submit a package of rescissions for reducing or eliminating discretionary appropriations or non-entitlement non-appropriated funding contained in the bill as enacted. Such proposed rescissions from the President would be considered as a group and would be subject to expedited procedures in Congress, designed to make an up-or-down vote on the package more likely. More detailed consideration of these bills, along with some other expedited rescission measures from the 111 th Congress, is provided in the following section. President Obama sent his budget submission for FY2012 to Congress on February 7, 2011. As was the case with his previous two budgets, President Obama endorsed various proposals for reforming the budget process, including an expedited process for considering rescission requests (exemplified in S. 102 and H.R. 1043 ). The discussion accompanying the FY2012 submission stated, "In sum, the [expedited rescission] proposal provides the President with important, but limited powers that will allow the President and Congress to work together more effectively to eliminate unnecessary funding." On March 15, 2011, the Senate Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security, held a hearing titled "Enhancing the President's Authority to Eliminate Wasteful Spending and Reduce the Budget Deficit." Four witnesses testified, including two from the Congressional Research Service at the Library of Congress and two from private sector entities. Later in this report, some possible issues for Congress relating to expedited rescission authority for the President are identified and examined under the two rubrics of budgetary savings and respective prerogatives of the President and Congress. At the March hearing in the Senate, such issues were considered. The witnesses seemed to concur that while budgetary savings to be achieved with expedited rescission might be relatively modest, the mechanism still may prove helpful in deficit reduction efforts. For example, Senator Carper stated in his opening remarks that while expedited rescission authority "is not a silver bullet or a magic solution to our fiscal problems," the approach "may well prove to be a useful tool in our toolbox." The witness from the Committee for a Responsible Federal Budget suggested that expedited rescission authority for the President might "increase [congressional] accountability and serve as a deterrent to Members for adding low-priority spending that is likely to be included in a Presidential rescissions package." There likewise appeared to be some consensus among the witnesses and Members present that S. 102 would not encounter the same constitutional problems cited by the Supreme Court in its decision striking down the 1996 Line Item Veto Act. The witnesses and most Members present at the hearing also tended to agree that providing expedited rescission authority for the President would not lead to any enhancement of power for the executive branch. Senator Carl Levin, however, indicated that he "couldn't disagree more" with this assessment. According to the Senator, expedited rescission would give the President additional power to advance his rescission proposals, particularly in the Senate. In the Senator's view, the expedited procedures in S. 102 that would mandate an up-or-down vote on a rescission package, without any amendments, without motions to table, and with very limited time for debate, embodied procedural restrictions not often employed in the Senate, and would unduly advantage passage of the Administration's rescission package in comparison to alternative rescission measures. On March 4, 2009, the Congressional Accountability and Line-Item Veto Act was reintroduced in the 111 th Congress. In the Senate, S. 524 was cosponsored by Senators Feingold and McCain, and in the House H.R. 1294 was introduced by Representatives Paul Ryan and Mark Kirk. Senator Gregg and cosponsor Senator Lieberman introduced S. 640 , the Second Look at Wasteful Spending Act of 2009, on March 19, 2009. S. 640 was similar to a bill in the 109 th Congress, S. 3521 (Title I) as reported by the Senate Budget Committee in 2006 (then chaired by Senator Gregg). Senator Carper, along with 20 cosponsors, introduced S. 907 , the "Budget Enforcement Legislative Tool Act of 2009," on April 28, 2009. The Senate Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security, on December 16, 2009, held a hearing on "Tools to Combat Deficits and Waste: Expedited Rescission Authority," and considered S. 524 , S. 640 , and S. 907 . The Senate Judiciary Subcommittee on the Constitution held a hearing on May 25, 2010, focusing on "The Legality and Efficacy of Line-Item Veto Proposals," with reference to the three expedited rescission measures pending in the Senate and the proposal from the Administration, later introduced as S. 3474 (see below). On May 24, 2010, President Obama transmitted an Administration draft bill providing for expedited rescission procedures to Congress, called the Reduce Unnecessary Spending Act of 2010. As discussed already, slightly differing versions of the measure have been reintroduced in the 112 th Congress as S. 102 and H.R. 1043 . The proposal would provide expedited rescission procedures for consideration of certain requests from the President. Within 45 days after signing a bill into law, the President would be able to submit a package of rescissions for reducing or eliminating discretionary appropriations or non-entitlement mandatory spending contained in the bill as enrolled. The measures provide that certain proposed rescissions from the President would be considered as a group and would be subject to expedited procedures in Congress, designed to ensure an up-or-down vote on the package. On May 28, 2010, the Administration proposal was introduced as H.R. 5454 by Representative Spratt. On June 9, 2010, Senator Feingold introduced S. 3474 , with two changes from the Administration draft, as discussed below. Expedited rescission proposals received notable attention, but varied levels of support in the 111 th Congress. The hearings in the Senate by the Subcommittee on Financial Management and by the Subcommittee on the Constitution were both chaired by proponents of pending measures—Senator Carper and Senator Feingold. Both hearings were predominantly favorable in their treatment of an expedited process for certain rescissions requested by the President. On June 17, 2010, the House Budget Committee held a hearing focused explicitly on the "Administration's Expedited Rescission Proposal." The sole witness was the Acting Deputy Director of the Office of Management and budget (OMB), Dr. Jeffrey Liebman. This hearing revealed differences of opinion among Members present regarding the expedited rescission bills under consideration. Some voiced opposition to the basic approach, viewing it as disadvantageous to Congress in relation to the President. On the other hand, the ranking member offered strong support for expedited rescission generally, as did others from the majority side. As described in a news article, "The [Administration's] proposal received a mixed response from [Budget] panel lawmakers, who are notoriously protective of preserving their constitutional spending powers." The OMB witness provided an upbeat view, stating, "I am encouraged that the Administration's proposal has received bipartisan and bicameral support.... We applaud these efforts, and look forward to working with Congress to hammer out the details and enact this authority into law." Representative Spratt, former chairman of the Budget Committee, had been a supporter of the expedited rescission approach for many years and introduced H.R. 5454 by request. He nonetheless raised a number of concerns during the Budget Committee hearing. For example, he questioned whether a 45-day period for executive branch review of spending measures might be too long. Dr. Liebman explained that OMB's major concern was the prospect of an omnibus bill being passed in mid-December with some staff away for the holidays and time pressure for final decisions on the President's upcoming budget submission to Congress in early February, but OMB could probably agree to a shorter window for submitting rescission packages for a regular appropriations law. The chairman also expressed concern that the Member who had "sponsored" an item contained in the rescission package would be guaranteed a minimum time allotment during floor debate to defend and justify the provision. Representative Spratt, on the other hand, expressed pleasure with cosponsors of H.R. 5454 that "span the Democratic [Party] spectrum" and stated, "I look forward to working with all interested parties as we consider ways to improve this bill and move it through Congress." Several other measures in the 111 th Congress would have established expedited rescission procedures, including H.R. 1294 (companion to S. 524 ), H.R. 1390 , H.R. 4921 (companion to S. 907 ), and S. 3423 . Other bills would have provided for expedited rescission along with various other budget process reforms, such as increased earmark accountability or spending controls. In the 111 th Congress, H.R. 3268 , H.R. 3964 , S. 1808 , and S. 3026 provided examples of such omnibus budget process bills. None of the expedited rescission measures received further action in the 111 th Congress. The following analysis provides a comparative overview of some major features in the three Senate measures considered in hearings in the 111 th Congress along with House companion bills ( S. 524 / H.R. 1294 , S. 640 , and S. 907 / H.R. 4921 ). The Obama Administration's bill, introduced in the 112 th Congress as S. 102 and H.R. 1043 , is also featured in the table. It was previously introduced in the 111 th Congress as H.R. 5454 and S. 3474 . Two modifications appearing in the Senate bills have been noted in the table and would affect the deadline for submission of special rescission messages by the President and the disposition for any savings realized. All of the measures featured in Table 1 would share a similar purpose of establishing expedited procedures in Congress for the consideration of certain rescission proposals by the President by amending the ICA to add the new features. As described above, under the framework established by the ICA, the President may propose to rescind funding provided in an appropriations act by transmitting a special message to Congress and obtaining the support of both houses within 45 days of continuous session. If denied congressional approval during this time period, either by Congress ignoring the presidential rescission request or by one or both houses rejecting the proposed rescission, the President must make the funding available to executive agencies for obligation and expenditure. While all four bills would have amended the ICA, the changes to the ICA contained in S. 524 would have been the most extensive. S. 524 would have amended Title X of the ICA by striking all of the existing Part B, "Congressional Consideration of Proposed Rescissions, Reservations, and Deferrals of Budget Authority," with the exceptions of Sections 1016 (regarding suits by the Comptroller General) and 1013 (pertaining to deferral authority of the President), and likewise striking all of Title X, Part C, which contains the Line Item Veto Act of 1996 ( P.L. 93-344 ), overturned by the Supreme Court in 1998. In lieu of these deletions, the provisions of S. 524 would have been added to Title X. Some of the provisions in S. 524 would have directly replaced a deleted section, such as that containing definitions. Three existing sections of Title X , Part B, however, would have been eliminated outright in S. 524 , including Section 1014, providing for the transmission of messages from the President to Congress and to the Comptroller General and for publication of messages in the Federal Register; and Section 1015, providing for review of rescission and deferral actions and reporting to the Congress by the Comptroller General. Deletion of these sections might well have decreased transparency in the rescission process. Arguably the most significant of the deletions in Part B would have been Section 1012, containing the original provisions for rescission of budget authority; henceforth the President would be limited to submitting rescission requests under the expedited procedures. In contrast, S. 640 would have retained Title X, Parts A and B as is, but struck Part C (in effect, deleting the LIVA provisions), and would have added the text of the expedited rescission bill, which would have become the "new" Part C. Provisions found in S. 907 would have inserted the text of the act with its expedited rescission procedures immediately after existing Part B, Section 1012 (original rescission provisions) and then would have redesignated Sections 1013-1017 as Sections 1014-101. Like S. 640 , S. 3474 would have deleted Part C and replaced it with the bill language, but S. 3474 would also have added clarifying amendments to Part A (containing general provisions). In brief, while S. 524 would have replaced existing provisions in the ICA with those in the new act, S. 640 , S. 907 , and S. 3474 would have provided the new expedited rescission authority in addition to the existing ICA provisions. As shown in Table 1 , the bills differed in the scope of new authority that would have been granted to the President. Under S. 524 , special messages from the President could have proposed rescission of any congressional earmarks, as well as cancellation of certain limited tax and tariff benefits. In S. 907 , the purview of expedited rescission authority would have applied solely to amounts of discretionary budget authority and could not have exceeded 25% of the total appropriated for any authorized programs. Under the Administration bill the President could propose to rescind any new budget authority or non-appropriated mandatory spending except for entitlements. The scope of the new expedited rescission authority in S. 640 , arguably the most far reaching, would have covered entire amounts of discretionary budget authority in appropriations acts or represented separately in committee reports, certain limited tax benefits, and new items of direct spending, meaning budget authority provided in other than appropriations acts, mandatory spending provided in appropriations acts, and entitlement authority. The proposed deadlines for the President to submit special rescission or cancellation messages following enactment of a relevant measure varied considerably, according to the data in Table 1 . S. 907 would have allowed 3 days, S. 524 would have allowed 30 days, S. 3474 would have allowed 45 days, while S. 640 would have allowed one year. Note that H.R. 1043 and S. 102 differ with regard to deadlines. The original Administration language would be retained in H.R. 1043 , 30 days of congressional session, whereas S. 102 would revise the window to 45 calendar days, the latter period generally expected to have fewer days. Regarding limits on the number of special messages permitted the President when using the expedited rescission authority, S. 524 would have provided for a limit of one special message for each regular act and two for an omnibus budget reconciliation or appropriation measure. Similarly, S. 102 would allow one special message per regular appropriations act and two messages for a continuing resolution, supplemental measure, or omnibus measure. S. 640 would have permitted up to a total of four special messages in a calendar year, including one submitted with the President's budget. S. 907 would have allowed one message per act unless the act included appropriations accounts under the jurisdiction of more than one appropriations subcommittee; in the latter case, the President would have transmitted a special message and approval bill for each subcommittee involved. None of the bills would have allowed the President to propose duplicative proposals for rescinding the same funds. Some provisions were unique to one measure, as depicted in Table 1 . For example, only S. 524 contained a sense of the Congress provision regarding abuse of the proposed cancellation authority by the President or other executive branch official vis-a-vis a Member of Congress. These provisions paralleled language in the House-passed version of expedited rescission in the 109 th Congress ( H.R. 4890 ). Other types of provisions appeared, not necessarily in the same form, in more than one of the bills. For example, S. 524 and S. 640 and S. 102 (in a modification from the Administration draft) stipulate that any amounts rescinded or cancelled would have been or would be dedicated only to reducing the deficit or increasing a surplus, whereas explicit provisions for using any savings for deficit reduction were not found in S. 907 . On the other hand, H.R. 1043 , retaining the language in the Administration draft, stipulates that any funds rescinded under parts B or C would revert back to the fund from whence they came, rather than being used for purposes of deficit reduction. All of the bills mandated expedited or fast-track procedures for committee action and floor consideration which do not allow for amendments, but the Administration bill ( S. 102 / H.R. 1043 ) show three differences "from other fast-track no-amendment procedures that exist or have existed in recent decades." First, the House clerk, when turning the rescission package into a bill, would omit individual rescissions "that are not eligible for the fast-track procedure," as determined by the chairman of the House Budget Committee, following required consultations. Examples of impermissible rescissions would include a request to rescind funding from an entitlement program or from some other bill besides the recently enacted funding bill covered in the special message. A second new feature would allow any Member, during floor consideration of the approval bill in the House, to "raise a point of order against any numbered rescission in the package on the grounds that it contains impermissible matter, and if the point of order is sustained, the item is automatically knocked out of the package." The third innovation would allow any Senator likewise to raise a point of order "claiming that the House-passed package contains impermissible matter." If sustained, the package would not be altered but the approval bill would immediately lose the fast-track protections and would become subject to standard Senate rules. The President's authority to temporarily withhold funds proposed for rescission was directly addressed in three of the measures. S. 524 and S. 640 would have allowed withholding of such funds for a period not to exceed 45 calendar days from the transmittal or receipt of the President's special message, whereas S. 102 would allow withholding for a period not to exceed 25 calendar days in which the House or Senate had been in session. In comparison, the ICA currently allows the withholding of amounts proposed for rescission for 45 calendar days of continuous session of Congress, which would almost always constitute a longer period of time than that provided in any of the three aforementioned provisions in expedited rescission bills. In S. 907 , as in the ICA, there was a "Requirement to Make Available for Obligation" section. The ICA requires the release of funds included in a special rescission message unless Congress completes action on a rescission bill within the prescribed 45-day period. On the other hand, S. 907 would have required that funds proposed in a special message be released on the day following defeat of the approval measure in either chamber, which arguably creates an incentive for congressional action on a proposed rescission package beyond the framework of expedited procedures. Finally, all the bills had or have sunset provisions. Authority in S. 640 would have expired on December 31, 2010, in S. 907 , on the date in 2012 when Congress adjourns sine die, and in S. 524 , on December 31, 2014. Expedited rescission authority in the 112 th Congress bills would continue until December 31, 2014. There are some broader considerations related to expedited rescission measures that may be of interest to Congress. A variety of issues may be placed under the rubric of two general topics. The discussion which follows focuses first on expedited rescission procedures and possible budgetary savings and then turns to the possible effects of expedited rescission authority on the respective prerogatives of the legislative and executive branches. A central issue in assessing an expedited rescission proposal is the potential impact of the new device on the federal budget process and deficit reduction. Experience with the line item veto, generally viewed as a more powerful tool than expedited rescission, suggests that the amounts that might be saved by permitting the President to exercise expedited rescission authority could be relatively small. As an example, in 1988, the Administration released a study indicating what President Reagan would have item-vetoed in a continuing resolution for FY1988 had he the authority. Out of $1.064 trillion in outlays, he would have eliminated $336.1 million in appropriations, $403.1 million in programs repealed or amended, and $801 million in loan assets sales, for a total of $1.540 billion. As noted already, the LIVA of 1996 was overturned by the Supreme Court in June, 1998. All together in FY1997, President Clinton issued 11 special messages containing 82 cancellations under the LIVA. The 38 cancellations in the Military Construction Appropriations bill, however, were rejected with the congressional override of the presidential veto of the bill disapproving the cancellations. The cancellation of the provision in the Treasury bill providing for an open season for federal employees to switch pension plans was held impermissible under the law, and a district court judge ordered its reinstatement early in 1998. So slightly more than half of the original cancellations (43 of 82) remained in effect when the Supreme Court overturned the LIVA in June 1998. According to figures provided by the Congressional Budget Office (CBO), President Clinton's cancellations in FY1998 under the LIVA amounted to about $355 million out of a total budget of $1.7 trillion (less than 0.02%). Of this total, about $30 million came from the 39 cancellations overturned, leaving a net budgetary effect for FY1998 of $325 million. CBO estimated total savings over a five-year period from the FY1998 cancellations as less that $600 million. One might also review the record concerning amounts proposed for rescission under the ICA. From FY1974-FY2008, Presidents proposed slightly under 1200 rescissions, totaling a little over $76 billion of which Congress approved roughly a third ($25 billion). During this period of 35 years, Presidents have requested on average $2.2 billion annually in rescissions, with $78 million of the amount approved by Congress. President George W. Bush submitted no requests during his eight years in office, nor has President Obama during his first two years in office. Supporters of expedited rescission bills acknowledge that the device would not be a cure-all for deficit reduction. For example, in a 2010 press release following his introduction of the "Reduce Unnecessary Spending Act," Representative Spratt mentioned that his "involvement with this idea [expedited rescission] dates back to the 1990s." The statement further read, in part, "Since taking the majority in January 2007, House Democrats have worked together to move several measures promoting fiscal discipline.... Expedited rescission would add another instrument to this tool kit." At the Senate hearing in March 2011, a witness from Citizens Against Government Waste noted, while discretionary spending is a serious problem, more needs to be done to limit the growth of entitlements and other government expenditures in order to bring the budget back into balance. However, that does not mean that expedited rescission authority, which would only tackle discretionary and non-entitlement spending, should be delayed until other budget problems are addressed or solved. Another consideration with respect to potential impact of expedited rescission authority for the President is a so-called "deterrent effect." If a negative consequence can reasonably be anticipated following a particular action, one might refrain from ever taking the action. Representative Paul Ryan, chairman of the House Budget Committee in the 112 th Congress, has characterized the threat of inclusion in a presidential rescission package as the "power of embarrassment and transparency." OMB's Acting Deputy Director, Jeffrey Liebman, referred to this potential effect in his statements at the Senate hearing in May and at the House hearing in June, 2010: "Knowing this [expedited rescission] procedure exists may also discourage policymakers from enacting such [unnecessary] spending in the first place." In response to a question, he noted that OMB ultimately would gauge the effectiveness of expedited rescission procedures not by how many rescission packages were approved by Congress, but rather by preventing instances of wasteful spending from being included in appropriations laws. At the Senate hearing in December 2009, testimony from the Executive Director of the National Governors Association spoke about the deterrent effect at the state level, where 43 governors have some form of the line item veto. Governors "believe that it is a very important tool for fiscal discipline. The mere threat of the veto is very powerful, particularly when the number that are overridden is so small." The witness also said there is some evidence from the states, especially during times of economic stress, that the line item "does in fact save money." For example, in Missouri during FY2007, Governor Nixon has used the veto 50 times all of which have had budget impacts and totaled about $105 million on a revenue base of $8 billion. In good economic times the line item veto is used more when the governor is actually opposed to the policy that underlies the appropriations. During hard fiscal times it is often used to eliminate low priority items. The impact of earmark disclosure arguably has similarities to increased attention to particular provisions in appropriation measures included as part in a package of rescissions subject to expedited procedures in Congress. Both the House and the Senate established new earmark transparency procedures in 2007. An analysis of data in the requisite earmark disclosure lists, typically included in the explanatory statement from a conference committee, found that in the 12 regular appropriations, the "number and value of Member-only earmarks decreased since FY2008, from 11,117 earmarks worth $12.5 billion in FY2008, to 9,281 earmarks worth $10.2 billion in FY2010, down 17% by number and 19% by value." The scope of the deterrent effect ultimately depends on political calculations by each Member of Congress. If lawmakers decide that a project is of value to their district or state and will be appreciated by their constituents, they arguably will not be deterred by the prospect of a President singling out their project for a rescission bill. From this perspective the President's action may serve to highlight their efforts to provide assistance to their district or state. The availability of expedited rescission authority to the President might encourage lawmakers to add more specified projects than is ordinarily the case. Instead of Congress placing needed constraints on projects and earmarks, lawmakers could shift more of that task to the President, by anticipating that some of the less justified congressional add-ons would be included in a rescission package that might be approved by Congress under the expedited procedures. A fundamental issue with regard to potential budgetary savings resulting from expedited rescission procedures concerns the implementation process. Some are skeptical regarding any budgetary savings resulting from expedited rescission procedures, since the process would become a component of House and Senate rules. This status may raise concerns about effectuation of expedited rescission procedures. Will the intended outcome—an up or down vote on eligible rescission requests from the President—actually occur? Chamber rules provided in statute carry over from one Congress to the next; other rules may need to be approved anew by each Congress to continue in existence. A chamber may amend its rules at any time, however. Rules of the House and Senate are enforced by Members making motions pursuant to them. While chamber rules lack the force of law, they may nonetheless be sufficiently heeded and respected in congressional deliberations as to have considerable impact. For example, the congressional budget resolution is based on chamber rules. Although the budget resolution is not legally binding, it has come to play a central role in the congressional budget process. In the form of a concurrent resolution, the budget resolution "represents an agreement between the House and Senate that establishes budget priorities, and defines the parameters for all subsequent budgetary actions." While deadlines have been frequently missed, in the 36 years since the inception of the congressional budget process in 1974, Congress has adopted at least one budget resolution in all but five years. The potential savings from expedited rescission also would depend upon the breadth of coverage granted to the President. As indicated back in Table 1 , the Administration bill would apply to funding of new spending and obligation limits, except to the extent that the funding is provided for entitlement law. The OMB Deputy Director, in response to a hearing question, stated that this language was chosen "to prevent a potential loop hole" of excluding de facto spending provisions found in authorization bills (which would be off limits for inclusion in a President's special rescission package subject to expedited procedures). Some would prefer that the expanded authority for the President be more inclusive, covering entitlement spending and limited tax benefits, along with discretionary budget authority. The annual total for discretionary spending according to OMB's current services projections for FY2011 ($1.5 trillion) is considerably less than that for mandatory programs ($2.1 trillion). The total for only the 10 largest tax benefits (expenditures) for FY2011 has been projected at $642.7 billion. As an example of such expanded coverage, the Line Item Veto Act of 1996 applied to new items of direct spending. Also subject to LIVA procedures were targeted tax benefits, or revenue-losing measures with 100 or less beneficiaries, as identified by the Joint Committee on Taxation. In the 109 th Congress, H.R. 4890 as introduced retained the definition of targeted tax benefit as affecting 100 or fewer beneficiaries, but would have allowed the President to identify the provisions by default. The House bill, reported as amended and then passed by the full chamber, narrowed the definition of a targeted tax benefit to a revenue-losing measure affecting a single beneficiary, with the chairs of the Ways and Means and Finance Committees to identify such provisions. Supporters of the substitute version in 2006 suggested that it would treat targeted tax benefits comparably to earmarks in appropriations bills. Critics countered that the new definition was too narrow, and that few tax benefits would be subject to cancellation. At the House hearing in June 2010, the Acting Deputy Director of OMB said, in response to questions, that he thought it would be "very difficult" to bring entitlement spending under the Administration bill, because such provisions generally were not in the form of a dollar amount, but rather entailed more extended policy language. Subjecting limited tax benefits to expedited rescission, according to Dr. Liebman, would be "even more difficult," due to interactions between the tax expenditures provisions and other parts of the revenue code. On the other hand, one might revisit the definitions in the LIVA of 1996 for "new item of direct spending" and "targeted tax benefits," and consider their practicability for an expedited rescission measure. Finally, some have suggested that rather than leading to budgetary savings, the availability of expedited rescission authority could potentially increase spending under some circumstances. An Administration might agree not to include particular programs in a rescission package subject to expedited procedures if a Member of Congress agreed to support a spending program initiated by the President. In testimony before the Senate Budget Committee in 2006, Donald Marron, Acting Director of CBO, said with respect to expedited rescission measures, "Congress might accommodate some of the President's priorities in exchange for a pledge not to propose rescission of certain provisions, thereby increasing total spending." As noted already, the Supreme Court overturned the LIVA with its enhanced rescission framework in the case of Clinton v. City of New York in 1998. By a 6-3 vote the Court held that the LIVA violated the Presentment Clause in the Constitution (found in Article I, Section 7, clause 2), by allowing the President to cancel provisions of enacted law. In the three hearings on expedited rescission held in the 111 th Congress, witnesses generally agreed that the expedited rescission measures under consideration would have avoided the constitutional issues found in the LIVA. For example, Todd Tatelman, a CRS legislative attorney, testified that proposals such as S. 907 and S. 524 in the 111th Congress, which would have established expedited procedure for congressional consideration of certain rescissions recommended by the President, but still would have required passage of a bill or joint resolution and presentment to the President, "appear consistent with Article I, §7 and, therefore, arguably are not susceptible to the constitutional analysis that fated the Line Item Veto Act." Mr. Tatelman noted that other constitutional questions may remain relating to expedited rescission measures. At the Senate hearing in March 2011, Mr. Tatelman again appeared and assessed the constitutionality of S. 102 , the Reduce Unnecessary Spending Act of 2011, concluding that S. 102 "which relies on expedited procedures for congressional consideration. but nevertheless would require the passage of a bill or joint resolution and presentment to the President" also appeared to avoid the constitutional problem with the 1996 law. However, there remain other possible constitutional questions relating to expedited rescission: "These include the lack of authority to legally bind future congresses to act on Presidential rescission requests, as well as the possibility that authorized periods of executive deferral or impoundment may be interpreted to be a violation of the doctrine of separation of powers." In his opening statement at the hearing of the Senate Subcommittee on the Constitution in May 2010, Chairman Feingold noted, "While we seek to find ways to support our goal of cutting wasteful spending, it is essential that any new budget tools we create be constitutional." The review of the Administration's expedited rescission proposal in the FY2012 budget submission suggested that the proposal is "fundamentally different" from the Line Item Veto Act of 1996, since under the proposal, Congress, "which is empowered to set its own rules, changes those rules under which it considers rescission packages proposed by the President—using well-established fast-track procedures." Some observers have pointed out that at a congressional hearing on a measure such as expedited rescission, it is insufficient to predict whether the measure will pass constitutional muster. Rather, The judiciary is not entrusted to protect the legislative interests of Congress. Lawmakers must do that. They take an oath to support and defend the Constitution, which means more than satisfying judicial tests and standards. They are expected to protect the powers of their own branch to safeguard the system of checks and balances. At the hearing in March 2011, Senator Levin said that in his view, S. 102 (incorporating the Administration's expedited rescission proposal) probably was not unconstitutional. It would, however, relinquish some of Congress's power of the purse to the President, which was a serious matter. Senator Levin then invoked the memory of the late Senator Robert Byrd, and observed that Senator Byrd "worried about things like this"—Congress granting enhanced power to the executive branch. Aside from modest savings, some suggest that the impact of granting special rescission authority to the President with expedited procedures may well be felt in giving preference to the President's spending priorities over those enacted by Congress. At the state level, a number of studies indicate that when governors use their item veto authority, the results favor executive priorities over legislative priorities. Testimony at congressional hearings over the years has lent credence to this position. For example, in 1995, during hearings on the Line Item Veto Act, Robert Reischauer, at that time serving as Director of the Congressional Budget Office, agreed that the item veto would not produce much in savings. The more important impact would be in giving presidential spending a preference over congressional spending. Evidence at the state level, he said, "suggests that the item veto has not been used primarily to hold down overall State spending, but rather it has been used by governors to substitute their priorities for those of the legislatures." Experience at the national level convinced Dr. Reischauer that Presidents would seek item-veto authority to direct greater resources to their own spending agendas. Similarity, in December 2009, the witness from GAO concluded her testimony before a Senate subcommittee by stating, "In summary ... we believe that 35 years of experience show that the rescission process as designed [in the ICA] has been used by Presidents to advance their own priorities for spending cuts." In the years since 1974, however, there also have been some instances when Congress reasserted legislative priorities over those sought by the President via rescission messages. During the presidential election year of 1992, the use of rescissions became a controversial and highly partisan political issue to an extent not seen since the conflicts of the Nixon Administration, leading up to the enactment of the Impoundment Control Act. Arguably in apparent anticipation of the upcoming elections, President George H.W. Bush submitted a plethora of rescission requests, in an apparent effort to secure partisan political gain vis-a-vis the Congress, where both chambers were controlled by the Democratic Party. Specifically, during the first four months of calendar year 1992, the President requested 128 rescissions, totaling almost $7.9 billion, while reportedly attempting to portray the Democratic-Party-controlled Congress as more interested in securing domestic "pork" projects for their constituents than in reducing the budget deficit. Over $7 billion of these proposed rescissions affected the Defense Department, mainly for weapons programs that the Administration wanted to terminate or items that Congress added to earlier defense budgets. Many of the nondefense rescissions were for small earmarked projects, added by Congress. In response to the four packages of rescissions requested by President Bush, in April 1992 the House and Senate Appropriations Committees devised their own alternative packages and reported separate measures, each accepting some rescissions proposed by the President, rejecting others, and providing alternative spending cuts. A conference version with an $8.2 billion package of rescissions was signed into law on June 4, 1992 ( P.L. 102-298 ). Although the conference agreement contained over $7 billion in defense funds, only about $1.7 billion of that total came from programs that the Administration had wanted to rescind. In toto, the law approved less than $2.1 billion of the rescissions requested by President Bush, but added more than $6 billion in congressionally initiated cuts. The enactment of a rescissions disapproval bill in 1997 pursuant to the LIVA of 1996, by overriding President Clinton's veto by a two-thirds majority in both chambers, may be contrasted with the relative ease of rejecting a President's package of rescission requests by simple majority vote in either the House or the Senate, under expedited procedures as provided in bills pending in the 111 th Congress. President Clinton sought to cancel 38 projects in the military construction bill, estimating that this would save $290 million over a five-year period. He identified three criteria that guided the selections: 1. the Defense Department concluded that the projects were not a priority at the time; 2. the projects did not make an immediate contribution to the housing, education, recreation, child care, health, or religious life of the military service; and 3. they would not have been built in FY1998 in any event. These justifications came under substantial criticism. The Senate Appropriations Committee held hearings and took testimony from the Air Force, the Navy, and the Army. The military witnesses told the committee that the canceled projects were mission-essential and could be commenced in 1998. The Senate voted 69 to 30 to disapprove the cancellations. The House voted 352 to 64 for the disapproval resolution. President Clinton vetoed the resolution, but a strong bipartisan majority overrode him by the necessary two-thirds margin. The vote was 78 to 20 in the Senate and 347 to 69 in the House. Despite instances when Congress has effectively reasserted legislative priorities over presidential rescission efforts, critics of expanding rescission authority for the President beyond that provided in the ICA may counter that spending priorities are properly established through the regular legislative process, with the enactment of appropriations measures. In contrast, expedited rescission would allow a President to compile a list of projects previously enacted into law to be rescinded: federal spending priorities would thereby be changed by presidential rather than congressional initiative. Senator Levin expressed a similar viewpoint regarding expedited rescission authority favoring executive branch spending preferences in lieu of congressional funding priorities at the Senate hearing held in March 2011. In the context of cancelling funding previously provided in appropriations laws, one might consider the record concerning rescissions initiated by Congress. From FY1974-FY2008 Congress initiated 1,880 rescission actions totaling nearly $197.1 billion. While the ICA provides for special rescission bills, most of the rescissions initiated by Congress have been contained in other appropriations measures. The issue of needing objective criteria to be used by the executive branch in reviewing enacted appropriations measures for items to be included in a rescission package was discussed at some length during the 2010 hearing by the House Budget Committee on the Administration's expedited rescission proposal. Attention focused on the meaning of "unnecessary spending," which was not defined or mentioned in the Administration bill aside from the title. Some Members objected to the possible implication that somehow the executive branch knows how to spend federal monies better than does Congress, so that earmarks found in the President's budget are "necessary" whereas congressional earmarks are "unnecessary." Another interpretation might be that the President's budget pursues the public good instead of parochial interests advanced by Congress. Cosponsors of the bill, as well as those uncommitted, pressed for some statutory guidelines to reduce the current subjectivity of "unnecessary." The OMB spokesman acknowledged the Members' concern and promised to consider possible remedies. At the Budget Committee hearing, some Members urged OMB to submit rescission requests under the existing framework in the Impoundment Control Act, suggesting that it could at least send a "useful signal" and help to build consensus on the need to reduce spending. The cumulative record of Presidents' success with rescission requests actually indicates some effectuation with the ICA process. Based on GAO figures, from enactment of the ICA through FY2008, Congress approved 39% of presidential rescission proposals and nearly 33% of the total dollar amount of budget authority included in the requested rescissions. In response to the suggestions at the hearing to submit a rescission package under the ICA authority, however, Dr. Liebman replied that OMB decided instead to focus energy on the spending cuts and terminations that were included as a separate volume in the President's FY2011 budget submission and on advancing the expedited rescission proposal. OMB's position arguably implied that the submission of rescission requests under current procedures is so regularly ignored as to be a futile exercise. Even if futile, in the sense of requested rescissions under the ICA framework not having attracted the necessary congressional support, a presidential initiative under the ICA might be interpreted as a constructive step in exerting leadership. The issue of whose spending priorities prevail in implementation of federal appropriations laws relates to the larger subject of relations between the executive and legislative branches and separation-of-powers concerns. As noted already, various witnesses testifying on expedited rescission measures during hearings in the 111 th and 112 th Congresses attested to the apparent constitutionality of expedited rescission bills under consideration. The apparent constitutionality of a measure, however, does not preclude concerns regarding political separation of powers issues. According to one news account, expedited rescission, unlike many other issues under consideration in the 111 th Congress, had "both bipartisan support and opposition, with lawmakers often splitting between concern over Congress' 'power of the purse' and the need to do something to tackle the budget deficit." Leaders of the appropriations committees in Congress, who have special concern in protecting the congressional power of the purse from possible encroachment by the executive branch, have been among the most vocal critics of granting the President expanded rescission authority. In 2006, when the House passed H.R. 4890 as amended, which would have granted expedited rescission authority to the President, both the chair and ranking minority member of the House Appropriations Committee voted against the bill. House Appropriations Chairman Jerry Lewis, in testifying before the House Rules Subcommittee on the Legislative and Budget Process on March 15, 2006, suggested that the expedited rescission proposal "would shift too much power over spending to the White House." He further stated, "For us to presume that all of the problems and spending and government will be solved primarily through transferring very serious authority to the executive branch and away from the legislative branch could be a very serious error." In a statement for the floor debate, then ranking member Representative David Obey observed that Congress essentially has "three powers that combine to make it the greatest legislative body in the world." According to Obey's view, Congress had already largely ceded the ability to declare war and had "engaged in a pitiful amount of oversight and investigation" since 2001, with the only remaining power of the three being the power of the purse. "If members of this body want to diminish that [power of the purse] and further weaken the ability of the legislative body to do its job, then by all means vote for this bill. If you think it wouldn't be a good idea, then you ought to vote against it." In the Senate, Appropriations Chairman Thad Cochran supported expedited rescission in 2006. The ranking member on Senate Appropriations, however, the late Senator Robert Byrd, who was generally expected to lead a filibuster if an expedited rescission measure had received Senate floor consideration in 2006, attacked the measure during a Senate hearing, "urging colleagues not to abdicate Congress' constitutional power of the purse." The sensitivity of possibly impinging upon the constitutional power of the purse given to Congress seems implicitly acknowledged when advocates of expedited rescission authority for the President stress that their proposal would not diminish the prominent congressional role in federal spending decisions. For example, in an introductory statement accompanying S. 3474 in 2010 then Senator Feingold observed, "A line-item veto, properly structured and respectful of the constitutionally central role Congress plays, as this legislation is, can help us get back on track [to solving federal budgetary problems]." At the Senate hearing held by the Subcommittee on the Constitution on May 26, 2010, the OMB Acting Deputy Director, stated on behalf of the Obama Administration, "In sum, the [Administration] proposal provides the President with important, but limited, powers that will allow the President and Congress to work together more effectively to eliminate unnecessary spending including earmarks." His statement then expanded upon this characterization: The proposal has been crafted to preserve the constitutional balance of power between the President and Congress.... The Supreme Court found this [enhanced rescission given to the President under the LIVA] to violate the constitutional procedure for presenting a bill to the President.... The [Obama] Administration's proposal is fundamentally different from [the 1996 law]. Under our proposal, Congress, which is empowered to set its own rules, changes those rules under which it considers rescission packages proposed by the President using well-established fast-track procedures.... In other words, our proposal does not expand the Presidential veto authority in any way. On July 27, 2010, however, an article in the New York Times which focused on the departure of Peter Orszag as Director of OMB, presented a different view. According to journalist Matt Bai, As much as anyone, Mr. Orszag has promoted and carried out an effort by the White House to pry away from Congress some of the responsibility for making hard decisions, especially when it comes to the budget. In the process, he has signaled that an Administration populated from the top down by Capitol Hill alumni is intent on altering the balance of power between the branches of government. In addition to the expedited rescission proposal, the article pointed to Dr. Orszag as a strong proponent of the Medicare Independent Payment Advisory Board as a component of health care reform and the National Commission on Fiscal Responsibility and Reform. When considering the three proposals together, in Mr. Bai's opinion, all of them "would seem to represent a clear exertion of executive power over the legislative branch." Some opponents of expedited rescission measures further maintain that enactment of such procedures "would weaken Congress and make it more subservient to the presidential power ... even if courts were to find the process acceptable." In fact, the very introduction of expedited rescission bills "would send a false signal that Congress cannot be trusted as fiscal guardian but that the President can." Some suggest that under expedited rescission, the President would gain stature at the expense of Congress, whatever the outcome of action on a President's rescission package. Suppose the President submits a rescission package and Congress votes to approve it. The public arguably would have evidence that the appropriations bill passed by Congress contained wasteful spending, while the President acted as the taxpayers' guardian. On the other hand, were Congress to reject the President's rescission package, the President might again be viewed as the "winner," in attempting to reduce federal expenditures, while Congress refused to support the effort. As the statement from CBO concluded in 2006, in contemplating an expedited rescission measure, "Congress will have to weigh the potential for possibly modest budgetary benefits against possible drawbacks, which include a shift of power to the executive branch and effects on the legislative process." The shift of power from Congress to the President "might change behavior in subtle ways that are difficult to predict and observe. For example, the fast-track process for Congressional consideration of rescission proposals would decrease Congressional leaders' control over the legislative process by forcing the President's requests to the top of the list of matters for consideration." GAO testimony in 2009 also "raised a few logistical concerns." As noted in the discussion above comparing provisions found in selected expedited rescission bills, while details may vary, all would have required a prompt vote within a fixed period of time following transmittal of the President's special message. According to GAO, "Any fixed time frame cedes some control over the congressional calendar to the President. In addition, a time frame such as 10 days would limit our ability to support congressional review of the President's proposed rescissions." At the Senate hearing in March 2011, Senator Levin noted potential scheduling and procedural problems resulting from the three-day period for committee consideration of a President's rescission package, as provided for in S. 102 . In his view, such a short timeframe would not allow for adequate congressional review of the spending cuts proposed by the President. At the June 2010 House hearing, advocates of expedited rescission called attention to the operation of existing fast-track provisions, which generally have not been perceived as a threat to congressional prerogatives. Dr. Liebman from OMB suggested that a President would be motivated not to abuse expedited rescission authority, since the House and Senate could always change their own rules. In other words, Congress would retain the means to protect the legislative branch and its power of the purse from any executive branch infringement by misuse of new rescission authority. In addition, as explained in OMB's section-by-section analysis accompanying the Administration draft in May of 2010, "There is no method to provide an absolute guarantee of a [floor] vote [on the President's rescission package], because all rules of the House and Senate are implemented by persons making the motions under the rules. If no one moves to consider a piece of legislation, it will not be considered." Finally, the sunset provisions contained in prior expedited rescission measures and illustrated by the deadline of December 31, 2015, as provided in S. 102 / H.R. 1043 pending in the 112 th Congress, would provide an ultimate safeguard for congressional prerogatives. The newly granted expedited rescission authority would terminate at a date certain absent action by Congress to extend the process. Expedited rescission proposals received notable attention, but varied levels of support in the 111 th Congress. Hearings were held in both chambers, but no further action occurred. Some have viewed greater involvement by the Obama Administration in advancing an expedited rescission measure as critical to prospects for enactment. Representative Minnick was quoted in a news article in accord with this perspective: If expedited rescission is to be passed, he stated in an interview in the summer of 2010, the Administration will have "to get behind it [expedited rescission bill] and indicate it's a priority." In the budget for FY2012, transmitted to Congress on February 7, 2011, President Obama again endorsed expedited rescission procedures, specifically requesting for Congress to enact the Administration's proposal transmitted in the spring of 2010. It remains to be seen to what extent the Obama Administration may become more actively engaged in promoting enactment of such an expedited rescission measure in the 112 th Congress. Likewise, time will tell whether an expedited rescission measure is reported favorably from committee in the 112 th Congress, and whether subsequent floor action occurs. At the Senate hearing on expedited rescission held in March 2011, Senator Carper observed that expedited rescission provisions, as found in S. 102 , may be offered as an amendment to a must-pass measure, such as one raising the statutory debt limit or providing appropriations for FY2012. The author of this report concluded a statement before the Senate Subcommittee on Financial Management on March 15, 2011, by noting: "It remains an open question whether providing the President with expedited rescission authority would increase the employment or effectiveness of the rescission tool in reducing unnecessary spending." One might suggest that it also remains an open question as to what impact expedited rescission authority for the President might ultimately have on respective prerogatives of the legislative and executive branches in the federal budget process.
|
Under the framework established by the Impoundment Control Act (ICA) of 1974 (P.L. 93-344, 88 Stat. 297), the President may propose to rescind funding provided in an appropriations act by transmitting a special message to Congress and obtaining the support of both houses within 45 days of continuous session. If denied congressional approval during this time period, either by Congress ignoring the presidential rescission request or because one or both houses rejected the proposed rescission, the President must make the funding available to executive agencies for obligation and expenditure. Instead of allowing Congress to ignore presidential recommendations for rescissions, "expedited rescission" attempts to require congressional consideration of the rescission and a vote by at least one house on the proposals. If either house disapproves the request, the other house need take no action because approval by both houses is necessary to make the rescission permanent. This approach has attracted support over the years, including several bills introduced in the 111th Congress. On May 24, 2010, President Obama sent to Congress the Reduce Unnecessary Spending Act of 2010, a draft bill providing for expedited rescission procedures, which was introduced in the 111th Congress as H.R. 5454 and S. 3474. Hearings on expedited rescission proposals were held in both chambers during the 111th Congress. On January 25, 2011, Senator McCain, along with Senator Carper and 21 other original cosponsors, introduced S. 102, the Reduce Unnecessary Spending Act of 2011, which is virtually identical to S. 3474 from the 111th Congress, and a related hearing by a Senate subcommittee was held on March 15, 2011. On March 11, 2011, Congressman Van Hollen with 26 cosponsors introduced H.R. 1043, which is virtually identical to H.R. 5454 from the 111th Congress and very similar to S. 102. The two measures pending in the 112th Congress would amend the ICA of 1974 to provide an expedited process for consideration of certain rescission requests from the President. Within 45 days after signing a bill into law, the President would be able to submit a package of rescissions for reducing or eliminating discretionary appropriations or non-entitlement non-appropriated funding contained in the bill as enacted. Such proposed rescissions from the President would be considered as a group and would be subject to expedited procedures in Congress, designed to make an up-or-down vote on the package more likely. A variety of issues related to expedited rescission measures that may prove of possible interest to Congress are noted in the report. Under the rubric of budgetary savings, some existing data suggest that enactment of expedited rescission authority for the President would have a relatively small impact on federal spending. Supporters acknowledge that expedited rescission would not be a panacea for deficit reduction, but that it would provide another useful tool for promoting fiscal discipline. The potential deterrent effect of the instrument has also been noted. The possible savings to be realized from expedited rescission depends on the breadth of coverage. In a rescission package subject to expedited congressional consideration, would the President be able to include any item of discretionary spending, and what about new items of direct (mandatory) spending? Would limited tax benefits be subject to cancellation under expedited rescission procedures? Other issues come under the subject of prerogatives of the legislative and the executive branches. Would the expedited procedures result in a President's spending priorities getting preference over those enacted by Congress? What about implications for relations between the President and Congress, with particular concern about the power of the purse? This report will be updated as events warrant.
|
The 110 th Congress will consider several measures that bear directly on funding for the programs and activities of the U.S. Department of Agriculture (USDA). The 109 th Congress adjourned without completing action on the FY2007 agriculture appropriations bill ( H.R. 5384 ), which funds most of USDA for the current year. The 110 th Congress is expected to combine all unfinished appropriations bills into either an omnibus spending bill or a year-long continuing resolution that likely would hold spending at close to FY2006 levels for most discretionary programs. These funding decisions for FY2007 might intersect with congressional consideration of the FY2008 budget and appropriations, which begins shortly after the release of the Administration's budget request in early February 2007. Of interest to agriculture is the FY2008 budget resolution, whereby Congress will establish a blueprint for all federal spending over a multi-year period, which could set the fiscal parameters of the next omnibus farm bill, to be debated in 2007. (See CRS Report RL33412, Agriculture and Related Agencies: FY2007 Appropriations , coordinated by [author name scrubbed], and CRS Report RL33037, Previewing a 2007 Farm Bill , by [author name scrubbed] et al.) The 109 th Congress debated extensively whether a multi-billion dollar emergency disaster assistance package should be enacted to compensate farmers for 2005 and 2006 production losses caused by natural disasters. In the final week of the 109 th Congress, an amendment ( S.Amdt. 5205 ) that would have provided an estimated $3.8 billion in supplemental disaster aid was defeated during debate on the FY2007 agriculture appropriations bill ( H.R. 5384 ). The amendment was supported by numerous farm groups primarily in response to a severe drought in the Plains states. Opposing the amendment were the Administration and fiscal conservatives in Congress, who insisted that any assistance needed to be offset with other spending reductions. In the 110 th Congress, supporters have introduced a package of assistance ( S. 284 ) that is similar to S.Amdt. 5205 . A series of severe winter storms in late 2006 and early 2007 could broaden the scope of proposed assistance to include 2007 production losses. (See CRS Report RS21212, Agricultural Disaster Assistance , by [author name scrubbed].) Since most provisions of the current omnibus farm bill ( P.L. 107-171 , the Farm Security and Rural Investment Act of 2002) expire in 2007, the 110 th Congress will be making decisions about the content of a new farm bill. Commodity price and income support policy—namely, the methods, levels, and distribution of federal support to producers of farm commodities—is traditionally the most contentious component of a farm bill. However, other food and agricultural issues, notably those surrounding conservation, rural development, trade, domestic food assistance, and biofuels, also will be debated. A key question for the 110 th Congress will be whether to extend farm support programs as currently designed, or to adopt different approaches given the pressures of tight federal spending constraints, concerns about the distribution of farm program benefits, and the threat of potential World Trade Organization (WTO) challenges to farm price and income support spending. (See CRS Report RL33037, Previewing a 2007 Farm Bill , by [author name scrubbed] et al.) The 110 th Congress will continue to monitor the Administration's participation in the current Doha Round of multilateral trade negotiations, which has focused on agricultural trade liberalization. Negotiations were indefinitely suspended in July 2006 when a compromise agreement on reducing subsidies or expanding market access for agricultural products could not be reached. While a new multilateral trade agreement may not be in place before Congress takes up the 2007 farm bill, a new farm bill will nevertheless have to contend with existing WTO commitments in agriculture and possible challenges to U.S. subsidies in WTO dispute settlements. (See CRS Report RL33144, WTO Doha Round: The Agricultural Negotiations , by [author name scrubbed] and [author name scrubbed].) Meanwhile, the 110 th Congress will consider bilateral free trade agreements (FTAs) concluded with Colombia, Peru, and Panama, which are expected to boost U.S. agricultural exports. Separate bilateral agreements with other countries, including Malaysia and South Korea, are also being negotiated. Congress also might consider the extension of Trade Promotion Authority, which provides for expedited consideration of trade agreements and expires June 30, 2007. Other ongoing trade issues of interest to Congress include barriers to agricultural trade (see CRS Report RL32809, Agricultural Biotechnology: Background and Recent Issues , by [author name scrubbed] and [author name scrubbed], and CRS Report RL33472, Sanitary and Phytosanitary (SPS) Concerns in Agricultural Trade , by [author name scrubbed]); the scope of restrictions that should apply to agricultural sales to Cuba (see CRS Report RL33499, Exempting Food and Agriculture Products from U.S. Economic Sanctions: Status and Implementation , by [author name scrubbed]); and funding for U.S. agricultural export and food aid programs (see CRS Report RL33553, Agricultural Export and Food Aid Programs , by [author name scrubbed]). In March 2005, a WTO appellate panel ruled against the United States in a dispute settlement case brought by Brazil, stating that elements of the U.S. cotton program are not consistent with U.S. trade commitments. In response, Congress authorized the elimination of the Step-2 cotton program, effective August 1, 2006. Following the indefinite suspension of the WTO Doha Round of multilateral trade negotiations in July 2006, Brazil has pressed for further reductions in U.S. cotton support in response to the panel ruling. Consequently, additional permanent modifications to U.S. farm programs may still be needed to fully comply with the "actionable subsidies" portion of the WTO ruling. Some policymakers are concerned that a successful challenge of the cotton program in the WTO could have implications for the other farm commodity support programs. For example, on January 8, 2007, Canada requested consultations with the United States on U.S. domestic corn subsidies, as the first step in pursuing a WTO challenge. Any changes to farm commodity programs ultimately will be decided by Congress, most likely in the context of the 2007 farm bill. (See CRS Report RS22187, Brazil ' s WTO Case Against the U.S. Cotton Program: A Brief Overview , by [author name scrubbed], CRS Report RL33853, Canada ' s WTO Case Against U.S. Agricultural Support , by [author name scrubbed], and CRS Report RS22522, Potential Challenges to U.S. Farm Subsidies in the WTO: A Brief Overview , by [author name scrubbed].) Although not as energy-intensive as some industries, agriculture is a major consumer of energy—directly, as fuel or electricity, and indirectly, as fertilizers and chemicals. By raising the overall price structure of production agriculture, sustained high energy prices could result in significantly lower farm and rural incomes, and are generating considerable concern about longer-term impacts on farm profitability. Agriculture also is viewed as a potentially important producer of renewable fuels such as ethanol and biodiesel, although farm-based energy production remains small relative to total U.S. energy needs. Current law requires that biofuels use grow from 4 billion gallons in 2006 to 7.5 billion gallons in 2012. This standard, along with tax credit incentives, is expected to encourage significant increases in U.S. ethanol production. Although the increased use of corn for energy improves the prices and income of corn growers, some policymakers are concerned that higher prices for corn will add to livestock grower feed costs. (See CRS Report RL32712, Agriculture-Based Renewable Energy Production , by [author name scrubbed].) Spending for conservation programs, which help producers protect and improve natural resources on some farmed land and retire other land from production, has grown rapidly since the 2002 farm bill. This growth in spending reflects the expanded reach of conservation programs, which now involve many more landowners and types of rural lands. One topic that continues to attract congressional interest is implementation of the Conservation Security Program, enacted in 2002. Some stakeholders have questioned why USDA has implemented the program in only a few watersheds, and why Congress has limited funding even though the program was enacted as a true entitlement. The environmental, conservation, and agriculture communities have started to identify conservation policy options that might be considered in the next farm bill. (See CRS Report RL33556, Soil and Water Conservation: An Overview , by [author name scrubbed] and [author name scrubbed].) The potential for terrorist attacks against agricultural targets (agroterrorism) is recognized as a national security threat. "Food defense"—protecting the food supply against possible attack—has received increased attention since 2001. Through increased appropriations, laboratory and response capacities are being upgraded. National response plans now incorporate agroterrorism. Yet some in Congress want additional laws or oversight to increase the level of food defense, particularly regarding interagency coordination, response and recovery leadership, and ensuring adequate border inspections. (See CRS Report RL32521, Agroterrorism: Threats and Preparedness , by [author name scrubbed] . ) Approximately 76 million people get sick and 5,000 die from food-related illnesses in the United States each year, it is estimated. Congress frequently conducts oversight and periodically considers legislation on food safety and could do so again. Some Members continue to be interested in such issues as whether appropriate resources and safeguards are in place to limit microbiological contamination of fresh meat, poultry, and produce; the need, if any, for stronger enforcement or recall authority; the regulation of bioengineered foods; human antimicrobial resistance (which some link partly to misuse of antibiotics in animal feed); and interest among some in reorganizing food safety authorities and responsibilities, possibly under a single agency. (See CRS Report RL32922, Meat and Poultry Inspection: Background and Selected Issues , by [author name scrubbed].) Since 2003, highly pathogenic avian influenza (H5N1) has spread from Asia into Europe, the Middle East, and Africa; however, no cases of H5N1 have been found yet in the United States. Because avian flu is highly contagious in domestic poultry and can be carried by wild birds, USDA advocates stringent on-farm biosecurity. Controlling avian flu in poultry is seen as the best way to prevent a human pandemic from developing. Congress has responded to the threat by providing emergency and regular appropriations for surveillance, both domestically and internationally, and holding hearings covering the animal disease and food safety. Further funding will be necessary for surveillance, vaccine stockpiles, and first responder equipment. (See CRS Report RL33795, Avian Influenza in Poultry and Wild Birds , by [author name scrubbed] and [author name scrubbed].) Many believe that U.S. agricultural producers and food processors should improve their ability to identify and trace their products (including animals) through the food chain, whether to facilitate the removal of contaminated products, quickly contain animal disease outbreaks, enable consumers to verify labeling claims, and/or for country of origin labeling (COOL). One issue is whether a more universal animal identification system should be mandated and who should pay. Another is mandatory COOL for fresh red meats, produce, and peanuts, which Congress required in the 2002 farm bill but has since delayed, until September 30, 2008. ( H.R. 357 would require mandatory COOL implementation on September 30, 2007.) While some want COOL to be implemented, others would prefer voluntary labeling. (See CRS Report RS22526, Animal Agriculture: Selected Issues for Congress , by [author name scrubbed].) The Commodity Futures Trading Commission (CFTC) is an independent federal agency that regulates the futures trading industry. The CFTC is subject to periodic reauthorization; current authority expired on September 30, 2005. Congress traditionally uses the reauthorization process to consider amendments to the Commodity Exchange Act (CEA), which provides the basis for federal regulation of commodity futures trading. Among the issues in the debate are (1) regulation of energy derivatives markets, where some see excessive price volatility and a lack of effective regulation; (2) the market in security futures, or futures contracts based on single stocks, where cumbersome and duplicative regulation is blamed for low trading volumes; (3) the regulatory status of foreign futures exchanges selling contracts in the United States; and (4) the legality of futures-like contracts based on foreign currency prices offered to retail investors. (See CRS Report RS22028, CFTC Reauthorization , by [author name scrubbed] . ) Hired farmworkers are an important component of agricultural production. Some of these laborers are under guest worker programs, which are meant to assure employers (e.g., fruit, vegetable, and horticulture growers) of an adequate supply of labor when and where it is needed while not adding permanent residents to the U.S. population. The connection between farm labor and immigration policies is a longstanding one, particularly with regard to U.S. employers' use of workers from Mexico. The 109 th Congress considered the issue without resolution as part of a larger debate over initiation of a broad-based guest worker program, increased border enforcement, and employer sanctions to curb the flow of unauthorized workers into the United States. (See CRS Report 95-712, The Effects on U.S. Farm Workers of an Agricultural Guest Worker Program , by [author name scrubbed]; CRS Report RL30395, Farm Labor Shortages and Immigration Policy , by [author name scrubbed]; and CRS Report RL32044, Immigration: Policy Considerations Related to Guest Worker Programs , by [author name scrubbed].)
|
A number of issues of interest to U.S. agriculture are expected to be addressed by the 110th Congress. At the top of the agenda, Congress will be considering the unfinished business of FY2007 funding levels for U.S. Department of Agriculture (USDA) programs and activities in the annual agriculture appropriations bill. Separately, attempts might be made to reconsider a multi-billion dollar emergency farm disaster assistance package that was debated but not passed in the 109th Congress. Since most provisions of the current omnibus farm bill expire in 2007, the 110th Congress will be making decisions about the content of a new farm bill. Commodity price and income support policy is usually the focus of a farm bill, but other agricultural issues, such as conservation, rural development, trade, and biofuels also will be debated. Other agricultural issues likely to be either considered or monitored by the 110th Congress include multilateral and bilateral trade negotiations; concerns about agroterrorism, food safety, and animal and plant diseases; federal energy policy; agricultural marketing matters; the reauthorization of the Commodity Futures Trading Commission; and farm labor issues. This report will be updated as significant developments ensue.
|
U.S. relations with Zimbabwe, a mineral-rich southern African country, remain strained. Tensions in bilateral relations emerged in the late 1990s, when increasing indications of human rights violations, undemocratic governance, and economic decline, accompanied by radical government economic policies and land seizures, spurred concern among Members of Congress and other U.S. policymakers. Bilateral relations since that time have been—and remain—dominated by U.S. policy, diplomatic, and targeted assistance efforts intended to prevent and counter such outcomes, mitigate their effects, and push for policy and governance reforms in Zimbabwe, as well as alleviate socioeconomic hardships among the country's people. Legislation enacted by Congress is a key component of these policy efforts. Zimbabwe attained independence in 1980 under a negotiated political settlement that ended white minority rule, following a long armed struggle. Its politics have since been dominated by the Zimbabwe National Union-Patriotic Front (ZANU-PF) political party, which has its origins in the struggle for majority rule, and President Robert Mugabe ( moo-G AH -beh ), Zimbabwe's sole post-independence president. Opposition parties have pushed for governance reforms and greater pluralism, notably during a period of often uneasy power sharing between ZANU-PF and the opposition under a Government of National Unity (GNU) between 2009 and 2013. The GNU had been formed under a regionally mediated accord intended to overcome a political impasse between ZANU-PF and the opposition following violent, procedurally disputed elections in 2008. Elections were last held in July 2013, but their legitimacy was disputed by the opposition and criticized by the Obama Administration, among others. The elections gave ZANU-PF a strong majority in parliament, extended Mugabe's presidential tenure, and ended power-sharing under the GNU. Since then, economic conditions have steadily deteriorated. Public dissatisfaction with the economy and with the Mugabe administration and its intolerance of opposition activity have recently sparked a growing number of large public demonstrations and repressive responses by the government. Protest organizers have included political parties, aggrieved workers, and new citizen-led movements, notably a social media-organized movement known as #ThisFlag. Such demonstrations have added to ongoing political turmoil and maneuvering by parties over governance and economic policy, prospects in the upcoming 2018 elections, and rivalry over the prospective succession of Mugabe, who turned 92 years old in early 2016. The succession question has led to internal ZANU-PF factionalization, notably including an emergent split between Mugabe and veterans of the pre-independence armed struggle, who have long been one of ZANU-PF's most vocal core constituencies. The government has responded to growing domestic criticism and protests by seeking to restrict public gatherings and harshly lashing out at its critics, both in public statements and through law enforcement actions. Such patterns of conduct—and a host of more serious reported human rights abuses—have long concerned domestic and international human rights advocacy groups and Western policymakers. For over two decades, successive U.S. administrations have sought to counter abusive and undemocratic actions by the ZANU-PF government by imposing targeted economic and travel sanctions on individuals and firms identified as having committed or abetted abuses. The targeted sanctions regime is authorized under a series of executive orders. Executive branch officials have periodically stated a willingness to consider changes to the U.S. sanctions regime in response to demonstrable improvements in governance, but to date they have deemed progress to have been insufficient to warrant major changes in U.S. policy. For many years, U.S. sanctions were complemented by similarly extensive sanctions by other Western governments. Surrounding the 2013 elections, however, most of these other foreign actors, most notably the European Union, removed or relaxed their sanctions regimes, in contrast to the United States. Sanctions were originally called for by Congress in a "sense of Congress" provision of the Zimbabwe Democracy and Economic Recovery Act of 2001 (ZDERA, P.L. 107-99 ). Expressing congressional concern over negative governance, human rights, and rule of law trends in Zimbabwe, ZDERA also prohibits U.S. support for international financial institution (IFI) loans or grants to Zimbabwe's central government, unless and until the Zimbabwean government fulfills a range of governance reform conditions. In the years since ZDERA's passage, Congress has reiterated the ban on U.S. support for IFI credit assistance to Zimbabwe in annual appropriations legislation. Such legislation has also restricted bilateral aid for Zimbabwe, with exceptions for aid programs designed to foster the kinds of humanitarian, education, health, poverty reduction, human rights, and good governance outcomes sought by U.S. policymakers. Zimbabwe is also ineligible for IFI loans under U.S. laws other than ZDERA due to its failure to make payments on its debt to these institutions. Recently, the possibility that Zimbabwe might again become eligible for IFI loans has emerged as an issue for policymakers. In October 2015, the Zimbabwean government issued a plan to repay its IFI arrears as a prerequisite to applying for new IFI credit (see " Zimbabwe's Arrears Clearance Effort "). If it does so, Members of Congress may reexamine the conditions imposed by ZDERA and other legislation, and may seek to influence whether, and under what circumstances, the Mugabe government might be able to receive financial support. Such conditions may be likely to include concrete, demonstrable efforts to pursue market-led economic growth, improved economic management and fiscal transparency, more transparent and accountable governance, and free and fair elections. The question of who may succeed President Mugabe arguably presents the most immediate and pressing challenge for Zimbabwe's political system, and for foreign governments engaged with the country. The stakes are high. Succession outcomes are likely to shape future developments in all major policy arenas, and the succession process could generate political and economic instability, possibly violent, in the wider southern Africa region. Succession is subject to the interplay of diverse, primarily domestic factors, however, making it an unpredictable and fluid process, and one not readily influenced by U.S. or other foreign policy interventions. Enduring support and admiration for Mugabe in southern African political circles—including within South Africa—may also limit the impact of U.S. actions. Zimbabwe gained independence in 1980, after a lengthy armed struggle by black Zimbabweans for universal suffrage and against white minority rule. It achieved independence under the Lancaster House Agreement, an accord negotiated between the British government, the armed black independence Patriotic Front movement, and the so-called Zimbabwe-Rhodesia government. The Patriotic Front was an alliance between the Zimbabwe African National Union (ZANU), led by Mugabe, and the Zimbabwe African Peoples Union (ZAPU), another liberation movement led by the late Joshua Nkomo. The Lancaster House accord provided for elections just prior to independence, in which ZANU won a majority. ZAPU and a party that essentially represented the former white-dominated government won almost all of the remaining seats. After independence, ZANU suppressed alleged anti-government activity by members of ZAPU, its armed wing, and elements of its ethnic Ndebele political base, including through a series of mass detentions and killings led by the Fifth Brigade of the ZANU-dominated army, known as Operation Gukurahundi. Following these actions, in 1987 ZAPU and ZANU signed a unity accord, under which ZAPU was merged into ZANU, which was renamed ZANU-PF. The armed struggle and the enduring effects of post-independence land allocations—which continued to favor whites until the commencement of large-scale land seizures in the 2000s (see " Natural Resource Nationalization ")—have profoundly shaped post-independence politics and ZANU-PF's often radical policies. This history has also led to frequent anti-Western and anti-imperialist rhetoric by ZANU-PF which, along with its general intolerance of and periodic violent action against its political opponents, has long caused friction with donor governments. Zimbabwe has held a series of highly contested elections since 2000, when ZANU-PF nearly lost its parliamentary majority to the then-newly formed opposition Movement for Democratic Change (MDC). The vote took place after Zimbabweans rejected a set of ZANU-PF-supported constitutional amendments in a public referendum. Despite this outcome, later in the same year ZANU-PF used its slim majority in parliament to amend the constitution to allow for the compulsory acquisition of land "unjustifiably dispossessed" by the United Kingdom (UK)—that is, provided to white settlers during British colonial rule—and to hold the UK liable for any compensation. The government then supported a campaign of often violent seizures of large, mostly white-owned commercial farms, without compensation, for redistribution to black farmers. The policy was later regulated under a program known as the Fast Track Land Reform Program (FTLRP). Such seizures, along with alleged election irregularities, human rights abuses, and various violations of the rule of law, spurred Congress to pass ZDERA in 2001. In succeeding years, a decline in agricultural production linked to land seizures, a variety of state-centric economic policies, and persistent political turmoil led to a severe, multi-year economic contraction. In elections in 2008, amid reports of widespread irregularities, ZANU-PF lost its parliamentary majority and Mugabe received fewer votes than his main opponent, Morgan Tsvangirai ( CHAHN -geh-rai ), the presidential candidate of the MDC-Tsvangirai (MDC-T, the main opposition party, so-named to distinguish it from a smaller breakaway faction). Despite Tsvangirai's claim to have won the election outright, official results gave him 47.9% of votes, below the 50% threshold needed to avoid a second round. A violent presidential election run-off followed, which Tsvangirai boycotted, allowing Mugabe to win with over 90% of votes. The international community rejected the result as illegitimate, as did the MDC-T. A post-election political impasse led to regionally mediated talks, which resulted in the September 2008 Global Political Agreement (GPA). A Government of National Unity (GNU) was formed in early 2009 under the terms of the GPA, with Mugabe as president and Tsvangirai as prime minister. Under the GNU, executive power was shared between ZANU-PF, the MDC-T, and a smaller MDC faction—the parties that had won parliamentary seats in 2008. The GPA also set out agreements on a range of contentious issues and governance reforms, the drafting of a new constitution, and the conduct of a constitutional referendum, prospectively leading to elections. The GPA decreased political violence and helped create a working but often tense relationship between the main GNU parties. It also enabled the MDC-T-controlled Finance Ministry to pursue critical economic reforms that spurred robust economic recovery after years of severe contraction under ZANU-PF stewardship. At the start of the GNU, Zimbabwe faced hyperinflation of 500 million percent or more, widespread poverty, unemployment at 80%-plus, collapsed social services, and a dearth of hard currency. To address these challenges, the GNU adopted the U.S. dollar as the effective national currency, ended price controls, and established a cash budgeting policy, among other liberalization policies. This led to a rapid expansion of the agriculture, mining, and services sectors. Economic expansion under the GNU began in 2009 and lasted until 2013, the last year of the GNU, when growth stalled. While some GPA governance reforms were implemented, many were not, and there were reports of violations of GPA-guaranteed rights and freedoms, notably press freedom and political assembly. There were also periodic acts of political harassment and violence. Constitutional and other reform processes were slow and contentious, leading to renewed Southern African Development Community (SADC) mediation, a 2011 "election roadmap," and a schedule for implementing unfulfilled GPA goals. Contested implementation of the roadmap then became a key focus of GNU politics for the next two years. The roadmap's effects were ultimately limited, but one of its main goals, the completion of a new draft constitution, was achieved in early 2013. Voters adopted the new charter by an overwhelming margin in a referendum in March 2013. A highly disputed electoral process followed, resulting in a ZANU-PF victory and an end to power sharing under the GNU. President Mugabe has led Zimbabwe since independence, initially as prime minister, and has long presided over ZANU-PF. His party leadership has been driven by both ideological and tactical considerations, and he has played a central executive and mediational role within ZANU-PF's hierarchy and policymaking processes, which have long shaped patterns of state governance. Under his tenure, the party has controlled state power through a mixture of nationalistic economic policies and rhetoric, command of the public sector, social regulation, political cooptation, often corrupt patronage, and periodic repression of and violence against ZANU-PF opponents and critics. His eventual exit from the presidency will mark a major watershed and could conceivably lead to political and policy transformation. Such a transition is not a given, however, especially if ZANU-PF retains control and continues to pursue its current policy agenda under the strong influence of an aging, conservative cadre of security sector officials. In the meantime, Mugabe shows no interest in retiring, despite his advanced age, periodic signs of debility, and reported health problems. In 2014, he accepted ZANU-PF's nomination to be its presidential candidate in 2018, when he would be 94, a decision reaffirmed by a party Congress in late 2015. In 2015, he chaired both SADC and the African Union, reflecting his continuing influence among fellow African leaders. Mugabe has no designated successor, which has generated succession rivalries. In July 2016, he stated that he would hold office as long as the party continues to back him. Fluid divisions and alliances have long characterized the ruling party. Public information about these dynamics, however, tends to be opaque and expediently driven by party insiders, most notably Mugabe. He continues to actively shape the party leadership by orchestrating promotions and countervailing appointments and dismissals. Debate and political jockeying over Mugabe's succession and alternatives to his leadership have occurred for years. Although often discussed in the press, these issues were considered sensitive and were not often publicly addressed by the party. Those perceived as challenging or implying an end to Mugabe's tenure historically faced penalties, such as demotions or party suspensions. In recent years, however, the succession issue has increasingly come to be discussed in public, including by Mugabe. Until late 2014, the main reported ZANU-PF rivals to succeed Mugabe—as both head of state and of ZANU-PF—were two long-time top officials, Emmerson Mnangagwa ( mm-nahn- GAHG -wa h ) and Joice Mujuru. Both were die-hard ZANU-PF members closely linked to Mugabe. Mnangagwa, however, a former intelligence chief and GNU Defense Minister, maintained a reputation as an uncompromising hardliner. In contrast, Mujuru, a former liberation war combatant who had served as national and party Vice President since 2004, was viewed as both a strong party loyalist and a potential pragmatist open to possible reforms in various areas. In late 2014, Mugabe led a purge of top ZANU-PF elements linked to Mujuru and dismissed her as party and national Vice President. He then elevated Mnangagwa, alongside a less prominent official, Phelekezela Mphoko, to the dual national and ZANU-PF vice presidencies (there are two deputy posts in both the state and party). His action also appeared intended to facilitate the entr y into politics of his 50-year-old wife, Grace Mugabe, who had actively encouraged Mujuru's removal while raising her own political profile. Mujuru's fate was sealed when Mugabe railed against her during the ZANU-PF party congress, accusing her of plotting with U.S. embassy officials to oust him (an allegation linked to the Wikileaks scandal and later denied by the State Department). Further purges of Mujuru-allied officials and the naming of a new cabinet followed. In early 2015, ZANU-PF formally expelled Mujuru, citing her putative anti-Mugabe plot. To date, however, she has not been criminally indicted. Should Mugabe vacate the presidency, either by choice or due to natural causes, Mnangagwa, who also serves as Justice and Legal Affairs Minister, would likely succeed him temporarily. He might then formally accede to the post, but such an outcome is not assured. Mugabe's successor must be chosen by the party, and Mnangagwa's rivals could engineer an alternative successor. Another possible successor, Grace Mugabe, has often led party outreach events and distributed patronage goods since Mujuru's ouster. These activities appear intended to strengthen her national profile as a credible successor to her husband and, at a minimum, to protect her family's assets and influence by ensuring she plays a high-level post-Mugabe political role. Her lack of independence war credentials and relative youth, however, could be liabilities, given Zimbabwe's often gerontocratic political culture and the traditional dominance of veterans within ZANU-PF and among security establishment leaders. They have long maintained that liberation war experience is a prerequisite for any national president, and are likely to strongly influence any succession process. Nevertheless, generational change in politics is on the horizon, as signaled by the emergence of an informal ZANU-PF faction, the Generation 40 (G40), a term alluding to a younger cohort that came of political age after independence. They reportedly support a leading role for Grace Mugabe—potentially through her replacement of Mnangagwa as vice president, making her Mugabe's likely successor, or through an alliance between her and one of Mnangagwa's ZANU-PF old guard rivals. The G40-Mnangagwa rivalry may also be leading veterans, long a key ZANU-PF base of support, to break with Mugabe. Also factoring into party and succession dynamics are clan alliances and rivalries, both within the majority Shona ethnic group, to which Mugabe and many top ZANU-PF leaders belong, and between the Shona and the Manyika—a smaller, but still key ZANU-PF ethnic base. Opposition supporters are also divided. Intra-party recrimination over the MDC-T's performance during the 2013 elections divided the party, which is the largest opposition group. Continuing dissension eventually prompted the Tsvangirai-led faction to expel 21 rival sitting MDC-T members of parliament (MPs) and some indirectly-elected senators, thus making them ineligible to remain MPs. This led to June 2015 National Assembly by-elections for 16 seats, most of which had been vacated by the MDC-T. ZANU-PF won all of them after the various MDC factions boycotted the vote over claims of a flawed election process and demands for related reforms. In July 2016, Tsvangirai, who has colon cancer, prompted renewed internal party dissention after he unilaterally appointed two new party vice presidents. While the MDC-T enjoys strong representation in many municipal governments, its parliamentary delegation lacks sufficient seats to advance legislation, and it acts primarily as a critic of the government. Its limited electoral power is also under threat, as the minister of local government has ousted and replaced the MDC-T mayors of Harare and the smaller city of Gweru. The government is also sponsoring an opposition-contested bill that would create a substantially ministry-controlled tribunal with the power to suspend and replace municipal officers. The MDC-T, like other opposition parties, has also faced attempts by the government to regulate and restrict its public political gatherings. In some cases, such restrictions have been overturned in the courts, however, reflecting a significant degree of Zimbabwean judicial independence. In April 2016, after police denied the MDC-T a public demonstration permit, a court ruled in favor of an MDC-T suit to have the denial overturned. The MDC-T then held one of the largest anti-Mugabe protests in recent years. Other mass rallies, both by opposition parties and a wide range of other stakeholders—in some cases permitted by courts against government wishes—have since followed. The future influence of the MDC-T and of opposition parties more broadly is likely to depend on their success during the next national elections in 2018, which, in turn, may depend on coalition-building. Prospects for an opposition victory, however, are mixed. In May 2016, five small parties formed the Coalition of Democrats (CODE), under which they are expected to jointly back consensus positions and candidates. While former finance minister Tendai Biti reportedly supports the coalition, his PDP party—and, more significantly, the MDC-T and Joice Mujuru's new Zimbabwe People First (ZPF), established in February 2016—declined to join it. Eighteen opposition political parties are also collaborating and jointly pushing for shared electoral system changes and Zimbabwe Electoral Commission neutrality ahead of the 2018 elections under the National Election Reform Agenda (NERA) coalition. While aimed at electoral reform, NERA members are involved in organizing mass protests bringing together opponents of continued ZANU-PF political dominance. In addition to opposition parties, the government has recently faced criticism from a fast-growing, nonpartisan, citizen-based campaign focusing on demands for accountable governance. The movement, organized on social media under the hashtag #ThisFlag , emerged after Evan Mawarire, a pastor, posted online an impromptu video reflection on economic malaise, corruption, and a need for patriotic civic activism. The April 2016 video elicited a massive spontaneous positive response and went viral, leading Mawarire to call for a month of citizen activism centered on countering poverty, injustice, and corruption. Opposition parties sought to capitalize on the campaign, and ZANU-PF to counter it with its own #OurFlag social media campaign. In May 2016, two MDC-T MPs wearing flags around their necks in a tribute to #ThisFlag were ejected from parliament. On July 6, 2016, Mawarire and #ThisFlag activists, joined by the Tajamuka-Sesijikile (roughly "fed up and opposing") Campaign, a recently formed youth alliance critical of the government, organized a "Zimbabwe Shutdown" action. It was intended to temporarily interrupt private and public sector business and signal dissatisfaction with the country's ongoing economic malaise, unpaid civil servant wages, and state corruption. The boycott, which was widely heeded, coincided with labor strikes by doctors and teachers. It was generally peaceful, but featured some youth-led civil unrest in poor urban areas. It came on the heels of a July 4 protest by taxi drivers against high police traffic fines that turned violent, as well as late June protests in the southern border town of Beitbridge against new import restrictions. These events resulted in multiple arrests, and prompted authorities to temporarily shut down social media forums being used to organize the protests. In mid-July, Mawarire was arrested and charged with attempting to subvert the government, but a magistrate's court dismissed the charges and released him. He later sought refuge in South Africa. President Mugabe and ZANU-PF militants have threated Mawarire; meanwhile, security forces are reportedly on high alert and are prepared to forcefully halt further demonstrations. Relations between ZANU-PF leaders and independence war veterans appear to be deteriorating after decades of strong interdependence. In recent months, Grace Mugabe and various politicians associated with the G40 faction have made public comments belittling the political roles and influence of independence war veterans, long a politically sacrosanct base of activist support for ZANU-PF. In early 2016, police fired water cannons at an anti-G40 veterans' march on ZANU-PF headquarters, and in March, Mugabe replaced his veterans' minister, the chair of the traditionally influential Zimbabwe National Liberation War Veterans Association (ZNLWVA), reportedly in relation to the official's opposition to the G40. In a possible sign of continuing deference to veterans, however, Mugabe also publicly acknowledged a demand by some veterans that he step down from power. Relations between Mugabe and veteran leaders deteriorated further after ZNLWVA issued a scathing statement on ZANU-PF and Mugabe in late July 2016. It harshly condemned the government and implied that Mugabe should exit power. The veterans' statement is significant because the armed struggle was crucial in bringing majority rule to Zimbabwe, and their contributions toward that end have long helped legitimize ZANU-PF's hegemonic rule. Veterans have formed a core ZANU-PF constituency since independence, and some have acted as a proxy force for the party, politically and at times physically attacking alleged government critics. The government reacted strongly to the statement—which was not attributed to any specific individuals—calling it "traitorous" and "treasonable." Some ZNLWVA leaders later faced arrest. To prevent further anti-regime action by the current ZNLWVA leadership, the government may be attempting to create a rival pro-G40 faction within ZNLWVA. The Mugabe-ZNLWVA split may lead to further internal ZANU-PF fissures, as many top ZANU-PF officials are likely to continue to view veterans as a vital constituency. This is particularly true of the Mnangagwa camp, known as "Team Lacoste" (a play on Mnangagwa's nickname, "The Crocodile"). Mugabe's split with the veterans has been interpreted by some observers as a rejection of Mnangagwa's faction in favor of the G40. Human rights advocates have for years raised concern with documented government violations of the rule of law and respect for human rights, particularly during election periods and with regard to its treatment of political opponents and human rights and democracy advocacy groups. Frequent reported perpetrators of political violence in recent years have included the state security forces, ZANU-PF youth militants, members of ZNLWVA, and, to a lesser extent, MDC militants. In July 2016, Amnesty International (AI) reported that "recently, human rights defenders and activists in Zimbabwe have been receiving threats and [are] subjected to arbitrary arrests, ill–treatment and attempted abductions." ZANU-PF supporters were implicated in harassment and intimidation in the lead-up to the by-elections in mid-2015, in addition to prior violence linked to the purge of Mujuru supporters, while opposition activists engaged in violent skirmishes in connection with intra-MDC competition. There have also been reports of state- and party-mediated allocations of food, fertilizer, and other commodities, as well as coercion, to secure votes or political support for ZANU-PF. The reported March 2015 daytime abduction of a Zimbabwean journalist and human rights activist, Itai Dzamara, allegedly by state security officials, has also drawn widespread local and international attention. Dzamara has not been found, and U.S. officials have called for a full and open investigation of his case. Similar allegations of state involvement in other abduction cases have periodically been reported since the early 2000s. Police regularly halt public political and economic demonstrations and arrest political and labor union protesters. In its 2016 World Report , Human Rights Watch (HRW) asserted that in 2015, "those who criticized Mugabe or his government, including human rights defenders, civil society activists, political opponents, and outspoken street vendors, were harassed, threatened, or arbitrarily arrested by police and state security agents." Zimbabwe Lawyers for Human Rights (ZLHR), a nongovernment advocacy group, has contended that authorities intentionally "misinterpret and selectively misapply laws." Annual State Department human rights reports have reflected similar findings. Recently, however, and against the government's wishes, some judges have allowed bond for detainees facing protest-related charges, reduced or tossed out such charges, and permitted several protests for which the police have denied permits. HRW, ZLHR, and others also assert that the government has not pursued many of the legal reforms that they contend are needed to bring the national legal code and system into compliance with the 2013 constitution, including the repeal or reform of laws constraining freedoms of expression, association, and movement. These groups also call for progress toward an impartial state media and apolitical security services. Collectively, these laws have often been used to harass political and civil society activists. ZLHR, among other human rights groups, views several of them as contrary to the 2013 constitution, and in the absence of their full repeal or replacement sees an urgent need to bring them into line with the constitution. The government is also seeking passage of the Computer Crime and Cyber Crime Bill, which would reportedly give authorities additional authorities to intercept electronic communications and seize digital devices in a wide variety of circumstances. The new measure may reportedly be used by police to restrict expression via social media, which critics have often used to organize protests. ZLHR also urges that a range of constitutionally required commissions (e.g., on national peace and reconciliation, gender, and land) be given adequate resources to pursue their mandates, and that legal reforms be enacted to devolve authority and resources to the provinces. ZLHR and HRW contend, in particular, that the official Zimbabwe Human Rights Commission lacks adequate resources, and HRW has noted that its mandate—limited to acts committed since early 2009, when the GNU was established—leaves it unable to investigate or help secure justice for victims of prior human rights abuses and political violence. Police harassment and criminal prosecutions of journalists and social media writers, often based on allegations of slander against Mugabe and other state officials, have been common, although in early 2016, the Supreme Constitutional Court found Zimbabwe's criminal defamation laws to be unconstitutional. Law enforcement officials also regularly crack down on micro-businesses such as street vendors in the widespread informal sector. The state and ZANU-PF also have a history of sponsoring various "operations," a term drawn from military and law enforcement parlance, which refers to party or security agency campaigns that generally seek to support ZANU-PF-backed policies, aid the party's support base or, conversely, targeting putative ZANU-PF opponents, real and perceived. The targets of these campaigns have varied; examples include irregular housing settlements, illegal artisanal mining, and unregistered satellite TV receivers, as well as extra-governmental efforts to control inflation, meet housing demands, boost agricultural production, or undertake land reform. Others have involved systematic campaigns of political violence. The Zimbabwean state also has a history of forcibly displacing selective groups of citizens and seizing their property, often for political ends. In 2014, HRW documented the eviction and resettlement without adequate compensation of 20,000 flood-displaced persons, who suffered security force abuses when they protested. The government has reportedly since acknowledged some fault in the case and pledged to address the victims' situation. Periodic uncompensated seizures of farmland, often orchestrated by top ZANU-PF or security service figures and targeting the few remaining white commercial farmers and others not favored by the government, have also continued. ZANU-PF-linked beneficiaries of land grabs continue seek to gain legal ownership of such properties. "Indigenization," the mandatory partial nationalization of foreign firms, is another current form of state property expropriation. Another key human rights challenge is trafficking in persons (TIP). Under the Trafficking Victims Protection Act of 2000 (TVPA, P.L. 106-386 , as amended), the State Department has classified Zimbabwe as a Tier 3 country since 2009, meaning that its government does not fully comply with minimum U.S. TVPA standards and is not making significant efforts to do so. Zimbabwe's ranking has made it ineligible for "non-trade related, nonhumanitarian assistance to the government except for certain economic assistance for various specific purposes with specific limitations." In every year since 2010, the Obama Administration has issued a partial waiver of these restrictions to allow certain types of assistance deemed to be "in the national interest." One positive development praised by human rights campaigners was an early 2016 decision by Zimbabwe's Constitutional Court to outlaw the marriage of anyone under 18 years of age. Child advocates see it as a key step in reducing Zimbabwe's reportedly high rate of child marriage, which particularly affects minor brides. Public corruption has been a persistent problem, as acknowledged by top ZANU-PF leaders, who periodically inveigh against it and included anti-corruption efforts as a key goal in ZANU-PF's 2013 election platform. While Zimbabwe does not rank as poorly as some other African countries, according to a late 2015 survey of corruption in 36 African countries, 80% of Zimbabweans polled rated the government's efforts to fight corruption as "very" or "fairly" bad. The problem afflicts common public service delivery, but a particular feature of corruption in Zimbabwe has been elite appropriation of public resources. "Salarygate," a series of media reports in 2013 and 2014 revealing the self-award of large salaries and other perks by leaders of multiple state-owned enterprises and public agencies during a period of public austerity and service cuts, drew intense public ire. While ZANU-PF took steps to address the issue by capping such salaries, in other cases, it has failed to rein in publicly reported acts of self-enrichment by top ZANU-PF or state officials. A number of analysts view selective ZANU-PF tolerance of the use of public resources for private gain as a structural feature of a political patronage system that has enabled ZANU-PF elites to access and control both wealth and political power . Zimbabwe's Central Bank has identified illicit financial flows worth hundreds of millions of dollars annually—in the form of illicit or suspicious cross-border bank transfers, trade mispricing, bulk cash exports, and related activities—as a key economic challenge. Such flows have reportedly contributed to a shortage of U.S. dollar paper currency. How vigorously the government is prepared to counter such flows, however, is unclear. For instance, despite Mugabe's complaint in 2016 that as much as $15 billion in diamond revenue had been diverted in recent years by ZANU-PF and military-linked firms, he reportedly refused to take action against Jinan, a Chinese firm accused by the Reserve Bank of Zimbabwe (RBZ) of illegally exporting nearly half a billion dollars. Responding to an inquiry about the Jinan case, RBZ Governor stated that they had "allowed bygones to be bygones." After the 2013 elections, many observers viewed economic policy as a make-or-break challenge facing the newly elected ZANU-PF government given the severe crisis, hyperinflation, and massive economic contraction (-66.8%) that occurred from 2000 to 2009 under ZANU-PF stewardship. Since the advent of the ZANU-PF majority government in August 2013 and the departure of GNU finance minister Tendai Biti, economic growth has slowed considerably, and many Zimbabweans face increasingly dire economic prospects. The IMF estimates that GDP growth has declined from 4.5% in 2013 to 3.3% in 2014 and 1.4% in 2015. Weak economic growth is attributable to a drop in exports, a lack of credit for the private sector, in part due to high government borrowing, low demand linked to poverty and illiquidity, poor financial sector performance, and low foreign investment levels. Other contributing factors, according to some analysts, have been problematic economic policy decisions and regulatory actions, notably relating to indigenization and, more recently, currency and trade controls. A severe regional El Niño-related drought in 2015-2016, meanwhile, has buffeted the agricultural economy, decreasing export crop production and creating widespread food insecurity. Low world prices for several key Zimbabwean minerals, together with new mining royalty payment requirements, have dampened mineral production and exports. Imports have also fallen significantly, in part due to shortages of hard currency necessary for foreign transactions, but remain about double the value of exports. Low import demand is also driven by low formal sector domestic production. Import demand has been driven by low formal sector domestic production, which has also been hampered by low demand, generating a 2.5% deflation rate and lack of access to credit and hard currency. Many businesses have reportedly closed or downsized in recent years, and 65% of manufacturing capacity was reportedly idle in 2015. Regular, lengthy electricity cuts have exacerbated this situation. Formal sector unemployment is widely reported to be extremely high, although accurate employment data is lacking, and much of the labor force works in the informal sector. All of these factors have both helped spur and been affected by widespread poverty and contributed to weak market demand. Zimbabwe's reliance on the U.S. dollar—the main local transactional currency since 2009—has also inhibited growth, due to a worsening dollar shortage and associated economic uncertainty. Rising local demand for the U.S. dollar has been driven by the international strength of the dollar; high import demand, including for food, production of which has dropped due to the drought; and a preference for hard currency in Zimbabwe's cash-dominated economy. The RBZ, which has few monetary policy options because it does not control its own currency, is attempting to address the shortage by limiting hard currency withdrawals (e.g., at ATMs) and import transactions. The bank, through which foreign exchange import transactions must flow by law, is distributing export earnings in multiple foreign currencies, rather than the dollar alone, to reduce reliance on the dollar and increase cash flows. It is also prioritizing certain imports over others, interfering in market mediation of demand and supply for goods, requiring multi-currency pricing of goods and the use of point of sale machines that can handle multiple currencies and payment types, and limiting external financial transfers. The RBZ has also announced very controversial plans to issue $200 million worth of local bond notes intended to serve as proxies for and be valued at par with U.S. dollars. The bank's intention is to bring cash liquidity to the domestic economy and increase the volume of money circulating. The bond plan, however, has spurred fears of a return to the hyperinflation associated with the defunct Zimbabwean dollar and predictions that bonds will trade at a depreciated value relative to the dollar, depriving bond holders of the full value of their holdings. In August 2016, police used tear gas and water cannons to disperse a reportedly peaceful protest against the bonds. RBZ external transfer controls have also reportedly drawn the ire of politically connected elites and businesses. A severe El Niño-related drought that affected the entire southern Africa region during the late 2015-2016 rainy season has disrupted the agricultural economy and, critically, resulted in a sharp decrease in the production of maize, the staple food crop. There are increasing reports of hunger in rural areas and a rising need for food aid. The government expects to import up to 700,000 metric tons of maize in 2016, about seven times the 2015 level, but has not budgeted for this cost, and already faces public revenue shortfalls. In February 2016, the government declared a state of disaster in some areas and called for $1.6 billion in foreign food aid. In March, the World Food Program (WFP) launched a $220 million food aid appeal for Zimbabwe covering programs through March 2017. As of early May 2016, U.S. FY2016 food security contributions for Zimbabwe totaled $34.7 million, adding to $42.6 million provided in FY2015 and $34.8 million in FY2014. The U.S. Agency for International Development (USAID), which administers some U.S. food aid, reports that in 2016-2017 the period prior to planting, when food stocks from the prior harvest run low, will "start earlier than usual in September and end later than usual, in April, due to the El Niño-related impacts." Citing a 2016 Zimbabwean government assessment, USAID also reported that at the peak of the lean season, from January to March 2017, an estimated 4 million Zimbabweans "will be food insecure." USAID had earlier reported that about 2.8 million of 9.4 million rural dwellers were food insecure as of early May 2016. The drought is also expected to dampen production in 2016 of tobacco, a key cash crop that, along with gold, had been one of the few economic bright spots. The tobacco sector grew steadily after hitting a production low in 2008. Strong tobacco prices led to strong export earnings in 2014 and 2015, notably from exports to China, but production and projected exports are plummeting. Gold has done well despite problems in the rest of the mining sector and a relative price decline after peaks in 2011 and 2012. Foreign direct investment (FDI), which would likely increase inflows of hard currency, has remained flat or increased moderately in recent years. A key deterrent is indigenization, a state policy under which foreign-owned businesses are required to share ownership of their operations with Zimbabwean citizens. The process is intended to increase local black ownership of major economic assets, and primarily affects large foreign-owned firms. Application of the indigenization law, despite an early 2015 reform, is viewed by many observers as politicized, opaque, and subjective, making it a key investor concern. The government has periodically amended some requirements, both to achieve indigenization policy goals more effectively and clarify the law for foreign investors. While some investors appear able to negotiate agreements that are reliable enough to allow them to remain in the country, frequent changes have generated the perception that indigenization is subject to political whims and other unpredictable shifts. Mugabe himself, contending that "confusion" over the indigenization law had undermined FDI, issued a "clarification" on the law in April 2016, further to other reform measures enacted in late 2015. The latter measures allow investors to use unspecified "empowerment credits or quotas," negotiated between the government and individual investors, to meet indigenization requirements. Despite these efforts to make legal compliance easier, the government periodically threatens to seize or halt businesses that it alleges are not complying with the law. In early 2016, the government launched an indigenization compliance audit of foreign-owned firms. It has even required politically favored Chinese state-owned firms to turn over mining concession rights in some cases. Zimbabwe has made concerted efforts to form strong relations with China for over a decade, in part to diversify its foreign trading partners and replace Western investment and capital that fled in the early 2000s. China has become a key source of foreign investment and credit. Much of this activity has involved bilateral state economic cooperation in addition to private sector activity, including some development grants or loans, and investment funded by Chinese state-backed loans from the China Development Bank and Export and Import Bank (Exim) Bank, or backed by finance insurance from the China Export and Credit Insurance Corporation. Typically, deals have been between large Chinese state-owned corporations or other Chinese enterprises with state connections and their Zimbabwean counterparts. The focus of these transactions has varied. Key examples include Chinese exports of aircraft, buses, rail vehicles, engineering services, and agricultural and construction equipment, and Chinese purchases of Zimbabwean minerals, tobacco, and cotton. Chinese firms have also invested in Zimbabwean mining, infrastructure construction, agricultural, telecommunications, mineral processing, and power generation projects. Many deals involve joint ventures, and some—as elsewhere in Africa—have involved exchanges of services for mineral rights or commodities. Transparency advocates have criticized some of these deals as exploitative. During a 2015 state visit to Zimbabwe by Chinese President Xi Jinping, the two countries signed 12 agreements, including a $1.2 billion China Exim loan under which China's Sinohydro Corp. will add 600 megawatts of capacity to the national utility's largest thermal power plant. China also cancelled $40 million in loan interest on part of a reported $1 billion in Chinese concessional loans to Zimbabwe over the past five years. In return, Zimbabwe announced that it would increase use of the Chinese yuan, and hold it as a reserve currency. The Chinese government further agreed to provide a $65 million grant to support construction of a new parliament building and a pharmaceutical warehouse. A double taxation accord was also signed, as was a cooperation agreement, under which China donated to Zimbabwe $2.3 million worth of vehicles and equipment for wildlife protection. While Zimbabwe's economy is healthier than it was before 2009, its potential remains largely unrealized. According to the World Bank, "with a relatively well-educated workforce, abundant natural resources and developed infrastructure (albeit aging), the fundamentals for growth and poverty reduction are strong, provided the country can tackle its political fragilities, and build a consensus around inclusive and competitive investment policies." Progress has been stymied, in part, by political uncertainty and insufficient access to investment capital, notably in the mining sector and public infrastructure. Especially problematic, given their broad economic and social welfare impacts, are poorly performing water supply and electricity systems—which have been further weakened by the drought. While state and donor-financed upgrades in these areas are underway, state revenue receipts are constrained by low growth and a large informal business sector that pays few taxes. Wage payments often take priority over long-term public capital investments. IMF data suggest that Zimbabwe spends about 70% of state revenues on salaries, although other estimates are higher, and there is political resistance to reductions in public worker payments, which are key to maintaining support for ZANU-PF. The government is increasingly struggling on this front, however; revenue shortfalls resulted in late military and civil service salary payments in June and July 2016—a major political challenge for the government. Public funding shortfalls have long spurred a chronic failure to pay external national debts. This, in turn, has constrained access to foreign credit. In 2015, Zimbabwe owed an estimated $7.1 billion in long-term external public debt, nearly 79% of which was in arrears. This prompted the IFIs to halt lending years ago. Domestic business is also constrained by credit scarcity and high interest rates due, in part, to a banking system in which nonperforming loans have been common. To help address these challenges, the government receives support from the World Bank under the Zimbabwe Reconstruction Fund (ZIMREF), a five-year multi-donor trust fund launched in 2014, to which the United States does not contribute. ZIMREF supports parts of Zim Asset (see below), Zimbabwe's national economic plan. ZIMREF projects support for business environment reforms, public expenditure governance and effectiveness, poverty program monitoring, and public sector analysis and advice. Although Zimbabwe is not eligible for IFI loans, in early March 2016, the government completed an IMF staff-monitored program (SMP). Under the SMP—technical cooperation that did not involve new IMF credit—the IMF monitored Zimbabwe's implementation of jointly agreed economic reform actions. A key goal for Zimbabwe in undertaking the SMP was to improve the economy and relations with the IFIs and donors as a precursor to negotiating the planned repayment of roughly $1.8 billion in IFI credit arrears, prospectively leading to renewed IFI credit flows and expanded technical cooperation. In October 2015, Finance Minister Patrick Chinamasa presented a national arrears clearance plan during the annual meetings of the IMF and the World Bank in Washington, DC, While IMF officials initially gave the plan a positive reception, it reportedly faced internal ZANU-PF opposition. One impediment to an IFI arrears deal and possible future new IFI loans is likely to be a longstanding congressional requirement, first set out in ZDERA and most recently reaffirmed in the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ), that the United States vote against any new IFI loans or grants to Zimbabwe's government, "except to meet basic human needs or to promote democracy." Absent robust economic and governance reforms by the government, some in Congress continue to oppose the prospect of new IFI loans by some in Congress, notably Senate Foreign Relations Committee Chairman Bob Corker, and by some in the broader U.S. policy community. While the United States does not hold veto power over IFI loans, its views are influential on IFI Boards. According to U.S. Treasury officials, U.S. officials have expressed support for Zimbabwean arrears clearance efforts, but have contended that Zimbabwe must pay arrears with its own resources, and have noted that they are bound by U.S. law to vote against most new IFI credit. Press reporting on an AfDB meeting in late May 2016 suggested that Zimbabwe's plan was progressing well, but U.S. Treasury officials consulted by CRS indicated that controversy over Zimbabwe's bond note plan has given pause to IFI and bilateral creditors. In July 2016, an IMF official stated that "there's no financing program under discussion with Zimbabwe at this point." The next big IFI forum on Zimbabwean arrears efforts is likely to occur in the fall of 2016. Treasury officials also stated that, like the United States, most major foreign donor governments are likely to tie any eventual multilateral and bilateral debt clearance deal to governance and human rights reforms. More robust, demonstrable economic policy change and greater financial transparency may also be required. Observers are split over whether the Zimbabwean government's stated support for economic reform is genuine and fully backed by top ZANU-PF leaders—many of whom have long periodically expressed hostility toward the IFIs—or is driven primarily by a desperate search for credit and liquidity for the economy. According to the Economist Intelligence Unit, an economic analysis firm, there is little sign thus far of a genuine change in the administration's prioritisation of its political agenda over economic management. […] Policy confusion is likely to persist as (relative) moderates and hardliners fight for influence within the ruling party, and in this environment Zimbabwe is unlikely to make rapid progress on formulating a prudent economic policy. A key ZANU-PF policy since the late 1990s has been an often violent and chaotic program of land expropriations from large, primarily white commercial farmers. The invasions, generally by landless people, ex-war veterans, and ZANU-PF youth militants, reflected pent-up demand for land and resentment over racially unequal distribution of land inherited from the pre-independence system, with whites owning large tracts of the fertile central highlands. The invasions followed a long period of slow land reform generally premised on a "willing seller-willing buyer" model. After the defeat in 2000 of ZANU-PF-proposed constitutional amendments allowing for land seizures, the government informally blessed the invasions and then slowly regulated and systematized them under the Fast Track Land Reform Program (FTLRP). The FTLRP facilitated the expropriation of millions of hectares of land that was then redistributed, under often partisan processes, to a mix of poor and landless persons (so-called "A1" recipients), and large commercial farm ("A2") recipients, who were often politically connected. FTLRP spurred an exit from farming (or from Zimbabwe altogether) of thousands of white farmers who had produced much of the country's food stocks. This led to a sharp drop in farm output, food supplies, and export earnings in the 2000s, and to internal displacements and job losses for hundreds of thousands of black farm workers. Some positive effects have also been reported, such as welfare gains for poor resettled farmers. However, many redistributed large farms reportedly remain idle, large commercial production has never recovered, and many studies show many problems across the post-FTLRP agricultural sector. The government has often urged that land should be fully used, and in 2015 it initiated a donor-aided national land audit, a key unfulfilled goal of the 2008 GPA. The exercise reportedly faced resistance from politically connected persons whose property claims the audit might affect. In general, security of land tenure for new land occupants is not assured, and their land cannot be used to access credit, a key challenge. Redistributed land recipients generally must comply with "offer letters" requiring that the land be in active use, but the government reportedly sometimes rescinds these letters, allegedly for political reasons. A2 offer letter holders may also apply for 99-year leases, which can ostensibly be used as collateral for bank loans. All land, however, is state property under the constitution, and most farmland (as opposed to deeded urban property) cannot be freely bought and sold. As a result, banks reportedly are generally unwilling to provide lease-collateralized credit. An abiding issue with implications for whether reengagement with the IFIs will be successful is if and how Zimbabwe may compensate white farmers whose land was seized. While the government has pledged to pay full compensation for land seized from foreign investors under bilateral investment treaties, authorities assert that compensation for land seized from nationals will be limited to the cost of property improvements, reimbursement for movable property that was taken, and related legal fees. It has paid off some dispossessed white farmers on this basis, but legal disputes over the valuation and compensability of assets have often slowed this process. In March 2016, the government notified parliament that it had established a Lands Compensation Fund to address the issue and proposed to capitalize it with state revenues from A1, A2, and other land rental fees and leases, as well as possible future foreign aid or state appropriations. The state, however, reportedly lacks adequate funding for what one MP has estimated might cost as much as $11.4 billion. Some A1 recipients, many of whom are poor and need access to credit and inputs themselves, have reportedly protested the plan. Several years ago, the government had reportedly discussed a scheme with the World Bank under which the government would issue public bonds backed by IFI credit guarantees as a means of generating compensation funds for dispossessed farmers, but whether it pursues such an approach remains unclear. Diamonds have been a source of controversy since a 2006 mining rush in the Marange in eastern Zimbabwe. Between 2006 and 2008 production was mostly undertaken by artisanal miners tapping alluvial reserves (stones deposited on the surface by water and other geological factors). These miners were removed from the area through a brutal police and military campaign before the zone was parceled out to large commercial concessionaires. In the late 2000s, these abuses and alleged exports outside of the Kimberly Process (KP), an international rough diamond trade regulation regime, generated multiple human rights probes, unsuccessful calls for Zimbabwe's suspension from the KP, and KP monitoring of Zimbabwe's diamond exports. The diamond sector has also drawn international scrutiny because financial flows within the sector have been opaque and subject to limited and politically influenced state oversight. During the GNU, large sums of diamond earnings were allegedly systematically funneled to ZANU-PF and politically connected military, intelligence, and ZANU-PF figures involved in the handful of firms that control diamond mining in Marange. Some of these include joint ventures with opaquely managed Chinese state-backed firms. For several years under the GNU, the industry made very limited public tax and royalty payments relative to the hundreds of millions of dollars-worth of diamonds that it exported, a fact publicly noted and criticized by the then-MDC Finance Minister. While little was done during the GNU to exert control over the diamond sector, recently President Mugabe, justifying an ongoing nationalization of the sector (see below), stated that the industry had engaged in "a lot of swindling and smuggling," and that diamond sector firms had "robbed us of our wealth." He claimed that the state had realized only $2 billion of $15 billion in diamond sector earnings. The basis for that unusually high estimate is unclear—officially, the country exported a total of $2.29 billion in diamonds from 2009 through 2015—as is the government's willingness to account for past alleged diamond sector diversions. In early 2015, the government announced that the small number of partially state-owned diamond firms that had controlled the sector would be required to form a single diamond consortium, the Zimbabwe Consolidated Diamond Corporation (ZCDC), in a 51%-49% partnership in favor of the state. The move is ostensibly aimed at boosting sector transparency and accountability and curbing illicit exports. It comes as reserves of alluvial diamonds are declining and as firms move toward tapping kimberlites (deep diamond deposits). The ZCDC is intended to facilitate such extraction, which requires expensive equipment, by pooling investments and attaining economies of scale, while increasing state control over the sector and indigenization of ownership. Some affected firms have sued to halt the mandatory merger, which the state enforced by seizing control of the entire Marange mining area in early 2016. After the suits, at least one of which favored the plaintiffs, President Mugabe declared that that the state would take control of all diamond operations; what this means for the future of ZCDC is not clear. Centralization and indigenization within the diamond processing sector is also underway. While hunting is a significant source of conservation income nationally, generating $45 million in 2014 according to the Zimbabwe Parks and Wildlife Management Authority , it is controversial. In July 2015, a protected, rare black-maned lion dubbed Cecil, which was reportedly lured out of Zimbabwe's Hwange game reserve, was killed by a U.S. trophy hunter. The hunt was reportedly licensed but the killing allegedly occurred under the negligent supervision of a paid professional guide, faced criminal charges in Zimbabwe. The U.S. hunter was investigated by U.S. authorities but not charged. The killing drew global attention, condemnation, and calls for an end to lion hunting in Africa, and prompted several airlines to stop transport of animal trophies. The killing of Zimbabwe's elephants for their ivory tusks has also drawn global attention, as has a spate of poaching-related, cyanide-based poisonings that reportedly primarily targeted elephant and rhinoceros and affected multiple species. An estimated 400 or more elephants have reportedly been killed in this manner since 2008, including about 70 in 2015 in Hwange and other parks in Zimbabwe, as have several hundred rhinos in recent years. Rhino horns are valued by Asian traditional medicine buyers, and are a key target of traffickers. In separate cases, in 2015, authorities arrested a group of game wardens and a group of villagers near Hwange in relation to cyanide poisonings, and recently killed an elephant poacher and arrested his alleged accomplices. To counter such activities, in late 2015, the Environment, Water and Climate Minister announced that the government would deploy the national army to supplement game warden and police poaching patrol and interdiction activities in several large game parks using helicopters, drones, and other methods. Other government efforts to manage wildlife populations have proven controversial. In July 2015, some conservationists criticized Zimbabwe after wildlife officials corralled a number of allegedly juvenile elephants and exported about 20 of them to China—reportedly as part of a cull in Hwange to reduce an elephant population that is ecologically unsustainable, as well as to earn foreign currency. Critics allege that such captures disrupt herd life and that the animals have been mistreated in China. Zimbabwe had previously come under criticism for similar actions involving exports to countries including China, the United Arab Emirates, and France, but is continuing such exports. In June 2016, the government drew criticism after requesting sale offers from private game reserves to buy wildlife residing in public game reserves. The stated objective was to reduce populations, thereby easing pressure on natural food stocks, and to raise funds to provide food and water to distressed animals. U.S. efforts to combat poaching and illicit trade in wildlife are pursued under the Obama Administration's National Strategy for Combating Wildlife Trafficking, in which the U.S. Fish and Wildlife Service (FWS) plays a leading role. In an effort to foster elephant conservation in Zimbabwe, the FWS issued a temporary ban—imposed under the authority of the Endangered Species Act (ESA), which lists the African elephant as threatened—on the import of sport-hunted elephant trophies from Zimbabwe for most of 2014. In 2015, FWS extended the ban indefinitely, pending possible creation of a demonstrably robust elephant conservation system, a goal that U.S. Interior Department officials are working with the government to achieve. The ban was initially justified by a FWS finding that Zimbabwean conservation plans did not adequately specify goals and progress towards conserving elephant populations, and that the government had insufficient data with which to assess the status of its elephant populations and lacked adequate capacities to effectively implement and enforce elephant-related laws. FWS therefore asserted that it could not determine if limited elephant hunting there would enhance the survival of the species. In late 2015, after a review of scientific and commercial information, FWS also listed a subspecies of lion found in eastern and southern Africa, Panthera leo melanochaita [ P. l. melanochaita ], as threatened under ESA. FWS also issued a concurrent rule, which took effect in early 2016, that creates a comprehensive permitting process for all U.S. P. l. melanochaita imports (e.g., live animals, scientific specimens, and sport-hunted trophies). It is intended to ensure that such imports are legally sourced, ESA-compliant, and originate only from countries with well-managed, scientifically based lion species conservation programs. In press accounts, Zimbabwean officials have portrayed the lion and elephant bans as devastating to the country's hunting industry. Hunting bans may have unpredictable effects. Reducing hunting could protect some animals, but properly regulated hunting theoretically targets relatively few animals, and the imposition of bans could change conservation-related economic incentives. Given high fees generated by commercial hunts, bans could potentially reduce community conservation funding and make poaching more economically attractive, potentially placing many species at greater risk. Critics of trophy hunting, however, assert that hunting is often not sufficiently regulated and that the link between conservation and income from hunting is not as strong as proponents may claim. Executive branch-issued sanctions on individuals whom the United States has identified as having undermined democratic institutions and processes in Zimbabwe have reinforced U.S. condemnation of ZANU-PF-led human rights violations, breaches of the rule of law, and undemocratic practices since 2000. Such persons are also subject to U.S. visa restrictions. Congress had called for the imposition of such sanctions when it passed ZDERA ( P.L. 107-99 ) in 2001. As earlier noted, ZDERA also set out a range of restrictions requiring U.S. representatives on the boards of IFIs to vote against loans or debt cancellations benefitting the Zimbabwean government, pending fulfillment of a range of conditions. These relate to the effective rule of law (e.g., guarantees of property rights, freedom of speech and association, and an end to the state-backed violence and intimidation); a freely held presidential election or the fulfilment of other conditions conducive to free and fair elections; an equitable, legal, and transparent process of land reform; and subordination of the security services to elected civilian leaders. At the time of ZDERA's passage, Zimbabwe was already ineligible for most multilateral loans as it was in arrears on past loans. Recent annual foreign aid appropriations laws have also prohibited U.S. support for international financial institution loans or grants to the Zimbabwean government, with some exceptions, pending fulfillment of a range of conditions. In an early 2016 letter to Treasury Secretary Jacob Lew, SFRC Chairman Bob Corker voiced support for such conditions, as well as others, writing that any new lending to Zimbabwe's government, including lending related to help Zimbabwe clear its IFI arrears, should "be preceded by meaningful progress toward" clear benchmarks for the restoration of the rule of law, including respect for private property, free press, freedom of speech, and freedom of assembly; a credible process of accountability for missing revenues from diamonds and a monitored plan for capturing future revenues; and official acknowledgement of past gross human rights abuses and a demonstration that the Government of Zimbabwe is prepared to make an earnest effort to remedy those abuses. In addition to restrictions on lending, Zimbabwe's default on U.S. loans makes it subject to appropriation prohibitions on government-to-government bilateral aid, with some exceptions (for education, agriculture, anti-corruption, family planning, reproductive health, agriculture, food security, and macroeconomic growth), in some cases subject to executive branch waivers. Zimbabwe's government is also generally ineligible for non-trade-related, nonhumanitarian U.S. aid due to its poor anti-trafficking-in-persons ranking under the TVPA ( P.L. 106-386 , as amended). Successive Administrations have determined Zimbabwe to be ineligible for trade benefits under the African Growth and Opportunity Act (AGOA, P.L. 106-200 , Title I, as amended). There is also a U.S. International Traffic in Arms Regulations (ITAR) ban on the export of defense articles and services to Zimbabwe, with exceptions for hunting rifles for personal use. The Treasury Department's Office of Foreign Assets Control (OFAC) administers targeted financial sanctions imposed by executive order that currently affect roughly 200 Zimbabwean individuals and entities called Specially Designated Nationals. Violators have been convicted in U.S. courts, and in February 2016, Barclays Bank Plc. paid a $2.49 million settlement to OFAC in relation to 159 prohibited transactions by its Zimbabwean subsidiary. In advance of the 2013 elections, the Treasury Department licensed transactions with two sanctioned entities: the Agricultural Development Bank of Zimbabwe and the state-owned Infrastructure Development Bank. State Department Senate testimony in mid-2013 indicated that the action was meant to demonstrate U.S. intent to work toward normalizing relations if further democratic progress was made after the 2013 constitutional referendum. In February 2016, the two entities were removed from the OFAC sanctions list. Starting in 2002, the EU introduced various broadly similar sanctions, as did other governments at various times, but gradually eased them beginning in 2012 in response to putative progress made toward democratic reforms under the GNU. Currently, President Robert Mugabe, his wife, and Zimbabwe's defense industries remain subject to an EU asset freeze and travel ban, which also applies, on a suspended basis, to five top-ranking Zimbabwean military or security officials. An EU arms embargo also remains in place. In the past, U.S officials have occasionally raised the possibility that positive rapprochement in bilateral relations might be possible and described the kinds of changes that might warrant a possible relaxation of U.S. aid restrictions and sanctions. This was particularly true toward the end of the GNU, as progress was made toward a reformed constitution. The flawed nature of the 2013 elections, however, together with subsequent ZANU-PF unwillingness to work constructively with the opposition, a return to problematic ZANU-PF policymaking, a failure to more robustly implement reforms necessary to implement the constitution, and an ongoing pattern of using state security forces to repress government critics appear to have foreclosed the near-term possibility of warming relations. Despite legal restrictions and sanctions, the United States supports a relatively robust and diverse U.S. aid program implemented by nongovernment actors. The primary goal of U.S. aid programs in Zimbabwe, according to the FY2017 State Department Congressional Budget Justification, is to "provide support for the democratic, legal, and economic reforms needed for the country's transition to a democracy that is able to meet its citizens' needs." To do so, the Obama Administration plans to continue to support efforts by "key stakeholders and activists to continue to advocate for transparent and accountable governance, to enhance political participation, and to create a more active and robust civil society that promotes respect for human rights, equitable economic growth, political and electoral reform, as well as improved delivery of essential social services." Other key development programs seek to "improve access to vital health services, increase food security and resilience to shocks, and promote more transparent, accountable, and effective economic governance." Zimbabwe, like most African countries, participates in the Obama Administration's Young African Leaders Initiative (YALI). Bilateral aid totaled an estimated $172 million in FY2015 and $152 million in FY2016, and $160 million was requested for FY2017. Zimbabwe also periodically benefits from USAID regional programs. Programs under the FY2017 request—which build on past year programs and are aligned with the USAID 2013-2015 Transition Country Development Cooperation Strategy [CDCS]—are slated to focus primarily on selected governance, food security and agriculture, and health goals. A new CDCS has been approved but not yet published. FY2017 governance programs are slated to provide support for citizen-government engagement, civil society policy analysis, monitoring, and advocacy of constitution implementation and legislative reforms, especially relating to fiscal management, transparency, and debt management. They are also to support the protection of human rights, especially through support for local organizations supporting human rights defenders and other vulnerable democratic activists. USAID programming also provides targeted technical assistance to selected parliamentary committees to enhance lawmaking skills, support legislative actions needed to achieve full and effective implementation of the new constitution, increase fiscal transparency oversight, and promote engagement with various civic constituencies. Ongoing support for electoral reform advocacy, voter education, and election monitoring in advance of the 2018 elections is also planned. Health programs, the largest area of assistance, focus on prevention, care, and treatment to counter HIV/AIDS under the President's Emergency Plan for AIDS Relief (PEPFAR), as well as tuberculosis (TB). Aid under the President's Malaria Initiative (PMI) is slated to scale up malaria prevention and treatment efforts. Food security, agricultural, and resilience-building activities under the Feed the Future global hunger and food security initiative and other programs center on helping smallholder farmers to adopt improved agricultural practices, increase productivity and output, boost their access to credit and earnings, and develop trade capacity and linkages to markets. Nutritional aid to targeted populations and hygiene behavior change are other focus areas, among other food security and economic resilience programs. The United States also supports the removal of landmines in eastern Zimbabwe that remain from the independence war, and provides aid to landmine victims and help to build landmine removal capacity. In light of issues discussed in this report and congressional concerns outlined in current and past legislation, policy communications, and hearings, current U.S. policy issues and options for congressional consideration may include Zimbabwe's ongoing effort to pay its IFI arrears poses a potential challenge to congressional efforts to oppose any new Zimbabwean access to IFI credit assistance, and also provides a possible point of leverage to achieve U.S.-supported policy outcomes. If Zimbabwe were to pay its IFI arrears and apply for new IFI loans or other support, the United States might not be able to prevent IFI assistance if a majority of other IFI-contributing governments were to support it. U.S. influence within IFI forums is strong, however, and in such a scenario the United States could press for strong conditionality on any IFI support provided to Zimbabwe. Examples might include robust financial reform goals, linkages between IFI assistance and improved governance and human rights protections, and strong Zimbabwean compliance with any performance criteria linked to IFI credit or cooperation. Some U.S. policymakers may view U.S. aid restrictions and targeted sanctions as a means of depriving the ZANU-PF-led government and party leaders of resources and support, in the absence of Zimbabwean compliance with a robust set of U.S. conditions. If this outcome—or a message that undesirable behavior will be met with punitive U.S. action—has been the goal of U.S. policy, such measures may have been successful. On such a basis, some U.S. policymakers may support an extension of current U.S. policy, and efforts to broaden or strengthen sanctions against persons who continue to engage in currently sanctioned acts, or set out new criteria defining Zimbabwean government eligibility for U.S. assistance. If the goal has been to change ZANU-PF behavior, however, success has arguably been more limited, as illustrated by Administration decisions to maintain the same sanctions regime that has prevailed for years because U.S.-opposed Zimbabwean behavior has not improved. While ZANU-PF leaders have long regularly railed against U.S. sanctions and aid restrictions, there have been few fundamental shifts in ZANU-PF policy or governance practices. Whether this has anything to do with U.S. policy is difficult to ascertain. The sweeping nature of the conditions associated with U.S. aid restrictions (e.g., that "the rule of law" be "restored"), however, could be seen as making compliance too much of an "all or nothing" proposition for Zimbabwean policymakers. They may perceive as low the likelihood that their decisions will in fact result in U.S. policy changes from which they may benefit, and view as high the risk that such decisions might threaten their own perceived political or pecuniary interests. The relatively restrictive nature of U.S. aid policy and the difficulty of making changes to the sanctions regime may potentially also have reduced the ability of U.S. policy implementers to flexibly use aid or the prospect of sanctions changes in selected cases to incentivize or support incremental change in discrete policy areas (e.g., land ownership) or by individual reformers. Some U.S. decision-makers may consider whether balancing the perceived punitive effect of blanket aid restrictions and sanctions with "carrots" targeting positive actions in particular instances might help to achieve U.S.-supported outcomes and spur reform. Under an "action for action" model, policy implementers could potentially be given the authority, for instance, to seek to selectively relax or amend restrictive measures in response to discrete individual Zimbabwean government actions that fulfill U.S. objectives, or to provide limited and highly targeted support to selected Zimbabwean state agencies that carry out U.S.-supported reform. Such authority could be made subject to close congressional supervision (e.g., be bound by pre-decisional reporting to and authorization from Congress). A more dynamic approach to applying U.S. policy restrictions could potentially enable the United States to exploit and adapt more quickly to emergent trends, developments, and opportunities and foster Zimbabwean government policy actions viewed by U.S. policymakers as positive. Changes in restrictions governing U.S. aid, for instance, might enable the provision of technical assistance to foster Zimbabwean government efforts to implement selected aspects of its economic policy agenda, such as goals agreed with the IMF or other donors under World Bank-mediated Zimbabwe Reconstruction Fund programs, which U.S. policymakers may view as constructive, or support property rights reforms; strengthen implementation of human and civil rights guarantees and other elements of the 2013 constitution, possibly including through efforts to bolster the independence and technical capacity of central government oversight commissions with mandates relating to constitutional rights, freedoms, and other aspects of the rule of law, as well as selected parliamentary committees; and provide or expand leadership training for civil society groups, notably those involved in public policy advocacy and performance monitoring, protection of constitutional rights, and market-led growth. As a complement to any possible changes to aid and sanctions policy, Congress could consider the following: Expanding use of cultural, educational, and citizen exchanges—such as the Young African Leaders Initiative (YALI), in which Zimbabwe participates—to increase exposure to U.S. values and build long-term U.S.-Zimbabwean leadership linkages. Pursuing greater engagement with opposition actors, pragmatic elements of the Zimbabwean government, and foreign donor governments regarding steps to address key congressional concerns relating to such issues as the rule of law, respect for ownership and title to property, and civil freedoms. Such engagement might include direct congressional dialogue with Zimbabwean interlocutors or collaboration with regional governments aimed at urging inclusive political dialogue and reform, in particular in order to ensure a free and fair electoral process in 2018. How and if the United States could seek to engage with the military and security services with an eye toward encouraging the many powerful actors in the security sector to support a peaceful and rule of law-based transition, and potentially establish the basis for future security sector reform. Some policymakers may view pragmatic, realpolitik-oriented engagement as constructive, despite reservations about engaging with elements ZANU-PF or the security sector. Others may prefer an opposite approach, and seek to further restrict diplomacy and engagement with the government with a view toward further isolating it, potentially as a complement to placing additional conditions on aid or strengthening the U.S. sanctions regime. In the view of some observers, however, such an approach may be unlikely to spur reform-oriented change, and instead foster stasis, both with regard to bilateral relations and to the possibility of transformation in Zimbabwe's political system. Finally, Members of Congress could review aid and policy goals set out in U.S. strategy toward Zimbabwe, with respect both to current policy goals and programs and to executive branch contingency planning focusing on post-Mugabe transition scenarios. In particular, Members could focus on ways in which the United States can best help foster a peaceful and constitutionally prescribed transition, and work with other governments to prevent a destabilizing succession process; and ways to leverage the anticipated post-Mugabe transition to achieve key U.S. policy outcomes, such as increased Zimbabwean government accountability and transparency, strengthened democratic processes and institutions, protection of constitutional rights and freedoms and the rule of law generally, and pursuit of market-led economic development policies. The outlook for Zimbabwe is highly uncertain. Many Zimbabwean political actors are increasingly focused on their own prospects in the upcoming 2018 elections and the forthcoming succession of Mugabe. This is particularly the case within ZANU-PF, whose upper hierarchy appears to be divided by factional dynamics and rivalries. Meanwhile, weak economic performance has persisted, generating increasing popular resentment and protest. While some top Zimbabwean policymakers are focused on fostering economic reform—including reforms agreed with the IMF—it is unclear how much cross-government support there is for such efforts, as opposed to simply meeting a set of criteria that might allow the country to eventually access IFI credit, while keeping in place the kinds of nationalist, state-centered economic policies long advocated by ZANU-PF. Mugabe's prospective succession, which has been a focus of Zimbabwean politics and debate for years, is likely to present a watershed moment for the country. It could spur a transition toward a new governing regime with a new leadership ethos—potentially one more accepting of a pluralistic political system and market-led economy. On the other hand, succession could generate significant political acrimony, instability, and violence, possibly with regional humanitarian and security implications. It could also lead to a managed transition characterized by little political and policy change and continued ZANU-PF domination under a new leader. All of these outcomes have implications for U.S. policy toward, and future relations with, Zimbabwe. What influence the United States may have on these outcomes, however, is likely to be limited by the fact that developments in Zimbabwe are dominated primarily by domestic factors—as well as conflicting policy goals among powerful states bordering Zimbabwe, such as South Africa and Angola. The scope and flexibility of actions available to U.S. policy implementers, and thus the potential for U.S. influence in Zimbabwe, may also be limited by relatively static and inflexible U.S. sanctions and aid restriction policies. While some U.S. policymakers may view any relaxation of U.S. aid restrictions and sanctions policy as an accommodation to what they see as a bad government, others may seek to examine changes in policy that might allow greater U.S. freedom of action to engage with reformers and other pragmatic Zimbabwean leadership elements but simultaneously not reward the most problematic actors within the government.
|
Zimbabwe, a southern African country of about 14 million people, gained independence from the United Kingdom in 1980 after a lengthy armed struggle against white minority rule. The armed struggle, and the enduring effects of land allocations that favored whites, have profoundly shaped post-independence politics, as have the nationalist economic policies of the ruling Zimbabwe National Union-Patriotic Front (ZANU-PF), led by long-time president Robert Mugabe. Land seizures, state-centric economic policies, and persistent political turmoil under Mugabe led to a severe economic contraction between 2000 and 2009, which contributed to ZANU-PF's first-ever loss of its parliamentary majority in elections in 2008. A subsequent political impasse over the contested election results led to dialogue and the creation in 2009 of a Government of National Unity (GNU) joining ZANU-PF and key opposition parties. A politically tense period of GNU governance led to an economic recovery, some political reforms, and the enactment of a new constitution. Elections in 2013, which featured reported irregularities, gave ZANU-PF a strong parliamentary majority, extended Mugabe's tenure, and ended the GNU. Economic growth has since markedly decreased and intra-ZANU-PF splits and opposition to ZANU-PF's economic policy and governance practices is growing, as indicated by a wave of protests in 2016. Congress, citing governance and human rights concerns, has enacted legal prohibitions on aid to Zimbabwe's central government and on U.S. support for multilateral loans to Zimbabwe's government, under the Zimbabwe Democracy and Economic Recovery Act of 2001 (ZDERA, P.L. 107-99) and foreign aid appropriations measures. Successive U.S. Administrations have condemned human rights violations, breaches of the rule of law, and undemocratic actions by Mugabe and top ZANU-PF officials. U.S. officials have imposed targeted economic and travel sanctions on individuals and firms identified as committing or abetting such actions. Despite such restrictions, the United States funds a relatively diverse set of assistance programs in Zimbabwe that are implemented by nongovernment actors. According to the FY2017 State Department foreign aid budget request, this aid seeks to support a "transition to a democracy" and "human rights, equitable economic growth, political and electoral reform," leading to "transparent, accountable, and effective" political and economic governance. Aid also addresses humanitarian needs. Bilateral aid allocations totaled $172 million in FY2015 and an estimated $152 million in FY2016; $160 million was requested for FY2017. Health programs are the largest area of aid, and focus on HIV/AIDS, tuberculosis, and malaria. Regional aid also benefits Zimbabwe. Relevant bills in the 114th Congress include H.R. 5912 and S. 3117, the House and Senate appropriations bills for the Department of State, foreign operations, and related programs. The question of who may succeed President Mugabe, who turned 92 years old in early 2016, presents an immediate and pressing challenge for Zimbabwe's political system and people, as well as for U.S. policymakers. Potential succession challenges could generate political and economic instability, with possible regional humanitarian and migration implications. Additional issues of long-standing concern to U.S. policymakers include what most see as a need for economic reforms to enable private sector growth, improved macroeconomic governance, and reform of land tenure and property rights. An ongoing Zimbabwean government effort to clear its debt arrears with international financial institutions in order to access new loans, for which U.S. support remains restricted under ZDERA and appropriations laws, has recently drawn U.S. attention. Also of interest to some U.S. officials are wildlife protection efforts in Zimbabwe, which came under intense international criticism after a U.S. trophy hunter killed a rare black-maned lion named Cecil near a game reserve in 2015. The United States has taken steps to promote wildlife conservation in Zimbabwe, including by placing temporary bans on the import of sport-hunted elephant trophies and imposing permit requirements on lion imports.
|
Increasing numbers of animal and plant species face possible extinction. Endangered and threatened species—and the law that protects them, the 1973 Endangered Species Act (ESA, P.L. 93-205 , as amended; 16 U.S.C. §§1531-1543)—are controversial, in part, because dwindling species are often harbingers of resource scarcity. The most common cause of species' decline is habitat loss or alteration. Habitat loss occurs due to development, climate change, changes in land management practices, competition from invasive species, and other factors, nearly all related to economic, political, or social interests. ESA has been among the most contentious environmental laws because its substantive provisions can affect the use of both federal and nonfederal lands and resources. Congress faces the issue of how to balance these interests with the protection of endangered and threatened species and, as stated in ESA, "the ecosystems upon which endangered species and threatened species depend." Because of strong support and strong opposition, ESA has not been reauthorized since the last authorization expired in 1992. In the 109 th Congress, there were several unsuccessful attempts to enact comprehensive legislation that would have reauthorized ESA. Congressional efforts in the 110 th , 111 th , and 112 th Congresses focused on addressing specific controversial features of ESA and on oversight of concerns such as the science used for making decisions and designating critical habitat, but little legislation related to ESA was enacted. The 1973 ESA was a comprehensive attempt to protect species at risk of extinction and to consider habitat protection as an integral part of that effort. In addition, an express purpose of ESA is to "provide a means whereby the ecosystems upon which endangered species and threatened species depend may be conserved" (16 U.S.C. §1531(b)). Under ESA, species of plants and animals (both vertebrate and invertebrate) may be listed as either endangered or threatened according to assessments of the risk of their extinction. More flexible management can be provided for species listed as threatened, compared to those listed as endangered. Distinct population segments of vertebrate species may also be listed as threatened or endangered. Consequently, some populations of Chinook, coho, chum, and sockeye salmon in Washington, Oregon, Idaho, and California have been listed under ESA, even as other healthy populations of these same species in Alaska are not listed and may be commercially harvested. More limited protection is available for plant species under ESA. Once a species is listed, legal tools, including penalties and citizen suits, are available to aid species recovery and protect habitat. Use of these tools, or the failure to use them, has led to conflict. A more detailed discussion of the major provisions of ESA is provided in CRS Report RL31654, The Endangered Species Act: A Primer , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. ESA is administered by the Fish and Wildlife Service (FWS, Department of the Interior) for terrestrial and freshwater species and some marine mammals, and by the National Marine Fisheries Service (NMFS) in the Department of Commerce's National Oceanic and Atmospheric Administration for the remaining marine and anadromous species. The U.S. Geological Survey's Biological Resources Division conducts research on species for which FWS has management authority; NMFS conducts research on the species for which it is responsible. As of January 2, 2013, a total of 1,234 species of animals and 820 species of plants were listed as either endangered or threatened under the ESA, of which the majority (619 species of animals and 817 species of plants) occur in the United States and its territories (see Figure 1 and Figure 2 ). The remaining species occur only in other countries. Of the 1,436 U.S. species, 1,143 (about 80%) are covered in active recovery plans. In the most recent data available, FY2011 federal and state expenditures on endangered and threatened species totaled about $1.59 billion, of which about $1.53 billion was reported by federal agencies and about $58 million was reported by the states. The top 10 species with the highest total FY2011 expenditures (excluding land acquisition costs) included 7 subpopulations of steelhead and Pacific salmon ($338 million altogether), pallid sturgeon ($42 million), bull trout ($37 million), and red-cockaded woodpecker ($27 million). However, species do not exist in isolation, but evolve and fluctuate in abundance because of their relationships with other species and the physical environment. Conservationists increasingly are talking about not only species, but also ecosystems as the units of interest. At times, efforts to protect and recover listed species are controversial; declining species often function like the proverbial canary in the coal mine, by flagging larger issues of resource scarcity and altered ecosystems. Past resource debates in which ESA-listed species were part of larger issues include Tennessee's Tellico Dam (water storage and construction jobs versus farmland protection and tribal graves, as well as snail darters); Pacific Northwest timber harvest (protection of logging jobs and communities versus commercial and sport fishing, recreation, and ecosystem protection, including salmon and spotted owls); and the management of the Apalachicola Basin in Alabama, Florida, and Georgia (allocation of water among metropolitan, agricultural, and industrial users along with commercial and recreational fishing interests, as well as one listed fish and three listed mussel species). ESA is the domestic implementing legislation for the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES; TIAS 8249), signed by the United States on March 3, 1973; and the Convention on Nature Protection and Wildlife Preservation in the Western Hemisphere (the Western Hemisphere Convention; 50 Stat. 1354; TS 981), signed by the United States on October 12, 1940. CITES parallels ESA by dividing its listed species into groups according to the estimated risk of extinction, but uses three major categories (called appendices), rather than two. In contrast to ESA, CITES classifies species based solely on the risk that trade poses to their survival. Under ESA, violations of CITES are also violations of U.S. law if committed within U.S. jurisdiction (16 U.S.C. §1538). ESA also regulates import and export of controlled products and provides some exceptions. Both ESA and CITES address illegal trade in wildlife. International illegal wildlife trade is estimated to be worth more than $10 billion annually and has been associated with the decline of species, spread of disease, and proliferation of invasive species, among other things. In addition, FWS's Multinational Species Conservation Fund (MSCF) benefits tigers, the six species of rhinoceroses, Asian and African elephants, marine turtles, and great apes (gorillas, chimpanzees, bonobos, orangutans, and the various species of gibbons). This fund supports conservation efforts benefitting these species, often in conjunction with efforts under CITES. In the 112 th Congress, H.Res. 47 would have expressed the sense of the House of Representatives regarding the contributions of CITES and urged that CITES adopt stronger protections for the polar bear, sharks, and bluefin tuna. H.R. 50 and Section 245(a-c) of S. 3525 would have reauthorized certain provisions of the MSCF related to elephants, rhinoceroses, and tigers. H.R. 1456 and Section 246 of S. 3525 would have reauthorized the Neotropical Migratory Bird Conservation Act through FY2017. H.R. 1760 and Section 245(d) of S. 3525 would have amended and reauthorized the Great Ape Conservation Act of 2000 through FY2017. H.R. 1761 and Section 245(e) of S. 3525 would have amended and reauthorized the Marine Turtle Conservation Act of 2004 through FY2017. On July 28, 2011, the House Natural Resources Subcommittee on Fisheries, Wildlife, Oceans, and Insular Affairs held a hearing on H.R. 50 , H.R. 1760 , and H.R. 1761 . H.R. 3510 , S. 3208 , and Section 244 of S. 3525 would have extended the authorization for the Multinational Species Conservation Funds Semipostal Stamp Act. ESA reauthorization has been on the legislative agenda since the funding authorization expired in 1992, and bills have been introduced in each subsequent Congress to address various aspects of endangered species protection. Below are descriptions of some of the issues that received attention in the 112 th Congress. The answer to this question depends on what is measured. Because a major goal of ESA is the recovery of species to the point at which ESA protection is no longer necessary, this may be a useful starting point. In the 39 years since ESA was enacted, 56 U.S. and foreign species or distinct population segments thereof have been delisted. The reasons cited by FWS are (a) recovery (28 species); (b) extinction (10 species; however, some may have been extinct when listed); and (c) original data in error (18 species). Recovered species include the American alligator, bald eagle, brown pelican (two areas), peregrine falcon (two subspecies), gray wolf (four areas), gray whale (except the Western Pacific Ocean), and three species of kangaroo. Extinct species include the dusky seaside sparrow, Guam broadbill (a bird), and two small fish living in desert springs. However, it can be quite difficult to prove whether extraordinarily rare species are simply that or, in fact, are already extinct. For example, the endangered ivory-billed woodpecker, thought by many to be extinct, was thought to have been rediscovered in a remote area of Arkansas a few years ago. Rare species are, by definition, hard to find. Some have asserted that ESA is a failure since only 28 species have been delisted due to recovery; on the other hand, only 10 species have been delisted because of extinction. Others note that full recoveries are relatively few because the two principal causes of extinction—habitat loss and invasive non-native species—continue to increase. In addition, "only those species whose situations are known to be the most desperate will receive priority," thereby making recovery difficult, as conservation intervention would occur in only the later phases of a species' decline . Another measure of "success" might be the number of species that have stabilized or increased their populations, even if the species are not actually delisted; for example, at least 35 species have been reclassified (downlisted) from endangered to threatened. Under this standard, ESA could be considered a success, since a large number of listed species (41%, according to one study) have improved or stabilized their population levels after listing. Other species (e.g., red wolves and California condors) might not exist at all without ESA protection, and this too might be considered a measure of success, although these species are still rare. One approach to gauge progress might be to look at what proportion of the recovery objectives identified in species recovery plans have been achieved. Table 1 indicates how the rate of achievement of recovery objectives changes with the increasing length of time after species are listed. In addition, one author concluded that the impact of species conservation efforts may be underestimated because measures do not account for species that (1) would have deteriorated further in the absence of conservation actions, or (2) have improved numerically, but not enough to change their status. An April 2005 study by GAO found that, although FWS spends almost half of its recovery funds on the highest-priority species, in practice, factors other than a species' priority ranking (e.g., regional office workload and opportunities for partnerships to maximize scarce recovery funds) determine how funding is allocated. GAO found that FWS does not have a process to assess funding decisions routinely to ensure that they are appropriate. On May 17, 2005, the majority staff of the House Committee on Resources released an oversight report entitled Implementation of the Endangered Species Act of 1973 . It reviewed and critiqued various ways that recovery might be measured. In 2006, GAO examined federal efforts to recover 31 selected species. GAO determined that, while many factors affected the recovery of species, recovery plans played an important role in the recovery of all but one of the species examined. Critics claimed the GAO study was biased to reflect positively on the recovery planning process by the selection of species examined. A December 2008 study by GAO found that, although FWS, NMFS, and other federal agencies had implemented a majority of recommendations to strengthen ESA implementation contained in 10 GAO reports released during the previous 10 years, almost one-third of these recommendations had not been implemented. For example: FWS had not clarified the role of critical habitat and how and when it should be designated; FWS had not periodically assessed expenditures on species in relation to their relative priority; and FWS and NMFS were not tracking the amount of time spent by federal agencies preparing for consultation before the process officially began. In August 2011, NMFS released its Biennial Report to the U.S. Congress on the Recovery Program for Threatened and Endangered Species, summarizing efforts to recover the 64 domestic species under NMFS's jurisdiction from October 1, 2008, to September 30, 2010. In May 2012, the Center for Biological Diversity released a report focusing on the recovery rates of 110 species, concluding that 90% of species protected by ESA are recovering at the rates predicted in agency recovery plans. In the 112 th Congress on December 6, 2011, the House Committee on Natural Resources held an oversight hearing on ESA and whether litigation may be impeding recovery efforts. ESA requires that determinations of a species' status be made "solely on the basis of the best scientific and commercial data available." In several recent situations, legal, economic, and social disputes have resulted from actions under ESA. Examples of these controversies include the Florida panther, Klamath River Basin suckers and coho salmon, gray wolf, and Sonoran Desert bald eagles. Critics in some of these disputes suggest that the science supporting ESA action has been insufficiently rigorous or mishandled by the agencies. Many rare and endangered species are little studied because they are hard to find and it is difficult to locate enough of them to study. There may be little information on many species facing extinction, and only limited personnel or funds available to conduct studies on many of the less charismatic species, or those of little known economic import. Some question what should be done in such instances. In response, some suggest that considerations other than species conservation should prevail; others seek to change the current posture of the law by changing the role of science. These considerations are complicated by the cost and time required to acquire more complete data, particularly in connection with many lesser-known species. Courts, in considering the "best data available" language, have held that an agency is not obliged to conduct studies to obtain missing data, but cannot ignore available biological information, especially if the ignored information is the most current. Nor may an agency treat one species differently from other similarly situated species, or decline to list a dwindling species and wait until it is on the brink of extinction in relying on possible but uncertain future actions of an agency. "Best scientific and commercial data available" is not a standard of absolute certainty, reflecting Congress's intent that FWS take conservation measures before a species is conclusively headed for extinction. If FWS does not base its listings on speculation or surmise, or disregard superior data, the imperfections of the studies upon which it relies do not undermine those studies as the best scientific data available—"the Service must utilize the best scientific ... data available, not the best scientific data possible." Judicial review can also help ensure that agency decisions and their use of scientific data are not arbitrary or capricious and that regulations are rationally related to the problems causing the decline of a species, especially when other interests are adversely affected. In Arizona Cattle Growers Association v. United States Fish and Wildlife Service , the court stated that the evidentiary bar FWS must clear is very low, but it must at least clear it. In the context of issuing incidental take permits under Section 10(a), this ruling means the agency must demonstrate that a species is or could be in an area before regulating it, and must establish the causal connection between the land use being regulated and harm to the species in question. Mere speculation as to the potential for harm is not sufficient. An agency must consider the relevant facts and articulate a rational connection between these facts and the choices made. In July 2012, the Center for Biological Diversity published a study concluding that peer reviews of ESA critical habitat designations may not be adequately considered by federal agencies. In the 112 th Congress, the House Science, Space, and Technology Subcommittee on Investigations and Oversight held a hearing on the nexus of science and policy under ESA on October 13, 2011. On October 17, 2011, the House Committee on Natural Resources held an oversight field hearing in Seattle, WA, on the scientific basis for fisheries restrictions to protect Steller sea lions by NMFS. On October 18, 2011, the House Natural Resources Subcommittee on Water and Power held an oversight field hearing in Highland, CA, on the scientific basis and economic impacts of expanded critical habitat designation for the Santa Ana sucker by FWS. Section 401(1) of H.R. 4301 would have amended ESA to expand the "best scientific and commercial" language to "best scientific and economic data available at the time, including analysis of the costs and benefits of the matter under consideration." In another version of the debate over science and ESA, the focus is less on the use of science in ESA decision-making per se and more on the use of the act to force decisions on a scientific issue. Specifically, some have argued that the ESA might be a suitable tool to restrict greenhouse gas emissions. However, years after the theory was proffered, no published court opinion has considered this issue. The idea is that once a species is listed, the argument could be made that sources of substantial greenhouse gas emissions, such as coal-fired power plants, cause an unlawful "take" of these species under ESA Section 9 by the effect such emissions have, via climate change, on the species' habitat. This could force negotiation of an incidental take permit for the source, with conditions to limit greenhouse gases. Case law, however, does not demonstrate that the ESA is used as an enforcement tool to make climate change arguments. In three cases where ESA challenges were directed at federal projects related to power plants, only one involved climate change allegations, Palm Beach County Environmental Coalition v. Florida , and it was not clear whether those claims were premised on the ESA or on another legal basis. In an Eighth Circuit case, Sierra Club v. U.S. Army Corps of Engineers , a claim was made that emissions harmed specific species near the power plant, and did not allege global harm. A similar claim was made in Palm Beach County . Neither court reviewed the ESA claims, finding procedural reasons. In the third case, United States v. Pacific Gas and Electric , the court held that the ESA had not been violated; also, the claims of harm to species related to a power plant were not based on GHGs. Despite the apparent lack of litigation premised on climate change taking species, some regulatory changes were made to limit lawsuits based on that cause of action. In December 2008, FWS changed the regulations that dictated how a Service considered impacts of federal projects on listed species. Those regulations were effective only from January 15, 2008, to May 5, 2008, after Congress acted to halt them in P.L. 111-8 . During that period of regulatory change, definitions related to the effects of an action were modified to "reinforce the Services' current view that there is no requirement to consult on [greenhouse gas] emissions' contribution to global warming and its associated impacts on listed species." Despite the revocation of those changes, it does not appear that the scope of effects has expanded, likely due to the fact that the regulations already limited review to those effects with a reasonable certainty to occur. Another regulatory change of the same time period is still in place. It restricts lawsuits claiming incidental takes of polar bears to instances where the agency action occurs in the state of Alaska. The polar bear was listed under the act primarily due to shrinking habitat caused by changing climate. The polar bear regulation prevents a lawsuit claiming that a power plant in any state other than Alaska harmed the polar bear by indirectly causing its ice floe habitat to diminish. The law that authorized revocation of the regulations discussed above, P.L. 111-8 , also authorized revocation of the polar bear rule, but the Secretary of the Interior and the Secretary of Commerce did not act to revoke that rule. On December 7, 2010, FWS designated approximately 187,000 square miles offshore and onshore in Alaska as critical habitat for the species (75 Federal Register 76085). As open space dwindles and increasing human populations put pressures on wildlands and natural resources, efforts to conserve species and their habitats may highlight underlying resource crises and economic conflicts. Public values and affected economic interests may be complex and sometimes at odds. The situations described below are examples of regional issues that have been the subject of recent congressional oversight and legislative interest. There are many more regional resource issues that relate to ESA and are of congressional interest. Controversy arose in 2001 when the Bureau of Reclamation (Department of the Interior) announced it would not release water from part of its Klamath irrigation project to approximately 200,000 acres of farm and pasture lands within the roughly 235,000-acre project service area. The operational change sought to make more water available for three fish species under ESA protection—two endangered sucker species, and a threatened coho salmon population. The Klamath Project straddles the Oregon/California border and had been the site of increasingly complex water management conflicts involving several tribes, fishermen, farmers, environmentalists, and recreationists. Upstream farmers point to their contractual rights to water from the Klamath Project and to hardships for their families if water is cut off. Others assert that the downstream salmon fishery is more valuable and that farmers could be provided temporary economic assistance, while salmon extinction would be permanent. Still others assert that there are ways to serve all interests, or that the science underlying agency determinations is simply wrong. Specifically at issue is how to operate the bureau's project facilities to meet irrigation contract obligations without jeopardizing the three listed fish. The Trinity River diversion from the Klamath basin to central California also has ramifications for the bureau's role in the Central Valley Project (CVP). Ten-year and annual operation plans, and associated biological assessments (by the bureau) and BiOps (by FWS and NMFS) have been variously criticized and defended. On July 31, 2007, the House Natural Resources Committee held an oversight hearing on allegations of political intervention influencing scientific and policy decisions at the Department of the Interior, with respect to Klamath River salmon. A Klamath Basin Restoration Agreement was negotiated by 29 Klamath River stakeholders and signed on February 18, 2010, to address conflicting water management objectives. A second related Klamath Hydropower Settlement Agreement may result in the removal of four dams on the Klamath River that block salmon and steelhead from historic spawning areas. On September 21, 2012, Secretary of the Interior Salazar announced the completion of scientific and technical studies concerning the environmental and economic impacts of removing four Klamath River hydroelectric dams. At issue for the 112 th Congress was whether to provide legislative support for the two new Klamath agreements. Parties to these agreements indicated that they would seek such legislative support from Congress. H.R. 3398 / S. 1851 would have authorized restoration of the Klamath Basin. ESA protection for distinct population segments (DPSs) of wolves has changed back and forth since the first DPSs—Western and Eastern—were proposed in 2003. The result is an extremely complex regulatory and legal saga, in which each effort by FWS to delist the wolf or designate a DPS has been rejected by a court. The issue for the 112 th Congress was whether to attempt to delist any wolf population legislatively, to modify the effects of wolf recovery efforts, or to leave the issue to management of FWS (as affected by likely further court rulings). In 2003, FWS determined that the two DPSs no longer needed the protection of the ESA and so they were delisted. The Western and Eastern DPS designations and delistings were nullified by courts. In 2007, FWS designated a Western Great Lakes DPS and simultaneously delisted it. And in early 2008, FWS also designated and delisted the Northern Rocky Mountains DPS. However, courts found both delistings flawed and vacated both rulemakings. In December 2008, FWS responded by returning the wolves in the Western Great Lakes and parts of the Northern Rocky Mountains areas to their former protected status, eliminating the DPS designations. That same rulemaking returned wolves in southern Montana, southern Idaho, and all of Wyoming to the status of "nonessential experimental populations"—their status before the DPS efforts. In April 2009 FWS published notices establishing DPSs in the Western Great Lakes and the Northern Rockies and delisting both populations, except in Wyoming. FWS was sued for the Western Great Lakes delisting and settled the case, returning the population to its previous status (threatened or endangered, depending on location). A court held in August 2010 that the Northern Rockies delisting violated the ESA, directing that the delisting be declared invalid. The Northern Rockies wolves were returned to their experimental population status, meaning they are treated as threatened in most circumstances. Meanwhile, scientists argue that allowing Congress to remove or add protections for particular species would set a dangerous precedent. However, Congress negated the effect of the August court decision when it approved the following language in P.L. 112-10 ( H.R. 1473 ): Sec. 1713. Before the end of the 60-day period beginning on the date of enactment of this Act, the Secretary of the Interior shall reissue the final rule published on April 2, 2009 (74 Fed. Reg. 15123 et seq.) without regard to any other provision of statute or regulation that applies to issuance of such rule. Such reissuance (including this section) shall not be subject to judicial review and shall not abrogate or otherwise have any effect on the order and judgment issued by the United States District Court for the District of Wyoming in Case Numbers 09-CV-118J and 09-CV-138J on November 18, 2010. The effect was to return to the April 2009 rule, described above, establishing the DPS in the Northern Rockies and delisting those wolves, except for those in Wyoming. The gray wolf becomes the 49 th species to be delisted under ESA, although it was delisted only in the states of Montana and Idaho plus eastern Washington, eastern Oregon, and north-central Utah. (It remains listed as either endangered or threatened in all of the other lower 48 states.) Of the 48 species delisted to date, none has been delisted due to specific legislative action. While there may be attempts to point to the language of P.L. 112-10 as a precedent for delisting other species, two facts are unlikely to find parallels in other species controversies: (1) FWS had previously attempted to delist the species, meaning FWS believed the science supported delisting; and (2) the species had met and exceeded the numeric goals for delisting in the species' recovery plan, although the genetic connectivity was disputed. The language of Section 1713 blocks judicial review of reissuance of the rule, and it appears to leave open the option for a subsequent proposal to re-list the species or to delist Wyoming's wolves. Also in April 2011, FWS took action addressing wolves in other parts of the United States. FWS has proposed to delist the wolves in the Western Great Lakes and to recognize wolves in the eastern states as a different species ( Canis lycaon ) from the wolves found in most of the rest of the country: After reviewing the latest available scientific and taxonomic information, the Service now recognizes the presence of two species of wolves in the Western Great Lakes: the gray wolf ( Canis lupus ), the wolf species currently listed under the ESA, and the eastern wolf ( Canis lycaon ), with a historical range that includes portions of eastern Canada and the northeastern United States. Recent wolf genetic studies indicate that what was formerly thought to be a subspecies of gray wolf ( Canis lupus lycaon ) is actually a distinct species ( Canis lycaon ). To establish the status of this newly recognized species, the Service is initiating a review of Canis lycaon throughout its range in the United States and Canada. As with the many controversies surrounding wolf conservation, these proposals may also be subject to litigation and come to congressional attention. Other bills in the 112 th Congress (besides H.R. 1473 ) proposed revising gray wolf protection. H.R. 509 and S. 249 would have amended ESA to prevent it from applying to the gray wolf, eliminating wolf protection throughout the United States. H.R. 510 would appear to have proposed amending the ESA to prohibit protection of gray wolves in Idaho and Montana under the act. S. 321 would have given the rulemaking addressed by P.L. 112-10 , Section 1713, the force of law, rather than regulation. These bills were not pursued in light of passage of the Appropriations Act language. However, H.R. 838 addressed wolves in the Great Lakes area. It mirrored the language in H.R. 510 , appearing to prevent protecting the wolf under the ESA. This approach may become moot, provided that the FWS proposal for the Western Great Lakes delisting is finalized. H.R. 1819 would have amended ESA to provide for state management of population segments of gray wolves. Section 119 of H.R. 2584 would have declared that any final rule by FWS that determines the gray wolf in Wyoming or any of the states within the range of the Western Great Lakes Distinct Population Segment of the gray wolf not to be endangered or threatened is not to be subject to judicial review if the state has entered into an agreement with the Secretary of the Interior that authorizes the state to manage gray wolves. H.R. 3453 would have amended ESA to authorize permits for takings of wolves to protect from wolf depredation in states where wolf populations exceed the recovery goals in an ESA recovery plan. Delta smelt ( Hypomesus transpacificus ) is a small, slender-bodied fish found only in the San Francisco Bay and Sacramento-San Joaquin Rivers Delta in California (Bay-Delta), where they were once abundant. The species was listed as threatened under ESA in 1993 and, in recent years, its abundance has declined to the lowest ever observed. The decline has been attributed to a combination of several factors, including entrainment (i.e., entrapment) in water export pumps, competition and predation from exotic fish species, warmer water temperatures, toxic contaminants, changes in habitat size and quality, and changes in food supply. The contribution of each factor in causing the species decline is controversial. Some contend that all causes might contribute to the observed decline. The delta smelt decline has significant consequences for the operation of the federal Central Valley Project (CVP) and the State Water Project (SWP), which supply water to much of Central and Southern California. Because entrainment and/or adverse modification of delta smelt critical habitat by water pumps is believed to contribute to the decline of delta smelt, changes in how these pumps are operated have triggered consultation under ESA. ESA requirements following consultation have contributed to reduced pumping and less water for users, which has been very controversial. To address the impact of pumping changes on delta smelt, an ESA Section 7 consultation between FWS and the Bureau of Reclamation was initiated in 2004. FWS initially issued a no-jeopardy BiOp with regard to impacts on delta smelt by the operations of the CVP and SWP in 2004, and re-issued the BiOp in 2005 to address potential critical habitat issues of the delta smelt. In May 2007, the FWS BiOp was found not to comply with ESA with regard to delta smelt. The Bureau of Reclamation and FWS reinitiated consultation based on new information on the delta smelt in 2007. While the consultation process was underway, the Bureau of Reclamation implemented interim protective measures required by a court order issued in December 2007. A revised BiOp was issued December 15, 2008. FWS determined that the continued operation of water projects in the Bay-Delta, as described in the CVP Operations Criteria and Plan (OCAP) biological assessment, was likely to jeopardize the continued existence of the delta smelt and adversely modify its critical habitat. Along with the revised BiOp, FWS outlined reasonable and prudent alternatives (RPAs) intended to protect each life-stage and critical habitat of the delta smelt, which resulted in reduction in water deliveries for many water users south of the Delta. These RPAs have been the subject of further litigation and much controversy. With more abundant water in the winter of 2011, the parties were able to agree on water flow levels through June 30, 2011, perhaps marking the first spring without litigation over water flow since the BiOp was issued. At issue during the 112 th Congress were congressional oversight of proposals to change operations and authorities for the Bureau of Reclamation's Central Valley Project and environmental and/or economic damages from federal water project operations. In the 112 th Congress, H.R. 1 (seeking to provide continuing appropriations for the remainder of FY2011) included language that would have prohibited funds from being used by NMFS and FWS for implementing certain actions described in BiOps for the operations of the Central Valley Project and the California State Water Project (§1475, Division B, Title IV). On February 19, 2011, the House passed H.R. 1 (amended). However, the prohibition language was not included in P.L. 112-10 ( H.R. 1473 ), the Full-Year Appropriations Act of 2011. H.R. 1251 , Section 108 of H.R. 1837 , and Title V of S. 2365 would have provided congressional direction for ESA compliance as it related to operation of the Central Valley Project and the California State Water Project; H.R. 1837 was reported (amended) by the House Committee on Natural Resources on February 27, 2012 ( H.Rept. 112-403 ) and passed by the House (amended) on February 29, 2012, but no further action was taken. Section 308 of H.R. 1287 , Section 4138 of S. 1720 , and S. 706 would have prohibited the Bureau of Reclamation and California state agencies from restricting operations for the Central Valley Project pursuant to any BiOp under certain conditions. The prohibitions in Section 9 (private actions) and Section 7 (federal nexus) at times frustrate the economic desires of owners of land or other property. This has long been a central issue for ESA's detractors, who assert that restrictions under ESA routinely "take" property in the constitutional sense of the term. Conflicts between ESA and property owners come about despite the existence of ESA mechanisms intended to soften its impact on property owners. Under the Fifth Amendment, property cannot be "taken" by the United States without just compensation. The Supreme Court has long tried, with limited success, to define which government actions affect private property so severely as to effect such a "taking." In briefest outline, government actions usually are deemed a taking when they cause either a permanent physical occupation of private property or, through regulation, a total elimination of its economic use. When the government regulation removes only part, but not all, of the property's use or value, a three-factor balancing test is used to determine whether a taking has occurred. Although these factors remain amorphous, it is at least clear from lower court decisions that, for a taking to occur, the regulation's impact on the property generally must be severe; and with regard to the property as a whole, not just the regulated portion. Approximately 20 court decisions have addressed takings challenges to ESA restrictions on land or other property, with all but two finding no taking. These cases have involved restrictions on timber cutting, reductions in water delivery to preserve instream flows needed by listed species (a particularly active area now), restrictions on shooting animals that were responsible for loss of livestock, and prohibitions on the transport or sale of endangered species. In several of these cases, the taking claim failed because it was filed in the wrong court or was not "ripe." Where takings claims were reached by the court, they were rejected principally because the economic impact was insufficient as to the property as a whole, or because of the long-standing principle that the government is not responsible for the actions of wild animals. Of the two decisions favoring the property owner, one, involving reduced water delivery to a water district owing to the need to maintain in-stream flows for listed fish, has been undermined by the judge who wrote it in a later decision. The other, however, instructs that when government requires water subject to appropriative water rights to be physically diverted to a fish ladder (here, for the use of a listed fish species), the diversion must be analyzed under a physical rather than regulatory taking theory. Under such a theory, as noted, the holder of water rights is generally likely to win its taking claim. In the present case, however, the trial court on remand held that the water diverted to the fish ladder had not been shown to encroach on the water actually needed by the plaintiff water district for its customers. The court therefore dismissed the case as not ripe, and it is on appeal again. In the 1990s, critics sought to amend ESA to afford compensation for a broader range of property impacts than the Constitution provides—perhaps by specifying a fixed percentage of ESA-related property value loss, above which compensation must always be paid. No such bills were enacted. Concern has been expressed over the adequacy of consultation and biological opinions related to pesticides and their possible effects on ESA-listed Pacific salmon. Recent investigations indicate that about 10% of ESA-listed plants are available for purchase online, with most of these sales being illegal. On May 3, 2011, the House Committee on Agriculture and the House Committee on Natural Resources held a joint oversight hearing on pesticide registration consultations under ESA Section 7. On December 6, 2011, the House Committee on Natural Resources held an oversight hearing on ESA and whether litigation may be impeding recovery efforts. On June 19, 2012, the House Committee on Natural Resources held an oversight hearing on the cost and impact of attorney fees and time spent on ESA litigation. P.L. 112-270 amended P.L. 106-392 to maintain annual base funding for the Upper Colorado and San Juan fish recovery programs through FY2019. Other miscellaneous issues arose for which legislation was introduced in the 112 th Congress: H.R. 1584 would have exempted state departments of transportation from ESA consultation requirements for construction to maintain the federal-aid highway system. Section 3016 of H.R. 7 and Section 615 of H.R. 4348 (as passed by the House on April 18, 2012) would have exempted state highway and public transportation projects from ESA if the Secretary of Transportation determined that state environmental review was essentially equivalent; Section 8201 of H.R. 7 would have provided a similar exclusion for rail projects. S. 1389 , H.R. 3347 , Section 128(7) of S. 1596 , Section 139(2)(E) of S. 1786 , Section 3004(7) of H.R. 7 , Section 603(7) of H.R. 4348 (as passed by the House on April 18, 2012), and Section 127(7) of H.R. 2112 , as amended and passed by the Senate on November 1, 2011, would have exempted from ESA the reconstruction of any road, highway, or bridge damaged by a declared emergency/disaster (§8201 of H.R. 7 would have provided a similar exclusion for rail lines); on September 21, 2011, the Senate Committee on Appropriations reported S. 1596 ( S.Rept. 112-83 ). The conference agreement on H.R. 2112 (subsequently enacted as P.L. 112-55 ) did not include this provision ( H.Rept. 112-284 ). The House Committee on Transportation and Infrastructure reported (amended) H.R. 7 on February 13, 2012 ( H.Rept. 112-397 ). Section 35205 of H.R. 14 / S. 1813 , as amended and passed by the Senate on March 14, 2012, and as inserted into H.R. 4348 and passed by the Senate on April 24, 2012, would have authorized the Secretary of Transportation to delegate authority and responsibility for ESA consultation to Amtrak for high speed and intercity passenger rail projects. H.R. 1837 would have repealed the San Joaquin Restoration Settlement (§203) and ordered that no distinction be made under ESA between anadromous fish of wild and hatchery origin in the Sacramento and San Joaquin Rivers and their tributaries (§207); this bill was reported (amended) by the House Committee on Natural Resources on February 27, 2012 ( H.Rept. 112-403 ) and passed by the House (amended) on February 29, 2012. S. 2365 would have declared ESA not to apply to the Central Valley Project and the California State Water Project (§518) and ordered that no distinction be made under ESA between anadromous fish of wild and hatchery origin in the Sacramento and San Joaquin Rivers and their tributaries (§519). Section 559 of H.R. 5326 , as passed by the House (amended) on May 10, 2012, would have prohibited the expenditure of FY2013 funds by the Department of Commerce for the reintroduction of California Central Valley spring run Chinook salmon. H.R. 946 and H.R. 3069 would have amended the Marine Mammal Protection Act of 1972 to permit activities aimed at reducing marine mammal predation on threatened and endangered Columbia River salmon; on June 14, 2011, the House Natural Resources Subcommittee on Fisheries, Wildlife, Oceans, and Insular Affairs held a hearing on H.R. 946 . On December 8, 2011, the House Committee on Natural Resources reported H.R. 3069 ( H.Rept. 112-322 ). On June 19, 2012, the House passed H.R. 2578 after amending this measure to include the language of H.R. 3069 as Title VII. H.R. 2111 would have (1) required a study by the National Academy of Sciences of federal salmon recovery actions on the Columbia and Snake River (§3) and (2) authorized the Secretary of the Army to remove the four Lower Snake River dams (§8). Section 3 of H.R. 3408 / H.R. 4211 would have declared (1) the final regulations regarding oil shale management published by the Bureau of Land Management on November 18, 2008, and (2) the November 17, 2008, U.S. Bureau of Land Management Approved Resource Management Plan Amendments/Record of Decision for Oil Shale and Tar Sands Resources to Address Land Use Allocations in Colorado, Utah, and Wyoming and Final Programmatic Environmental Impact Statement, to be fully compliant with ESA. On February 9, 2012, H.R. 3408 was reported (amended) by the House Committee on Natural Resources ( H.Rept. 112-392 ), with the ESA provisions in Section 2. The House passed H.R. 3408 on February 16, 2012. H.R. 991 , Title III of H.R. 4089 , S. 1066 , and Section 102 of S. 3525 would have amended the Marine Mammal Protection Act of 1972 to allow importation of polar bear trophies taken in sport hunts in Canada before the date the polar bear was determined to be a threatened species under ESA; on May 12, 2011, the House Natural Resources Subcommittee on Fisheries, Wildlife, and Oceans held a hearing on H.R. 991 . On December 1, 2011, the House Committee on Natural Resources reported (amended) H.R. 991 ( H.Rept. 112-308 ). On April 13, 2012, the House Committee on Natural Resources reported (amended) H.R. 4089 ( H.Rept. 112-426 , Part I); on April 17, 2012, the House passed H.R. 4089 . H.R. 4043 would have established special management areas for southern sea otters to accommodate military readiness activities, and declared that ESA incidental take restrictions were not applicable in these areas during military readiness activities. On April 19, 2012, the House Natural Resources Subcommittee on Fisheries, Wildlife, Oceans, and Insular Affairs held a hearing on this bill. On July 17, 2012, the House Committee on Natural Resources reported (amended) this bill ( H.Rept. 112-606 , Part I). On May 18, 2012, the House passed H.R. 4310 after amending this measure to include the language of H.R. 4043 in Section 316. Section 233 of H.R. 1777 , Section 363 of H.R. 3400 / S. 2199 , Section 142 of H.R. 4301 , Section 301 of H.R. 4383 , Section 531 of S. 3445 , and Section 531 of H.R. 4480 as passed by the House (amended) on June 21, 2012, would have directed the Secretary of the Interior to assign personnel to agency field offices to coordinate review of federal permits for oil and gas projects on federal lands onshore and on the OCS, with expertise in ESA Section 7 consultations and preparation of BiOps. On June 15, 2012, the House Committee on Natural Resources reported (amended) H.R. 4383 ( H.Rept. 112-528 , Part I). Section 447 of H.R. 2584 would have prohibited funds from being expended to modify, cancel, or suspend the registration of a pesticide in response to a final biological opinion or other written statement issued under Section 7(b) of ESA. Section 10016 of H.R. 6083 would have placed conditions on the modification, cancellation, or suspension of a pesticide registration in response to a biological opinion; on September 13, 2012, the House Committee on Agriculture reported (amended) this measure ( H.Rept. 112-669 ), with the ESA provision now in Section 10017. Section 2(c)(2) of H.R. 1505 and Section 1401 of H.R. 2578 as passed (amended) by the House on June 19, 2012, would have extended the authority of the Secretary of Homeland Security to waive ESA for actions to secure the border within 100 miles of any international land and maritime U.S. border. On April 17, 2012, the bill was reported (amended) by the House Committee on Natural Resources ( H.Rept. 112-448 , Part I). H.R. 1719 and Section 5 of H.R. 6247 would have required power marketing administrations to inform consumers regarding costs associated with compliance for protecting species under ESA; Section 8 of H.R. 6247 would have prohibited spilling water at federal dams if such action would harm endangered fish. On September 22, 2011, the House Natural Resources Subcommittee on Water and Power held a hearing on H.R. 1719 . H.Res. 301 and S.Res. 206 expressed support for designating June 20, 2011, as "American Eagle Day," and celebrating the recovery and restoration of the bald eagle; S.Res. 206 was agreed to by the Senate on June 8, 2011. S.Res. 498 expressed support for designating June 20, 2012, as "American Eagle Day," and celebrating the recovery and restoration of this bird; this measure was agreed to by the Senate on June 19, 2012. Section 1005(c) of H.R. 2954 / S. 2474 would have directed the President to arrange for the National Academy of Sciences to study and provide a scientific review of the impact—on public health, air quality, water quality, wildlife, and the environment—of the regulations for Interagency Cooperation under the Endangered Species Act, published in the Federal Register on December 16, 2008. Section 7 of H.R. 5744 / S. 3409 would have required (1) research to determine the impact of ESA listing on forest fuel loads, and (2) endangered species recovery plans and critical habitat determinations to include wildfire risk assessment analysis. Other provisions in this bill sought to reduce threats to endangered and threatened species posed by wildfire. S. 962 and H.R. 1858 would have reauthorized and amended the Northwest Straits Marine Conservation Initiative Act, including authorizing county Marine Resources Committees; one duty of these committees would have been to assist in identifying local implications, needs, and strategies associated with the recovery of ESA-listed Puget Sound salmon. Section 101 of H.R. 909 and Section 101(a) of H.R. 3302 would have declared the Draft Proposed Outer Continental Shelf (OCS) Oil and Gas Leasing Program 2010-2015 to be fully compliant with ESA. On May 31 and June 3, 2011, the House Energy and Commerce Subcommittee on Energy and Power held hearings on H.R. 909 . Section 3 of H.R. 4094 / S. 2372 and Section 1003 of H.R. 2578 as passed by the House (amended) on June 19, 2012, would have restricted ESA implementation at the Cape Hatteras National Seashore Recreation Area; on June 15, 2012, the House Committee on Natural Resources reported H.R. 4094 ( H.Rept. 112-526 , Part I). S. 826 and H.R. 1907 would have directed the Secretary of the Treasury to establish a program to provide loans and loan guarantees to enable eligible public entities to acquire interests in real property that were in compliance with habitat conservation plans approved by the Secretary of the Interior under ESA. S. 1401 would have established a Salmon Stronghold Partnership to promote international and interagency cooperation to improve salmon management; on January 30, 2012, the Senate Committee on Commerce, Science, and Transportation reported (amended) this measure ( S.Rept. 112-140 ). Section 105(e) of H.R. 4019 would have declared that environmental reports by the Secretary of Agriculture for certain Forest Service lands would suffice as compliance with ESA. On December 31, 2012, the House Committee on Natural Resources reported (amended) this bill ( H.Rept. 112-737 , Part I). H.R. 2929 and S. 1552 would have amended ESA to provide an exception for actions carried out against grizzly bears in self-defense, defense of others, or a reasonable belief of imminent danger. The ESA currently provides for self-defense at 16 U.S.C. 1540(b)(3). S. 3500 would have amended ESA to establish a procedure for approval of certain settlements, including a requirement that settlements be approved by each state and county in which the Secretary of the Interior believed an ESA-listed species occurred. H.R. 1042 would have amended ESA to require that certain species be treated as extinct if there were not a substantial increase in the population of a species during the 15-year period beginning on the date the species was determined to be endangered. Section 562 of H.R. 5326 , as passed by the House (amended) on May 10, 2012, would have prohibited the expenditure of FY2013 funds by the Department of Commerce to implement a proposed rule for sea turtle excluder devices in shrimp trawls. H.R. 4244 would have directed the Secretary of the Interior to issue a final decision on whether to issue a permit under ESA authorizing construction of an elementary school in San Diego, CA. On June 7 and 8, 2011, amendments to S. 782 were introduced in the Senate that proposed to exempt species from ESA ( S.Amdt. 397 , sand dune lizard; S.Amdt. 429 , lesser prairie chicken). H.R. 2973 and S. 1580 would have directed the Secretary of the Interior to amend the special rule at 50 CFR 17.40(g) to permit the taking of the Utah prairie dog under ESA. Section 306(a) of H.R. 1287 , Section 4136(a) of S. 1720 , and S. 706 would have provided a temporary exemption from certain ESA restrictions in a declared emergency. Section 3 of H.R. 332 would have required compliance by all federal defense agencies with certain environmental laws, including ESA. H.R. 1806 would have amended ESA to provide that bluefin tuna not be treated as an endangered or threatened species. Section 243 of H.R. 6474 would have repealed the income tax deduction for endangered species recovery expenditures. H.R. 1400 and S. 729 would have validated the final patent for Nevada lands beneficial for desert tortoise recovery. H.R. 6219 and S. 3446 would have amended ESA to prohibit listing of four species of salamanders in Texas. S.Res. 467 would have declared May 18, 2012, as "Endangered Species Day." Appropriations play an important role in the ESA debate, providing funds for listing and recovery activities as well as financing consultations that are necessary for federal projects. In addition, appropriations bills have served as vehicles for some substantive changes in ESA provisions. Table 2 summarizes recent ESA and related funding for FWS. The Administration's FY2012 request for endangered species and related funding within FWS's Ecological Services Account was released on February 14, 2011. On March 16, 2011, in a hearing before the House Appropriations Subcommittee on Interior, Environment, and Related Agencies, FWS asked that Congress add a cap on funding for the processing of new ESA petitions, in addition to the spending restrictions it has supported on listing and critical habitat designations for a number of years. The central issue in the 112 th Congress with these appropriations focused on what level of funding might be adequate to implement the programs required by law. On July 19, 2011, the House Committee on Appropriations reported H.R. 2584 ( H.Rept. 112-151 ), proposing significantly lower FY2012 funding for many ESA programs, and proposing ESA policy restrictions. Under this measure, funding for FWS core ESA programs would have been reduced by $36.7 million (21%) from funding enacted for FY2011 and by $43.9 million (24%) from the Administration's FY2012 request, with no funds provided for ESA listing and critical habitat activities. To further implement the ban on funding for ESA listing and critical habitat activities, additional language in this bill would have prohibited FWS from spending any funds to implement subsections (a), (b), (c), and (e) of Section 4 of ESA (except for processing petitions, developing and issuing proposed and final regulations, and taking any other steps to implement actions described in subsection (c)(2)(A), (c)(2)(B)(i), or (c)(2)(B)(ii) of such section). On July 21, 2011, President Obama threatened to veto this bill, citing specific provisions limiting ESA activities. On July 27, 2011, during floor debate in the House, H.Amdt. 735 was adopted, striking the provision relating to funding limitations relating to ESA listing and critical habitat. On December 15, 2011, a conference report was filed on H.R. 2055 , proposing FWS appropriations for FY2012 in Division E, Title I ( H.Rept. 112-331 ). On December 23, 2011, President Obama signed P.L. 112-74 ( H.R. 2055 ), providing slightly more than $237 million for FWS endangered species and related programs; FY2012 funding for FWS core ESA programs was 0.5% more than the FY2011 enacted amount and 3.5% less than the FY2012 Administration request. The Administration's FY2013 budget request was released on February 13, 2012. The Administration proposed that FY2013 funding for endangered species programs in FWS's Ecological Services account increase by about $3.7 million (+2.1%) above the FY2012 enacted funding. In addition, the Administration proposed an increase of $12.3 million (+25.8%) for the Cooperative Endangered Species Fund above what was enacted for FY2012. On July 10, 2012, the House Committee on Appropriations reported H.R. 6091 ( H.Rept. 112-589 ), proposing significantly reduced FY2013 funding for most ESA programs. Under this measure, funding for FWS core ESA programs would have been reduced by $41.9 million (24%) from funding enacted for FY2012 and by $45.7 million (25%) from the Administration's FY2013 request. In the absence of final action on this bill, a continuing resolution, P.L. 112-175 , provided FY2013 funding through March 27, 2013, for projects and activities at the FY2012 level. For NMFS, funding for ESA programs is included under "protected species research and management", which also includes funding authorized under the Marine Mammal Protection Act (see Table 3 ). The Administration's FY2012 request for endangered species and related funding within NMFS's Protected Species Account was released on February 14, 2011. As for FWS, above, the central issue in the 112 th Congress with these appropriations focused on what level of funding is adequate to implement the programs required by law. On July 20, 2011, the House Committee on Appropriations reported H.R. 2596 ( H.Rept. 112-169 ), proposing significantly lower FY2012 funding for NMFS's Protected Species Program. Funding for Protected Species was proposed to be reduced by $85 million (-39%) from funding proposed in the Administration's FY2012 request. On September 15, 2011, the Senate Committee on Appropriations reported S. 1572 ( S.Rept. 112-78 ), proposing that FY2012 funding for Protected Species be reduced by more than $38 million (-18%) from that proposed by the Administration. On November 1, 2011, the Senate passed H.R. 2112 , amended to include the language of S. 1572 , as reported, in Division B, Title I. On November 14, 2011, the conference report on H.R. 2112 was filed ( H.Rept. 112-284 ), proposing slightly more than $176 million for protected species programs, about $40 million (-19%) less than the Administration's request. On November 18, 2011, President Obama signed P.L. 112-55 ( H.R. 2112 ), providing slightly more than $176 million for protected species programs. The Administration's FY2013 budget request was released on February 13, 2012. The Administration proposed that FY2013 funding for NMFS's protected species programs in NOAA's Operations, Research, and Facilities (OR&F) account decrease by about $6.4 million (-3.6%) below the FY2012 enacted funding. On April 19, 2012, the Senate Committee on Appropriations reported S. 2323 ( S.Rept. 112-158 ), recommending that FY2012 funding for Protected Species be increased by $14.3 million (8.4%) from that proposed by the Administration and by $7.9 million (4.5%) above the FY2012 enacted funding. On May 2, 2012, the House Committee on Appropriations reported H.R. 5326 ( H.Rept. 112-463 ), recommending that FY2012 funding for Protected Species be decreased by $15.8 million (-9.3%) from that proposed by the Administration and by $22.2 million (-12.6%) below the FY2012 enacted funding. On May 10, 2012, the House passed H.R. 5326 (amended). In the absence of final action on either bill, a continuing resolution, P.L. 112-175 , provided FY2013 funding through March 27, 2013, for projects and activities at the FY2012 level.
|
The Endangered Species Act (ESA; P.L. 93-205, 16 U.S.C. §§1531-1543) was enacted to increase protection for, and provide for the recovery of, vanishing wildlife and vegetation. Under ESA, species of plants and animals (both vertebrate and invertebrate) can be listed as endangered or threatened according to assessments of their risk of extinction. Habitat loss is the primary cause for listing species. Once a species is listed, powerful legal tools are available to aid its recovery and protect its habitat. Accordingly, when certain resources are associated with listed species—such as water in arid regions like California, old growth timber in national forests, or free-flowing rivers—ESA is seen as an obstacle to continued or greater human use of these resources. ESA may also be controversial because dwindling species are usually harbingers of broader ecosystem decline or conflicts. As a result, ESA is considered a primary driver of large-scale ecosystem restoration issues. Major issues concerning ESA in recent years have included the role of science in decision making, critical habitat (CH) designation, incentives for property owners, and appropriate protection for listed species, among others. Although many bills were introduced, little legislation related to ESA was enacted by the 112th Congress. Committees conducted oversight of the implementation of various federal programs and laws that address threatened and endangered species. P.L. 112-10 (final appropriations for FY2011) included a legislative delisting of a portion of the reintroduced Rocky Mountain gray wolf population. P.L. 112-74 provided slightly more than $237 million for FWS endangered species and related programs; this FY2012 funding for FWS core ESA programs was 0.5% more than the FY2011 enacted amount and 3.5% less than the FY2012 Administration request. P.L. 112-270 amended P.L. 106-392 to maintain annual base funding for the Upper Colorado and San Juan fish recovery programs through FY2019. The authorization for spending under ESA expired on October 1, 1992. The prohibitions and requirements of ESA remain in force, even in the absence of an authorization, and funds have been appropriated to implement the administrative provisions of ESA in each subsequent fiscal year. Proposals to reauthorize and extensively amend ESA were last considered in the 109th Congress, but none were enacted. No legislative proposals were introduced in the 110th, 111th , or 112th Congresses to reauthorize ESA. This report discusses oversight issues and legislation that was introduced in the 112th Congress to address ESA implementation and management of endangered and threatened species.
|
Continuing appropriations acts (commonly known as continuing resolutions or CRs), which provide interim funding in the event that regular appropriations have not been enacted, have been an integral component of the annual appropriations process for decades. Whenever action on one or more of the regular appropriations acts for a fiscal year is incomplete, an issue that arises is the appropriate duration of any period for which continuing resolutions will be used. Continuing resolutions may have a relatively short duration, based on the expectation that action on the regular appropriations acts will be concluded within several days or weeks. Alternatively, continuing resolutions may have a longer duration to postpone final action on appropriations decisions until after elections, or through the beginning of the next congressional session. Finally, a continuing resolution may provide funding for the remainder of the fiscal year. This report provides information on congressional practices with respect to the duration of continuing resolutions, including the use of full-year measures, and focuses particularly on the period covering FY1998-FY2012. The routine activities of most federal agencies are funded by means of annual appropriations provided in one or more of the regular appropriations acts. When action on the regular appropriations acts is delayed, Congress may use one or more continuing appropriations acts to provide stop-gap funding. In the absence of regular appropriations, the failure to enact continuing appropriations in a timely manner results in a funding gap. If a funding gap occurs, federal agencies are typically required to begin a "shutdown" of the affected projects and activities, which includes the prompt furlough of non-excepted personnel. Continuing appropriations acts commonly are referred to as continuing resolutions (or CRs) because usually they provide continuing appropriations in the form of a joint resolution rather than a bill. Occasionally, however, continuing appropriations are provided in bill form. In most of the years in which continuing resolutions have been used, a series of two or more have been enacted into law. Continuing resolutions may be designated by their order (e.g., first continuing resolution, second continuing resolution) or, after the initial continuing resolution has been enacted, designated merely as a further continuing resolution. The duration of a continuing resolution refers to the period for which budget authority is provided for the covered projects and activities. The period ends either upon the enactment of the applicable regular appropriations act, or on an expiration date specified in the continuing resolution, whichever occurs first. The duration of a continuing resolution may vary for different agencies covered thereunder as an agency's regular appropriations act is enacted, and its coverage under the continuing resolution ceases. For example, Section 107 of P.L. 108-84 (117 Stat. 1043), the first continuing resolution for FY2004, set the duration of the measure at 31 days: Sec. 107. Unless otherwise provided for in this joint resolution or in the applicable appropriations Act, appropriations and funds made available and authority granted pursuant to this joint resolution shall be available until (a) enactment into law of an appropriation for any project or activity provided for in this joint resolution, or (b) the enactment into law of the applicable appropriations Act by both Houses without any provision for such project or activity, or (c) October 31, 2003, whichever first occurs. A continuing resolution may also contain an expiration date for one or more agencies or programs that differs from the one that applies generally to the covered agencies and programs. If action on the regular appropriations acts is not complete by the time the first continuing resolution expires, subsequent continuing resolutions will often simply replace the expiration date in the preceding continuing resolution with a new one. For example, Section 1 of the second continuing resolution for FY2004, P.L. 108-104 (117 Stat. 1200), stated that "Public Law 108-84 is amended by striking the date specified in Section 107(c) and inserting 'November 7, 2003.'" This action extended the duration of the preceding continuing resolution by seven days. Based upon their duration, continuing resolutions may be classified as either interim or full-year measures. Interim (or temporary) continuing resolutions provide funding for periods usually measured in days or weeks (but sometimes months), while full-year continuing resolutions provide funding through September 30, the last day of the fiscal year. By enacting a series of interim continuing resolutions, Congress secures additional increments of time for itself to complete action on some or all of the remaining regular appropriations acts. The duration of any further continuing resolutions may be shortened, sometimes to a single day, to keep pressure on legislators to conclude their business, or may be lengthened to weeks to accommodate lengthy negotiations or congressional recesses. In some cases, continuing resolutions have carried over into the next session when Congress wanted to postpone making difficult political or policy decisions. Finally, when the separate enactment of one or more of the regular appropriations bills for a fiscal year does not seem likely to occur, a full-year continuing resolution may be used to complete legislative action. Continuing resolutions usually fund activities under a formula-type approach that provides spending at a restricted level, such as "at a rate for operations not exceeding the current rate," which is generally equivalent to the total amount of appropriations provided for the prior fiscal year. Exceptions to the formula, sometimes referred to as "anomalies," which provide a specific amount of budget authority for certain accounts or activities, can also be provided. The amount of funding available for particular activities previously provided based on a rate (or as an anomaly) can be increased or decreased when the relevant regular appropriations act is subsequently enacted. Congress is not bound by these conventions in determining funding levels, however, and there have been several variations in practice over the years in how the funding for projects and activities under a continuing resolution has been provided. Continuing resolutions generally do not allow new activities to be initiated. Instead, funding is usually available only for activities conducted during the past year, and existing conditions and limitations on program activity are typically retained by language contained within the resolution's text. Over the past half century, the timing patterns for congressional action on regular appropriations acts have varied considerably, but tardy enactment has been a recurring problem. During the 25-year period covering FY1952-FY1976, when the fiscal year began on July 1, at least one regular appropriations bill was enacted after the start of the fiscal year. From FY1977 to FY2012, after the start of the fiscal year was moved to October 1, all of the regular appropriations acts were enacted on time in only four instances (FY1977, FY1989, FY1995, and FY1997). No continuing resolutions were enacted for three of these fiscal years, but continuing resolutions were enacted for FY1977 to fund certain unauthorized programs whose funding had been dropped from the regular appropriations acts. During the 25 fiscal years covering FY1952-FY1976, Congress did not once enact all of the regular appropriations acts on time. As a result, one or more continuing resolutions were enacted each year during this period, except for FY1953. In an effort to reduce the reliance on continuing resolutions, the Congressional Budget Act of 1974 ( P.L. 93-344 ; 88 Stat. 297) effectively lengthened the time available for Congress to act on annual appropriations measures by moving the start of the fiscal year from July 1 to October 1. Procedures under the act were fully implemented beginning in FY1977, and this change in the start of the fiscal year yielded immediate results—all of the regular appropriations acts for FY1977 were enacted on time. This initial success, however, was short-lived, and congressional reliance on continuing resolutions has persisted in the ensuing years. As was previously noted, after FY1977, all of the regular appropriations acts were enacted on time in only three other instances—for FY1989, FY1995, and FY1997. Consequently, one or more continuing resolutions were needed each year during this period. In total, 161 continuing resolutions were enacted into law during the period covering FY1977-FY2012, ranging from zero to 21 in any single fiscal year. On average, about six continuing resolutions were enacted each fiscal year during this interval (see Table 3 , at the end of the report, for further information on all CRs enacted between FY1977 and FY2012). Full-year continuing resolutions provide funding for one or more of the regular appropriations acts for the remainder of the fiscal year (through June 30 for FY1976 and prior years, and through September 30 for FY1977 and subsequent years). They represent a determination by Congress to abandon any further efforts to enact separately the remaining unfinished regular appropriations acts for the fiscal year, and to bring the annual appropriations process for that year to a close (except for the later consideration of supplemental appropriations acts). While Congress has employed full-year continuing resolutions on many occasions, it has not done so consistently over time. Prior to the full implementation of the Budget Act in FY1977, full-year continuing resolutions were used occasionally. Full-year continuing resolutions, for example, were enacted into law for four of the six preceding fiscal years (FY1971, FY1973, FY1975, and FY1976). Following the successful completion of action on the regular appropriations acts for FY1977, Congress returned to the use of full-year continuing resolutions for more than a decade. For each of the 11 fiscal years following FY1977, covering FY1978-FY1988, Congress enacted a full-year continuing resolution covering at least one regular appropriations act. Three years later, Congress enacted another full-year continuing resolution, for FY1992. Most recently, a full-year continuing resolution was enacted for FY2011. Full-year continuing resolutions may provide appropriations in different ways, including (1) by formulaic provisions (e.g., "at a rate for operations not in excess of the current rate or the rate provided in the budget estimate, whichever is lower"), in which the amounts available for individual projects and activities must be determined by comparing two or more alternatives; (2) by incorporating the full text of the applicable regular appropriations acts (including incorporation by cross-reference to other measures), thereby obviating the need to make any funding determinations; or (3) by a combination of the two. For example, P.L. 112-10 , the full-year continuing resolution for FY2011, provided full text budget authority for the Department of Defense in Division A, while Division B provided formulaic funding (with anomalies) for all other agencies and activities for the remainder of the fiscal year. Table 1 identifies the 14 full-year continuing resolutions enacted for the period since FY1977. Eight of the measures included at least one formulaic funding provision, while the remaining six did not. Nine of the 14 full-year continuing resolutions during this period were enacted in the first quarter of the fiscal year—three in October, two in November, and four in December. The five remaining measures, however, were enacted during the following session, between February 15 and June 5. As Table 1 shows, full-year continuing resolutions enacted during the first six years of this period were relatively short measures, ranging in length from one to four pages in the Statutes-at-Large . Beginning with FY1983 and extending through FY1988, however, the measures became much lengthier, ranging in length from 19 to 451 pages (averaging 244 pages). The greater page length of full-year continuing resolutions enacted for the period covering FY1983-FY1988 may be explained by two factors. First, full-year continuing resolutions enacted prior to FY1983 generally established funding levels by a formulaic reference to pending regular appropriations acts. With regard to a specific appropriations act, for example, funding levels may have been keyed to the lesser of the amounts provided in the House-passed or Senate-passed versions of the act. Beginning with FY1983, however, Congress largely abandoned the use of formulaic references to establish funding levels. Instead, the full text of some or all of the covered regular appropriations acts usually was incorporated into the full-year continuing resolution, thereby increasing its length considerably. Secondly, the number of regular appropriations acts covered by full-year continuing resolutions increased significantly during the FY1983-FY1988 period. For the period covering FY1978-FY1982, the number of regular appropriations acts covered by continuing resolutions for the full fiscal year ranged from one to eight (averaging four). Beginning with FY1983 and extending through FY1988, the number of covered acts ranged from 5 to 13 (averaging 9.25). In the above respect, P.L. 112-10 (the full-year continuing resolution for FY2011) provided funding in a similar manner to the FY1983-FY1988 full-year continuing resolutions. P.L. 112-10 provided budget authority for a total of 12 regular appropriations act by incorporating the full text of one appropriations bill (the FY2011 Department of Defense Appropriations Act) while also providing for the other 11 regular appropriations bills through formulaic provisions and specific anomalies. Continuing resolutions have been a significant element of the annual appropriations process during the last 15 fiscal years, covering FY1998-FY2012. As shown in Table 2 , a total of 92 continuing resolutions were enacted into law during this period. While the average number of such measures enacted per year was about 6 (6.1), the actual number enacted ranged from 2 measures (for FY2009 and FY2010) to 21 (for FY2001). During these last 15 fiscal years, Congress provided funding by means of a continuing resolution for an average of over four months (126.6 days) each fiscal year. Taking into account the total duration of continuing resolutions enacted for each fiscal year, the period for which continuing appropriations were provided ranged from 21 days to 365 days. On average, each of the 92 continuing resolutions enacted lasted for almost 29 (28.8) days; 45 of these were for seven days or less. Two full-year continuing resolutions were used during this period, for FY2007 and FY2011. In the first four instances (FY1998-FY2001), the expiration date in the final continuing resolution was set in the first quarter of the fiscal year, on a date occurring between October 21 and December 21. The expiration date in the final continuing resolution for the next three fiscal years (FY2002-FY2004), however, was set in the following session on a date occurring between January 10 and February 20. While the expiration dates in the final continuing resolutions for five of the next eight fiscal years (FY2005, FY2006, FY2008, FY2010, and FY2012) were in the first quarter of the fiscal year on a date occurring between December 8 and December 31, the final continuing resolution for FY2009 carried an expiration date of March 11, 2009. The final continuing resolutions for FY2007 and FY2011 provided funding through the remainder of the fiscal year. Figure 1 presents a representation of both the number and duration of continuing resolutions for FY1998-FY2012. As the figure shows, there is no significant correlation between these two variables. For example, six continuing resolutions were enacted for both FY1998 and FY1999, but the same number of measures lasted for a period of 57 days for FY1998 and only 21 days for FY1999. The largest number of continuing resolutions enacted for a single fiscal year during this period—21 for FY2001—covered a period lasting 82 days, at an average duration of 3.9 days per act. The smallest number enacted—two each for FY2009 and FY2010—covered 162 days and 79 days, respectively, at an average duration of 81 days and 40 days per act. Figure 1 also shows considerable mix in the use of shorter-term and longer-term continuing resolutions for a single fiscal year. For example, for FY2001, 21 continuing resolutions covered the first 82 days of the fiscal year. The first 25 days were covered by a series of four continuing resolutions lasting between five and eight days each. The next 10 days, a period of intense legislative negotiations leading up to the national elections on November 7, 2000, were covered by a series of 10 one-day continuing resolutions. The next 31 days were covered by two continuing resolutions, the first lasting 10 days and the second lasting 21 days. The first of these two continuing resolutions was enacted into law on November 4, the Saturday before the election, and extended through November 14, the second day of a lame-duck session. The second continuing resolution was enacted into law on November 15 and expired on December 5, which was 10 days before the lame-duck session ended. The remaining five continuing resolutions, which ranged in duration from one to six days, covered the remainder of the lame-duck session and several days beyond (as the final appropriations legislation passed by Congress was being processed for the President's approval). Table 3 provides more detailed information on the number, length, and duration of continuing appropriations acts enacted for FY1977-FY2012. As indicated previously, this represents the period during which the congressional budget process as established by the Budget Act has been in effect, that is, since the change in the start of the fiscal year from July 1 to October 1.
|
Continuing appropriations acts (commonly known as continuing resolutions or CRs), which provide interim funding in the event that regular appropriations have not been enacted, have been an integral component of the annual appropriations process for decades. Whenever action on one or more of the regular appropriations acts for a fiscal year is incomplete, an issue that arises is the appropriate duration of any period for which continuing resolutions will be used. Continuing resolutions may have a relatively short duration in the expectation that action on the regular appropriations acts will be concluded within several days or weeks. Alternatively, continuing resolutions may have a longer duration to postpone final action on appropriations decisions until after elections, or through the beginning of the next congressional session. Finally, a continuing resolution may provide funding for the remainder of the fiscal year. The duration of a continuing resolution refers to the period for which budget authority is provided for covered projects and activities. The period ends either upon enactment of the applicable regular appropriations act or on an expiration date specified in the continuing resolution, whichever occurs first. Based upon their duration, continuing resolutions may be classified as either interim or full-year measures. Interim (or temporary) continuing resolutions provide funding for periods usually measured in days or weeks (but sometimes months), while full-year continuing resolutions provide funding through September 30, the last day of the fiscal year. Over the past half century, the timing patterns for congressional action on regular appropriations acts have varied considerably, but tardy enactment has been a recurring problem. During the 24-year period covering FY1952-FY1976, when the fiscal year began on July 1, at least one regular appropriations bill was enacted after the start of the fiscal year. Continuing resolutions were used in all fiscal years during this period except FY1953, despite the fact that only one regular appropriations bills was enacted before the start of that fiscal year. From FY1977 to FY2011, after the start of the fiscal year was moved to October 1, all of the regular appropriations acts were enacted on time in only four instances (FY1977, FY1989, FY1995, and FY1997). No continuing resolutions were enacted for three of these fiscal years, but continuing resolutions were enacted for FY1977 to fund certain unauthorized programs whose funding had been dropped from the regular appropriations acts. Full-year continuing resolutions provide funding for one or more of the regular appropriations acts for the remainder of the fiscal year. While Congress has employed full-year continuing resolutions on many occasions, it has not done so consistently over time. For each of the 11 fiscal years covering FY1978-FY1988, Congress enacted a full-year continuing resolution to provide funding for programs and activities covered by at least one regular appropriations act. Three years later, Congress enacted another full-year continuing resolution, for FY1992. Most recently, Congress enacted a full-year continuing resolution for FY2011. During the past 15 fiscal years (FY1998-FY2012), Congress provided funding under continuing resolutions for an average of over four months (126.6 days). The period for which continuing appropriations were provided in these 15 years ranged from 21 days to 365 days. On average, each of the 92 continuing resolutions enacted during this period lasted for about 29 (28.8) days; 45 of these were for 7 days or less.
|
Recent and projected large deficits and the need for revenue to offset spending or tax reduction proposals generated congressional and executive branch interest in different proposals to reduce the tax gap; and consequently, raise additional revenue. Proposals in the 110 th Congress to require brokers to report adjusted basis on publicly traded securities sold by individuals are examined in this report. Basis reporting can help clarify the actual amount of capital gains and thus the tax revenue from such gains may rise if capital gains have been under reported. Basis is "the amount a taxpayer uses to determine the cost of acquiring an asset, which is used to determine the asset's capital gain or loss." The original cost may have to be altered in order to calculate the appropriate "adjusted basis" for tax calculations. For example, the original cost of a purchase of stock would be adjusted upwards to account for brokerage fees. The Internal Revenue Service (IRS) defines the tax gap "as the aggregate amount of true tax liability imposed by law for a given tax year that is not paid voluntarily and timely." The IRS defines the true tax liability for any given taxpayer as "the amount of tax that would be determined for the tax year in question if all relevant aspects of the tax law were correctly applied to all of the relevant facts of that taxpayer's situation." For the 2001 tax year, IRS estimated that the gross tax gap was approximately $345 billion. After enforcement efforts and late payments, this gross tax gap was reduced over several years by an estimated $55 billion to equal a net tax gap of $290 billion as reported in 2007. Current law requires brokers to report annually the name, address, and gross proceeds of each sale by a taxpayer to the IRS. Brokers are also required to report this information to each customer. The term broker includes "a dealer, a barter exchange, and any other person who (for a consideration) regularly acts as a middleman with respect to property or services." An individual taxpayer's gain or loss is the difference between the amount realized on the sale of property and the adjusted basis. Because brokers are currently not required to report adjusted basis to the IRS, there is no third-party reporting of adjusted basis; consequently, the ability of the IRS to verify the amount of capital gains and losses reported by individuals is limited. Brokers would incur significant costs in reporting adjusted basis, but taxpayers would be relieved of the often substantial costs of calculating adjusted basis to determine capital gains and losses from the sale of securities. According to the IRS, third-party reporting increases voluntary tax compliance. For tax year 2001, the Government Accountability Office (GAO) found that an estimated 8.4 million out of an estimated 21.9 million taxpayers (or 38%) with securities transactions misreported their securities gains and losses. GAO calculated that the most frequent reason for this misreporting of securities gains and losses was the inaccurate reporting of basis of securities sold. The issue of reporting basis is complicated by the following current computation rules: If a taxpayer has acquired stock in a corporation on different dates or at different prices and sells or transfers some of the shares of that stock, and the lot from which the stock is sold or transferred is not adequately identified, the shares deemed sold are the earliest acquired shares (the "first-in-first-out rule"). If a taxpayer makes an adequate identification of shares of stock that it sells, the shares of stock treated as sold are the shares that have been identified. A taxpayer who owns shares in a regulated investment company ("RIC") generally is permitted to elect, in lieu of the specific identification or first-in-first-out methods, to determine the basis of RIC shares sold under one of two average-cost-basis methods described in Treasury regulations. A proposal to report basis was included in the President's FY2008 Budget and is discussed in this report. The Senate Finance Committee's draft proposal to report basis on publicly traded securities, which was released on May 25, 2007, is also examined. On June 29, 2007, the committee held a hearing on this proposal. Written comments of representatives of private financial associations are examined and legislative implications presented. Lastly, relevant legislation in the 110 th Congress is described. The President's FY2008 Budget proposed that information reporting to the IRS be expanded to include basis reporting on security sales. The U.S. Treasury described this proposal as follows: Certain brokers (including brokerage houses, mutual funds, asset managers and fiduciaries) would be required to report information regarding adjusted basis in connection with the sale of certain publicly traded securities. The IRS and Treasury Department would be granted regulatory authority to promulgate specific rules, including exceptions, to implement this mandate. Brokers also would be required to report acquisition or disposition dates for securities to determine short-term or long-term gain or loss for taxpayers. To facilitate accurate basis reporting if a customer transfers securities from an account with one broker to an account with another, the transferor broker would be required to provide the relevant information to the transferee. Under regulations, a broker would be exempt from reporting items of information that the broker is unable to obtain with reasonable efforts. Regulations may establish a regime under which customers provide information to their brokers about customer transactions that produce adjustments to basis and about the customers' initial basis in securities when the broker has no other way of knowing this information. Information about basis adjustments that are applicable to all holders of securities of a particular class would be available to brokers either directly from the relevant issuer or indirectly from the issuer through a central repository of information. This reporting proposal would apply to securities acquired after December 31, 2008; consequently, revenue estimates in the first year are not on a fiscal year basis. The Treasury estimates that this reporting proposal would yield revenue of $1.035 billion for the period of January 1, 2009, through September 30, 2112, and $6.709 billion for the period of January 1, 2009, through September 30, 2017. The President's FY2009 Budget also proposed that information reporting to the IRS be expanded to include basis reporting on security sales. The Treasury's description of this proposal was the same as the same proposal in the President's FY2008 Budget with only a few changes in wording. The U.S. Treasury described this FY2009 Budget proposal as follows: Certain brokers (including brokerage houses, mutual funds, asset managers and fiduciaries) would be required to report information regarding adjusted basis in connection with the sale of certain securities. The IRS and Treasury Department would be granted regulatory authority to promulgate specific rules, including exceptions, to implement this mandate. Brokers also would be required to report acquisition or disposition dates for securities to determine short-term or long-term gain or loss for taxpayers. To facilitate accurate basis reporting if a customer transfers securities from an account with one broker to an account with another, the transferor broker would be required to provide the relevant information to the transferee. Under regulations, a broker would not be penalized for failure accurately to report items of information that the broker is unable to obtain with reasonable efforts. Regulations may establish a regime under which customers provide information to their brokers about customer transactions that produce adjustments to basis and about the customers' initial basis in securities when the broker has no other way of knowing this information. Information about basis adjustments that are applicable to all holders of securities of a particular class would be available to brokers either directly from the relevant issuer or indirectly from the issuer through a central repository of information. This reporting proposal would apply to securities acquired after December 31, 2009. The Treasury estimated that this reporting proposal would yield revenue of $1.203 billion for the period of January 1, 2010, through September 30, 2013, and $7.480 for the period of January 1, 2010, through September 30, 2018. The Joint Tax Committee (JCT) indicated that this proposal "is based on findings that third-party reporting increases compliance." Currently, brokers did not report information to the IRS that allows the IRS to calculate gains or losses from securities sales. JTC found that this proposal would reduce compliance costs of some taxpayers, raise compliance costs of some brokers, and impose significant costs on the Internal Revenue Service. "Under present law taxpayers must determine the effects of certain actions undertaken by issuers of securities—spin-offs, recapitalization, mergers, and return of capital distributions, for example—on the taxpayers' basis in those securities." The proposal would relieve some taxpayers from making these calculations concerning basis because brokers would be required to provide this information to customers when securities are sold. Some brokers, particularly brokers with large portfolios, currently provide information about adjusted basis to customers. Other brokers provide partial information or no information concerning basis to their customers. Some brokers may incur additional expenses in meeting the proposal's reporting requirements. The IRS would incur significant costs from altering or creating new forms, processing data including matching data, and storing data. Because the proposal would only apply to publicly traded securities, if the cost of compliance is passed onto taxpayers, some taxpayers may shift part of their assets from publicly traded securities to other securities and assets. Some taxpayers may prefer to acquire assets not subject to the requirement that brokers must report basis information to the IRS. "The proposal provides few details about which taxpayers and securities would be subject to reporting requirements." The Senate Finance Committee drafted a proposal, which is almost the same as the proposal in the President's budget that brokers be required to report basis to the IRS and customers for publicly traded securities. One of the advantages of analyzing this draft proposal is the availability of extensive testimony and background documents provided by witnesses at the committee's hearing on the proposal. The Senate Finance Committee description of its draft proposal included the following excerpts: The proposal provides that in every case in which a broker is required under section 6045(a) to file with the IRS a return reporting a customer's gross proceeds with respect to any applicable security, that broker is required to include in the return the customer's adjusted basis in each applicable security and information necessary to determine the customer's holding period in that security. The broker also is required to include this information in the statement required to be furnished to a customer under present-law section 6045(b). Present-law penalties for failure to comply with the requirements of section 6045 also apply to failures to comply with the new basis and holding period reporting requirements. The proposal applies to applicable securities acquired by purchase or by other means such as gift or inheritance. Under the proposal, every broker that transfers an applicable security to another broker must furnish to that other broker a written statement with information necessary to enable that other broker to comply with the new basis and holding period reporting requirements. The proposal imposes new reporting requirements when actions undertaken by issuers of applicable securities affect the basis of those securities. The proposal applies to securities acquired after the date that is 18 months after the date of enactment. Numerous implications for drafting legislation to report basis could be derived from the testimony of witnesses from finance associations at the Senate Finance Committee hearing. Some issues were raised by more than one witness. First, several witnesses stated that sufficient time should be allowed for brokers to implement the requirements necessary to report adjusted basis. This time period may be approximately two years after Treasury regulations have been written. Witnesses emphasized that some financial intermediaries would have to develop new systems to report basis and other intermediaries would have to reprogram existing systems. From Treasury's perspective, additional time to implement the reporting of basis would result in lost tax revenue. Second, two witnesses maintained that the flexibility in the methods of reporting basis should be maintained. Currently, a taxpayer may use the "first-in-first-out rule" or the specific identification rule. A taxpayer who owns shares in a mutual fund may use either of these rules or one of two average-cost-basis methods. Many mutual funds report basis to their customers using an average cost method. From the IRS perspective, requiring the use of one standard rule such as "first-in-first-out" would expedite the use of cost basis data for IRS matching purposes. Third, two witnesses believed that filing requirements should be prospective, based on the date of purchase, or brokers should not be held accountable for errors in data on current and prior reports of adjusted basis. Many brokers do not have records concerning basis and must rely on customers or third parties for information. Fourth, two witnesses expressed opposition to extending gross proceeds reporting (and thus adjusted basis reporting) to corporate customers because the Secretary of the Treasury already has the authority to extend gross proceeds reporting to corporations, without legislative action if corporations are a significant source of noncompliance. Fifth, one witness stated that the volume of transfers of securities would preclude a paper transfer system providing brokers with data to calculate adjusted basis; hence, an electronic system would be necessary. Another witness maintained that electronic transmission of transfer data should be allowed as an option. Sixth, two witnesses argued that the Treasury should have broad authority to implement legislation requiring the reporting of basis. These witnesses maintained that the legislative language in the Senate Finance Committee's draft proposal did not address many issues such as the reporting of gifted and inherited securities and the reporting of options transactions. Congress could specify many of these issues in legislative language, which would result in congressional preference being implemented and a reduced need for Treasury discretion in writing rules. Seventh, two witnesses maintained that the deadline for filing 1099 statements should be delayed by two weeks, which is addressed by S. 636 , the Reduce Wasteful Tax Forms Act of 2007. These witnesses argue that the Senate Finance Committee's proposal would cause such an enormous increase in the year-end processing costs for brokers and custodians that the two week delay would be necessary. Two bills were introduced in the 110 th Congress that focused on requiring broker reporting of a customer's adjusted basis in securities transactions. These bills, H.R. 878 and S. 601 , had almost the exact same wording and the same title. A third bill, H.R. 3970 , included a section requiring the broker reporting of customers' adjusted basis in securities transactions. On February 7, 2007, Representative Rahm Emanuel introduced H.R. 878 , Simplification Through Additional Reporting Tax Act of 2007, which would require broker reporting of customers' adjusted basis in securities transactions. The Secretary of the Treasury would issue regulations in cases in which brokers do not have sufficient information to report basis. These regulations could require other information relating to basis to be reported and could exempt some brokers from any reporting. On February 14, 2007, Senator Evan Bayh introduced S. 601 , Simplification Through Additional Reporting Tax Act of 2007, which would require broker reporting of customers' adjusted basis in securities transactions to the IRS. The contents of S. 601 are almost the same as H.R. 878 . On October 25, 2007, Representative Charles B. Rangel, Chairman of the House Committee on Ways and Means, introduced H.R. 3970 , Tax Reduction and Reform Act of 2007. This comprehensive bill is revenue neutral and proposes to eliminate the individual alternative minimum tax. This bill includes Section 1221 titled "Broker Reporting of Customer's Basis in Securities Transactions." The House Ways and Means Committee describes this section as follows: The bill creates mandatory cost basis reporting by brokers for transactions involving publicly traded securities. Covered securities are generally stock, debt, commodities, derivatives and other items as specified by the Treasury Secretary, which are acquired in the account or transferred to the account managed by the broker. The provision applies to stock acquired after January 1, 2009, and after January 1, 2011, for all other instruments. This proposal is estimated to raise $4.27 billion over 10 years . In addition to the current requirement that brokers report the gross proceeds from the sale of a covered security, brokers would be required to report the customer's adjusted basis and whether any gain or loss is long-term or short-term. Long-term capital gains are taxed at a higher rate than short-term capital gains. Every broker that transfers to another broker a covered security would be required to furnish to the transferee broker a written statement that allows the transferee broker to satisfy the proposal's basis and holding period requirements. The bill would change to February 15, from the present-law January 31, the deadline for furnishing certain information statements to customers including statements showing gross proceeds. Nine other bills were introduced in the 110 th Congress that included a section to raise revenue by requiring broker reporting of customers' basis to the Internal Revenue Service on the sale of publicly traded securities. These bills are H.R. 2147 ( Healthy Kids Act of 2007 ), H.R. 3395 ( Responsible Fatherhood and Healthy Families Act of 2007 ), H.R. 5720 ( Housing Assistance Tax Act of 2008 ), S. 1111 ( Fair Flat Tax Act of 2007 ), S. 1626 ( Responsible Fatherhood and Healthy Families Act of 2007 ), S. 2362 ( Property Tax Fairness Act of 2007 ), S. 3335 ( The Jobs, Energy, Families, and Disaster Relief Act of 2008 ), and H.R. 1424 ( Emergency Economic Stabilization Act of 2008 ). On October 3, 2008, President George W. Bush signed H.R. 1424 , Emergency Economic Stabilization Act of 2008 , into law ( P.L. 110-343 ). This act included Section 403, "Broker Reporting of Customer's Basis in Securities Transactions," which required brokers to report to the IRS customers' adjusted gross basis and whether any capital gain or loss is long-term or short-term for customers' sales of stock, debt, commodities, derivatives, and any other assets specified by the Treasury. The Joint Committee on Taxation estimated that this reporting provision would raise $6.67 billion in revenue through September 30, 2018. January 1, 2011, is the initial applicable date of the reporting provision to customers' sales of corporate stock. Witnesses at the Senate Finance Committee's hearing on June 28, 2007, included representatives from five financial associations. The written comments of these witnesses provide useful insights. The reader may want to refer to the actual written testimony for details. Numerous implications for drafting legislation to report basis may be derived from their testimony. Investment Company Institute The Investment Company Institute (ICI) emphasized three points concerning reporting of basis: First, a mandatory basis-reporting regime will be costly, and the cost ultimately will be borne by fund investors. Second, sufficient time must be provided to ensure that necessary programming and systems challenges are addressed effectively. Finally, the flexibility the current law provides to mutual funds and their shareholders to compute cost basis under any available method (first-in, first-out ("FIFO"), specific identification, and average cost, in the case of fund shareholders) must be maintained. We recognize that allowing this flexibility will limit the use of cost basis information for Internal Revenue Service ("IRS") matching purposes. The ICI indicated that many mutual funds currently provide average cost basis information to a substantial portion of their shareholders, but some funds (particularly smaller funds) do not provide any cost basis information. No mutual fund provides cost basis information to all of its shareholders because the fund managers do not have or cannot have access to the necessary information or are not confident that the information is accurate. The ICI maintains that mutual funds would "need sufficient lead time to program their systems to provide cost basis information to all of their shareholders in all circumstances." The date applicable to basis reporting should be the later of "December 31 of the calendar year that ends more than 18 months after the date of enactment or December 31 of the first calendar year that ends at least twelve months after the issuance of final regulations by the Secretary." The ICI maintained that filing requirements should be prospective based on the date of purchase if the fund has not reported cost basis data. If a fund wishes to try and reconstruct basis using "good faith efforts" then the mutual fund would have reasonable cause for any errors. The internal transfer of shares in mutual funds results in complex recording issues. The ICI recommends that the written statement requirement for data on the transfer of stock may also be met using electronic transmittal. Securities Industry and Financial Markets Association The Securities Industry and Financial Markets Association (SIFMA) represents the interests of more than 650 securities firms, banks, and asset managers. SIFMA made five major recommendations. (1) SIFMA strongly opposes the proposal to extend gross proceeds reporting (and thus adjusted basis reporting) to corporate customers and recommends this proposal be dropped. The Secretary of the Treasury already has the authority to extend gross proceeds reporting to corporations and can exercise this authority without legislative action if corporations are a significant source of noncompliance. (2) The Secretary of the Treasury should be granted broad regulatory authority to implement the new reporting requirements and to provide safe harbors, uniform adjusted basis calculation rules, simplifying assumptions, and limited exceptions if justified. (3) The new reporting regulations should be effective for securities acquired 18 months after Treasury regulations are finalized (rather than 18 months after date of enactment). Brokers cannot develop or modify their basis reporting systems if they do not know the rules they must follow. (4) The definition of "applicable security" should be clarified. (5) S. 636 , the Reduce Wasteful Tax Forms Act of 2007 ... should be incorporated into the proposal. The new reporting requirements will greatly increase year-end processing for brokers and custodians, thus increasing the number of corrected 1099 and cost basis statements that will have to be issued to taxpayers and the IRS. S. 636 would delay the filing deadline for 1099 statements by two weeks, from January 31 to February 15. The Clearing House The Clearing House Association L.L.C. (The Clearing House), an association of major commercial banks, presented its concerns about the Senate Finance Committee's Basis Reporting Proposal. The Clearing House states that "the Proposal requires financial institutions to report gross proceeds with respect to securities sold by corporate customers." The Clearing House states that corporate customers of brokers and financial institutions have generally been exempt from gross proceeds reporting requirements. The reason is that timing and accounting differences would result in mismatches in gross figures being reported to corporate customers and the IRS. Hence, the Clearing House states that "the cost to implement gross proceeds and basis reporting on payments to corporations will ... be prohibitive with no foreseeable benefit to the Internal Revenue Service or the corporate customers." The Clearing House maintains that financial institutions and brokers would be unable to report adjusted basis and holding period information for certain securities such as foreign securities and securities purchased as part of a dividend reinvestment program. The Clearing House argues that the proposal's requirement that persons transferring securities to a broker provide that broker with a written statement which includes data to calculate adjusted basis "is inefficient, burdensome, unmanageable and susceptible to error." The Clearing House believes that the volume of transfers of securities would preclude a paper transfer system and necessitate an electronic system. The Clearing House represents large banks that do not collect and send basis or holding period data to their customers; hence, these large banks would have to develop necessary information systems, which would be time consuming. In addition, large banks are currently integrating multiple information reporting systems. Consequently, the Clearing House advocates an effective date for compliance with the proposal of either three years after the date of the passage of the law or two years after the finalization of relevant Treasury regulations. American Bankers Association A representative of the American Bankers Association (ABA) provided written comments that stated that the Finance Committee's proposal raised significant issues among its members. The ABA indicated that while banks serving in fiduciary and related capacities were required to meet Section 6045 filing requirements, they may not be directly involved in either the purchase or sale of securities; hence, they do not have direct access to the necessary information concerning basis or have access only through third-party reporting. The ABA maintains that the proposal should require that banks receive information from the party that files Form 1099-B, and banks should be able to rely on the accuracy of information from third parties, particularly clients, without penalty. The ABA argues that the proposal should be effective prospectively and allow sufficient time to implement after regulations have been established. The ABA maintains that taxpayers should be allowed to continue to select the method of accounting for gains and losses on securities sold. Finally, the ABA states that the IRS should be provided with broad authority to provide exceptions or safe harbors where determining adjusted basis is difficult or impossible. National Association of Real Estate Investment Trusts The National Association of Real Estate Investment Trusts (NAREIT) represents U.S. real estate investment trusts (REITs) and publicly traded real estate companies worldwide. The NAREIT made only one specific comment: "that brokers and mutual funds be provided with an additional two weeks—until February 15 th —to report dividend income to taxpayers on IRS Form 1099-DIV."
|
Recent and projected large deficits and the need for revenue to offset spending or tax reduction proposals generated congressional and executive branch interest in reducing the tax gap. Proposals in the 110th Congress to require brokers to report adjusted basis on publicly traded securities sold by individuals are examined in this report because this is a source of revenue. Basis is the amount a taxpayer uses to determine the cost of acquiring an asset, which is used to determine the asset's capital gain or loss. In order to calculate the appropriate "adjusted basis" for tax calculations the original cost may have to be altered. Proposals to report basis were included in the President's FY2008 Budget and FY2009 Budget and are initially discussed in this report. Then the Senate Finance Committee's draft proposal to report basis on publicly traded securities, which was released on May 25, 2007, is examined. On June 29, 2007, the committee held a hearing on this proposal. Written comments of representatives of private financial associations are examined and legislative implications presented. Lastly, relevant legislation in the 110th Congress is described, including P.L. 110-343. The President's FY2009 Budget proposes that information reporting to the IRS be expanded to include requiring basis reporting on security sales. The Senate Finance Committee drafted a proposal similar to the proposal in the President's Budget that brokers be required to report basis to the IRS and customers for publicly traded securities. Witnesses at a committee hearing on reporting basis included representatives from five financial associations. The written comments of these witnesses provide useful insights. Numerous implications for drafting legislation to report basis may be derived from their testimony. Two bills had been introduced in the 110th Congress that would require broker reporting of a customer's adjusted basis in securities transactions. These bills, H.R. 878 and S. 601, have almost the exact same wording and the same title, the Simplification Through Additional Reporting Tax Act of 2007. Nine other bills have been introduced in the 110th Congress that include a section to raise revenue by requiring broker reporting of customers' basis to the Internal Revenue Service on the sale of publicly traded securities. These bills are H.R. 2147 (Healthy Kids Act of 2007), H.R. 3395 (Responsible Fatherhood and Healthy Families Act of 2007), H.R. 3970 (Tax Reduction and Reform Act of 2007), H.R. 5720 (Housing Assistance Tax Act of 2008), S. 1111 (Fair Flat Tax Act of 2007), S. 1626 (Responsible Fatherhood and Healthy Families Act of 2007), S. 2362 (Property Tax Fairness Act of 2007), S. 3335 (The Jobs, Energy, Families, and Disaster Relief Act of 2008), and HR. 1424 (Emergency Economic Stabilization Act of 2008). On October 3, 2008, President George W. Bush signed H.R. 1424 into law (P.L. 110-343), which included Section 403, "Broker Reporting of Customer's Basis in Securities Transactions." This report will not be updated.
|
Financial stress in the dairy industry in 2009, brought on largely by sharply lower milk prices, activated standing federal programs to support dairy farmers. In calendar year 2009, the federal government spent more than $1 billion to support the industry through the Milk Income Loss Contract (MILC) Program, the Dairy Product Price Support Program (DPPSP), and the Dairy Export Incentive Program (DEIP). After appeals from dairy farmers for more financial assistance, Congress granted another $350 million in October 2009 in the form of supplemental payments to dairy farmers and government purchases of dairy products for domestic feeding programs. Under financial pressure, many dairy farmers sent milk cows to slaughter and some went out of business. The subsequent decline in milk production and a simultaneous rebound in foreign demand have lifted the farm price for milk. Still, financial concerns remain for dairy farmers who lost significant amounts of farm equity during the milk price collapse. According to the U.S. Department of Agriculture (USDA), the number of dairy farms in the United States declined from 67,000 to 65,000 during 2009. The total fell to 62,500 as of December 31, 2010. The financial stress of 2009 and similar episodes over the years have led the industry and Congress to reconsider how to handle fluctuations in milk prices and financial prospects for dairy farmers. Some members have voiced interest in developing alternatives to current polices (which expire in 2012) and incorporating them in the next omnibus farm bill in the 112 th Congress or enacting the policies separately before then. As part of groundwork for the next farm bill, the House Committee on Agriculture held a hearing on dairy policy on April 20, 2010. Similarly, the Administration has been collecting information through the USDA-established Dairy Industry Advisory Committee (DIAC). On March 3, 2011, the DIAC approved its final report with recommendations to Secretary of Agriculture. This report provides background on the U.S. dairy industry, including an overview of dairy farm numbers and industry structure, and a brief history of dairy marketing and policy. Next, current dairy policy is reviewed. Finally, the report examines options for federal dairy policy being considered by the industry and/or Congress. Increased dairy cow output and advances in dairy farm technology and management have led to a sharp reduction of the number of dairy farms, particularly during the 1960s and 1970s ( Figure 1 ). Larger operations tend to have lower per-unit costs, and as firms reduce their costs, they become more competitive and can increase sales and market share. Firm size is a limiting factor for growth, however, once the gains to economies of scale have been exhausted. For the dairy industry, the number of farms continues on a downward trajectory, though at a much slower pace during the last decade than in the late 1960s and 1970s. Annual losses averaged 96,000 operations in the late 1960s and 37,000 in the 1970s. In recent years, the annual drop in dairy farm operations has slowed to about 2,000 to 5,000 farms per year, with operations totaling 62,500 on December 31, 2010. Increases in productivity have more than offset declines in the numbers of dairy farms and cows, resulting in a steady upward trend in total milk production ( Figure 2 ). Meanwhile, domestic demand for milk, on a per-capita basis, has grown slowly, at 0.4 % per year since 1990. Rising consumption of dairy products such as cheese has offset a decline in fluid milk consumption. Exports of dairy products have increased in recent years, reaching record levels in 2008. The trend in farm numbers depends on farm size. Between 2005 and 2009, farms with fewer than 500 cows registered declines, while farms with 500 to 999 cows held steady ( Table 1 ). In contrast, the number of farms with 1,000 or more cows increased 20%, driven by significantly lower costs of production. In 2005, dairy farms with 1,000 cows or more had average costs of production of $13.59 per cwt, 15% below the average for farms with 400-999 head and 35% below the cost for farms with 100-199 head. Average costs were much higher for even smaller operations. The structure of dairy farms also varies by region of the country ( Table 2 ). The average farm size in western states (e.g., California, with 850 cows per farm) is well above the U.S. average of 133 cows per farm. In contrast, Wisconsin has many small farms and an average farm size of 88 cows. Cost structure varies by state ( Figure 3 ). In the western states, where large dairy farms dominate the industry, operating costs have been affected by high feed costs in recent years because these farms purchase much of their feed (alfalfa and grain prices reached record levels in 2008). However, per-unit overhead costs tend to be relatively low for these operations because fixed costs (e.g., buildings/equipment) can be spread over a large number of animals. In other parts of the country, such as Wisconsin, where producers feed more grain and hay that is produced on the farm, operating costs tend to be lower when grain and feed prices rise. However, these farms tend to have fewer dairy cows, so per-unit overhead costs are relatively high. In the mid-1850s, most milk was consumed on farms by the family or fed to livestock; some was sold for very local use. As urban areas grew, milk was sent to processors to supply these areas with both fluid and manufactured products. By the turn of the century, producers banded together into cooperative associations to bargain with milk handlers (fluid milk processors) as a way to offset handler market power stemming from a large number of producers facing a small number of processors. In the early 1900s, dairy farmers increasingly looked toward cooperatives as a means of marketing their milk, specifically by negotiating with milk buyers using collective bargaining. By 1925, handlers were paying farmers for milk according to its use (fluid or manufactured products). This concept is known as "classified pricing" and is still in use today. Milk for fluid use has the highest value, reflecting higher transportation and handling costs. When the Great Depression hit, demand dropped sharply and the voluntary classified pricing system broke down. Federal milk marketing orders were established (and continue to function today) to stabilize the market and help equalize the market power of dairy farmers with dairy processors (see " Federal Milk Marketing Orders (FMMOs) ," below). Another motivation for establishing FMMOs was to ensure that consumers had adequate and dependable supplies of milk at reasonable prices. During this same period, legislators enacted import quotas on dairy products to protect producers from foreign competition. Eventually, during World War II, demand increased for farm commodities, including milk. In the late 1940s, the government began supporting the price of milk (and other commodities) to protect against price declines through a price support program for milk, now called the Dairy Product Price Support Program (DPPSP). Current federal dairy policy has essentially five components: (1) dairy product price support (through the DPPSP), (2) federal milk marketing orders (FMMOs), (3) direct payments under the Milk Income Loss Contract (MILC) Program, (4) the Dairy Export Incentive Program (DEIP), and (5) tariff-rate quotas on dairy imports. A nongovernment program that has been used in recent years and can affect milk production (called Cooperatives Working Together or CWT) is also described below. This section concludes with the Livestock Gross Margin for Dairy Cattle, an insurance policy that the federal government recently began subsidizing, which has lowered the cost of purchase for producers. Under the DPPSP, the federal government stands ready to purchase butter, American cheese, and nonfat dry milk from dairy manufacturers at specified minimum prices. Purchases under the DPPSP, which occurred during FY2009 when demand declined, essentially prevent market prices for dairy products from dropping below support levels, which indirectly supports the farm price of milk. In contrast, when product prices are above support levels, the DPPSP is not a factor in the market and farm milk prices reflect prevailing supply and demand conditions. Year-to-year changes in farm milk prices have increased since the mid-1990s because price support levels have been reduced below typical market-average prices through legislation. USDA's Farm Service Agency administers the DPPSP. Section 1501 of the enacted 2008 farm bill ( P.L. 110-246 ) extended the program through December 31, 2012. Marketing orders were created in the 1930s to balance market power between farmers and milk handlers while reducing "destructive competition" between milk producers that can drive down prices to their mutual detriment. FMMOs mandate minimum prices that processors in milk marketing areas must pay producers or their agents (like the dairy cooperatives) for delivered milk depending on its end use. Under FMMOs, the farm price of approximately two-thirds of the nation's fluid milk is regulated in 10 geographic marketing areas. Some states, California being the largest, have their own milk marketing regulations instead of federal rules. Unlike other dairy programs, FMMOs are permanently authorized under the Agricultural Marketing Agreement Act of 1937, as amended, (7 U.S.C. § 601-674), and therefore do not require periodic reauthorization by Congress. The authorizing statute requires USDA to use formal rulemaking procedures to make changes to orders. Congress also makes periodic revisions (e.g., the 2008 farm bill streamlined the rulemaking process). Any interested party can petition USDA to create a new order or amend an existing one. USDA's Agricultural Marketing Service administers the federal order system. Minimum FMMO milk prices are based on current wholesale dairy product prices collected by USDA's National Agricultural Statistics Service in a weekly survey of manufacturers. As such, FMMO minimum prices rise and fall each month with overall changes in the wholesale dairy product market. Under marketing orders, the price farmers receive for their milk is calculated based on these minimum prices and on how milk is utilized (fluid vs. manufacturing) in the marketing order, which collectively is called "classified pricing." The classified pricing system requires handlers to pay a higher price for milk used for fluid consumption (Class I products) than for milk used in manufactured dairy products such as yogurt, ice cream, and sour cream (Class II), cheese (Class III), and butter and dry milk products (Class IV). FMMOs also address how market proceeds are distributed among the producers delivering milk to federal marketing order areas—called "pooling"—whereby all farmers receive a "blend price" each month based on order-wide revenue. The blend price is the weighted average price in a marketing order, with the weights being the volume of milk sold in each class of utilization. Milk prices actually received at the farm level reflect the minimum prices paid by handlers under the marketing orders, plus any premiums generated from local supply/demand factors, such as a seasonal mismatch between supply and demand or special retail promotions, minus costs such as transport and marketing charges. FMMO regulations do not apply to retail product prices. Instead, retail prices reflect prices at the wholesale (manufacturer) level and the amount of competition among retailers in local markets. Section 1506 of the 2008 farm bill ( P.L. 110-246 ) extended authority for the Milk Income Loss Contract (MILC) Program until September 30, 2012. Under the MILC Program, participating dairy farmers nationwide are eligible for a federal payment whenever the minimum monthly price for farm milk used for fluid consumption (called "Class I") in Boston falls below $16.94 per cwt. Eligible farmers then receive a payment equal to 45% of the difference between the $16.94 target price and the lower monthly price. The payment percentage rate declines to the 34% for the final month of program authority (September 2012). The payment quantity is limited to 2.985 million pounds of annual production (equivalent to about a 160-cow operation). The eligible production limit declines to 2.4 million pounds for the last month of program authority. USDA's Farm Service Agency administers the MILC Program. Since the inception of the MILC Program, large dairy farm operators have expressed concern that the payment limit has negatively affected their income. For larger farm operations, their annual production is well in excess of the limit, and any production in excess of that receives no federal payments. First authorized in 1985, the Dairy Export Incentive Program (DEIP) provides cash bonus payments to U.S. dairy exporters, subject to limits on both quantity and value. The program was initially intended to counter foreign—mostly European Union—dairy subsidies (while removing surplus dairy products from the market), but subsequent farm bill reauthorizations have added market development to the role of DEIP. Payments since the program's inception have totaled more than $1 billion. The program was active throughout the 1990s, peaking in 1993 with $162 million in bonuses. The program had not been used since FY2004 until USDA announced its reactivation on May 22, 2009. Bonuses worth $19 million were awarded in FY2009. Section 1503 of the 2008 farm bill ( P.L. 110-246 ) extended the authority for the DEIP until December 31, 2012. Until 1995, imports of almost all dairy products (butter, cheese, dry milk) were subject to Section 22 import quotas. Section 22 of the Agricultural Adjustment Act of 1933 (7 U.S.C. 624(f)) requires the President to impose quantitative limitations or fees on imports that the President finds are being, or are practically certain to be, imported under such conditions and in such quantities as to render or tend to render ineffective, or materially interfere with, any USDA domestic support or stabilization program. Dairy products that were not covered by Section 22 quotas included casein, caseinates, whey, and soft-ripened cow's milk cheese (e.g., brie). Legislation to implement the World Trade Organization (WTO) Uruguay Round Agriculture Agreement ( P.L. 103-465 ) amended Section 22 to prohibit the application of quantitative import limitations or fees on products from other WTO members. Tariff rate quotas (TRQs) for dairy products were established in the U.S. tariff schedule. Importers of dairy products under the low tariff in a TRQ must apply for a license from USDA. No license is required for over-quota (high-tier) imports, which are subject to a higher tariff. The National Milk Producers Federation (NMPF), the largest trade association representing milk producer cooperatives, currently operates its own, producer-funded dairy program called Cooperatives Working Together (CWT). The program has two facets: herd buyouts and dairy product export assistance. During 2008 and 2009, five installments of the program retired a total of 276,000 cows and 5,700 bred heifers, representing 5.4 billion pounds of annual milk production. (USDA estimated annual milk production in 2009 at 189 billion pounds.) According to CWT, the organization conducted its final herd buyout in May/June 2010 after determining that export assistance would be more helpful than additional buyouts. The program is funded by assessments on dairy producers from 35 dairy cooperatives (as well as individual producers), representing nearly 70% of the total milk supply in the United States. No federal funding is involved. The Livestock Gross Margin for Dairy Cattle insurance policy (LGM for Dairy Cattle) is available in many states to help dairy producers manage price risk. LGM and a large array of crop insurance products are administered by USDA's Risk Management Agency (RMA). The policy provides protection against a loss in gross margin (market value of milk minus feed costs). At the end of an 11-month insurance period, producers receive an indemnity if the actual gross margin is less than the guarantee. The policy uses futures prices for corn, soybean meal, and milk to determine the actual and guaranteed margins (local milk prices are not used for the calculations). LGM for Dairy Cattle became available in 2008. Observers have commented that participation has been low because (1) producers are still learning how to use it, and (2) the policy premium has not been subsidized historically (unlike most other RMA products). In 2010, USDA announced it would begin subsidizing policy premiums and make other changes to the dairy insurance product to encourage its use, such as shifting the due date for the premium paid by the producer from the beginning of the policy period to the end (approximately one year later). Policies are now subsidized at approximately 40% of the total premium (compared with about 60% overall for the crop insurance program). The Federal Crop Insurance Act, as amended (7 U.S.C. 1501 et seq .), limits expenditures on livestock policies to $20 million per year (7 U.S.C. 1523). According to observers, USDA's changes to the dairy insurance policy have increased demand for the product, and Department officials have indicated that the spending limit likely will be reached in FY2011, at which point the subsidy would not longer be offered for the remainder of the fiscal year. The federal cost of dairy programs varies widely from year to year, depending on market conditions. In recent years, total costs ranged from zero in fiscal 2008, when prices were high, to nearly $1 billion in fiscal 2009, when prices fell sharply ( Figure 4 ). The largest component of total outlays has been the MILC program. The price support program typically is the next largest component, but its role is smaller than it was a decade ago, as prices have remained generally above support levels. The federal milk marketing order system does not require federal outlays (i.e., no direct payments or product purchases). Projected spending for dairy programs, assuming no change in law and based on expected market conditions, is approximately $100 million per year, according to the Congressional Budget Office. Options to change federal dairy policy and the associated costs/savings may be affected by these projected costs of continuing the current programs, since that "baseline" determines how much funding is "automatically" available within the dairy program without needing additional funds or offsets for any new dairy approaches. If a proposal costs more than the baseline projected for current programs, the difference in funding would need to come from another source. See " Dairy Policy Options ," below, for a discussion of policy options. The dairy industry and members of Congress are currently developing or advocating a variety of policy changes in response to the difficult financial situation that began affecting dairy farmers in late 2008. Current proposals can be categorized as either supply management, market-based, or tiered-pricing approaches. Supply management attempts to prevent depressed farm milk prices while reducing price volatility by affecting the level of milk production. Current milk marketing orders regulate the pricing of milk but not the volume produced. Under market-based plans, advocates argue that the best approach is one that helps farmers manage risk associated with volatile prices of milk and feed, because it is difficult to administratively manage milk prices and supplies. The third area would enhance producer revenue and stabilize the market through changes in "tiered pricing," which allow producers to receive a higher price for a portion of their milk while receiving a lower price for the remainder. Each approach has implications for U.S. dairy farmers, competitiveness of the U.S. dairy industry, and international trade. The National Milk Producers Federation (NMPF) advocates using a combination of the supply management and market-based approaches, plus a continuation of the group's Cooperatives Working Together Program. The section concludes with a summary of recommendations by the U.S. Department of Agriculture's Dairy Industry Advisory Committee, which released its final report on March 3, 2011. Many of the group's 23 recommendations fall into the market-based approach. The committee narrowly passed a recommendation for a supply management program. Two types of supply management proposals are currently under consideration. The first was introduced in the 111 th Congress by Representative Costa as the Dairy Price Stabilization Program Act of 2010 ( H.R. 5288 ), on May 12, 2010; and by Senator Sanders and others as the Dairy Market Stabilization Act of 2010 ( S. 3531 ), on June 24, 2010. The second type has been proposed as part of the NMPF's comprehensive package of dairy policy reforms and, with some alternative provisions, by the Agri-Mark Dairy Cooperative. Table 3 compares the two types of proposals, as embodied by the NMPF plan and H.R. 5288 . The Dairy Price Stabilization Program Act of 2010 ( H.R. 5288 ) and the Dairy Market Stabilization Act of 2010 ( S. 3531 ) would create a mandatory, nationwide program designed to manage the U.S. milk supply so that milk producers could avoid low and volatile farm milk prices. The program would attempt to stabilize farm milk prices by assessing producers who increase production over specified levels. Both the market access fee and the production growth rate would be determined based on market indicators. The program would operate alongside existing dairy programs, including marketing orders, price support, and the MILC program. Under H.R. 5288 , each dairy producer would be assigned an initial base raw milk marketing quantity using the highest annual marketings among calendar years 2007, 2008, or 2009. The base would be adjusted to an "allowable milk marketings" amount for each farm, depending on the level of the national milk-feed price ratio (a measure of the farm milk price relative to feed costs), as specified in the bill (see Table 3 ). Producers who sell more than their allowable milk marketing or expand their operations would pay a "market access fee" into a pool that would be redistributed to producers who do not exceed their allowable milk marketings. The program would not be a rigid quota system; producers could sell as much milk as they want, provided they pay any applicable fees. Producers could transfer (sell) their marketing base to another individual or entity who purchases the dairy facility. Under H.R. 5288 , the Secretary of Agriculture would consult with a 30-member board consisting of 24 dairy producers (with diverse geographic representation) and six other members, two each representing consumers, fluid milk bottlers, and dairy product manufacturers. (A dairy economist would be an adviser to the board.) Every three months the Secretary of Agriculture, in conjunction with the board, would announce the allowable annual growth in marketings (a national rate applied at the farm level) and the market access fee for excessive milk marketings. See Table 3 for the growth rate and fee schedule contained in the bill. Some discretion for deviating from the schedules would be allowed, but only if at least two-thirds of the board approved. Proponents expected that the growth rate and fee would be set at levels to exact the necessary change in milk production and prevent a sharp decline in farm milk prices. S. 3531 was also introduced in the 111 th Congress and is very similar to H.R. 5288 . Importantly, the parameters for determining allowable milk marketings (production growth) and the fee schedule were the same. The major difference between H.R. 5288 and S. 3531 is that the Senate bill mandates the supply management program, while H.R. 5288 requires producer approval before its implementation. The remaining differences deal mostly with voting procedures, producer board composition, and establishing the initial marketing base. Both bills require a producer referendum within three years to continue the program. Members would be allowed to vote separately from their cooperative. The producer board consists of only 15 members in S. 3531 , compared with 30 in the House bill, but the proportions of producers and various representatives are the same in both bills. Also, the Secretary appoints the members in H.R. 5288 , while dairy producers elect the board members in S. 3531 . When establishing the initial marketing base, during the first quarter of program operation, S. 3531 contains provisions for producers to select either (1) the corresponding quarterly average of 2007, 2008, and 2009; or (2) the corresponding quarter of 2009. In contrast, H.R. 5288 uses the highest annual total among calendar years 2007, 2008 and 2009. S. 3531 includes several additional factors (e.g., costs of feed, labor, and machinery) for the Secretary to consider when deviating from the specified schedules for the allowable milk marketing growth rate and market access fee. Under both H.R. 5288 and S. 3531 , the program would be self-financed, with payments to producers who limit their production funded by assessments on producers who do not. Although existing dairy programs would continue to operate, the federal cost of DPPSP and MILC would likely be minimal if the new program effectively constrains excess milk production and keeps the farm milk price above the target price. At the farm level, current dairy farmers who expanded in 2007, 2008, or 2009 could benefit more than other producers because the base calculation is determined by production in those years. New farmers or those wishing to expand production would be discouraged to the extent that (1) a market access fee is relatively high at the time, and/or (2) the cost of buying a milk base from another dairy producer is too high. As for market impacts, analysis by university researchers indicates that the proposed legislation would reduce farm milk price volatility under a variety of scenarios. In addition, by some measures of volatility, the proposed legislation, assuming a modified set of program parameters to minimize volatility, would result in the least amount of farm price variation among current supply management proposals. However, under the same modified set of parameters, average farm prices would be below baseline prices (i.e., projected prices assuming continuation of current policy). Higher farm prices were generated under separate model runs using more restrictive production growth parameters and higher access fees. Potential dairy trade impacts include the possibility that the United States, assuming more stable prices, could become a more consistent supplier to the world dairy market. However, depending on the restrictiveness of the growth parameter as well as the level of access fee, higher prices associated with the plan's effective implementation could reduce U.S. price competitiveness in global markets while potentially attracting more dairy imports. The National Milk Producers Federation (NMPF) has proposed the Dairy Market Stabilization Program (DMSP). The program is designed to slow milk production and boost prices during times of low margins (milk prices minus feed costs). When activated, it would redirect farm revenue on a portion of all milk production from farmers to activities designed to increase demand for dairy products. For example, when the national margin drops below $6 per hundredweight for two consecutive months, milk producers would receive payment on only 98% of their base production. The remaining 2% of farm revenue would be used for dairy product purchases and promotion activities. A larger share of revenue is redirected when margins are even lower (see Table 3 for complete schedule). USDA's Agricultural Marketing Service would collect funds, with a dollar reduction appearing in a producer's milk check. The program would operate on a monthly basis, activating as soon as margins decline to relatively low levels. According to NMPF analysis (and using a feed cost calculation that differs from USDA's method), the margin during the last 10 years dropped below the $6 level on multiple occasions, including several months in 2002, 2003, 2006, 2008, and 2009. The NMPF expects that the disincentive to produce additional milk—because producers receive no revenue on that portion of production—would have a larger and more immediate impact on milk production than simply assessing a fee on all or a portion of the production. The program would deactivate once the national margin rises to at least $6 per hundredweight. When the program is activated, producers would be paid on the base amount of milk produced, which is defined as either the three-month rolling average of the most recent milk marketings or the amount from the same month in the previous year to account for seasonality in milk output. The base can be transferred only with the farm. The base would be an asset for the farm because production would have no value when margins drop below trigger levels. According to proponents, the rapidly updating nature of the base is expected to help reduce the constraining aspects of the base on actual production levels. Analysis by the Food and Agricultural Policy Research Institute (FAPRI) indicates that dairy market conditions (milk and feed prices) over the next 10 years are expected to remain, on average, above levels needed to trigger DMSP. However, DMSP would be triggered under low margin scenarios to help correct a surplus milk production situation while allowing supply growth to match growth in domestic and international markets. As a result, the DMSP (working in tandem with a margin insurance payment plan—see " Margin Insurance " below) is expected to reduce high price periods that result after the loss of producers during the low margin period. FAPRI concludes that the DMSP will help reduce federal expenditures associated with a margin insurance payment plan by the NMPF by limiting milk production when margins decline and trigger payments to producers. A second analysis by FAPRI estimates the market outcome if DMSP had been in place during the severe marketing downturn of 2009. Under specific assumptions, the research results indicate the program would have raised dairy farm margins significantly during the March-December 2009 period. More of the production adjustment, at least during the early stages of program implementation, would have occurred in states where production had increased from year-earlier levels (e.g., Texas, New Mexico, Michigan, Wisconsin) rather than in states where production was mostly unchanged or had declined from year-earlier levels (e.g., California, Washington, Pennsylvania). Separately, a report supported by the International Dairy Foods Association (IDFA), a group representing dairy manufacturers, estimated the amount of money that would have been withheld from producer checks if DMSP had been in place between 2000 and 2009. The report states that proportionally more withholdings would have come from states in the Midwest and East, implying that the proposed program would have a proportionately smaller impact on producers in the Western and Southwestern regions. Critics of the analysis, including the National Milk Producers Federation (NMPF), contend that withholdings under DMSP would be proportional to regional production and therefore regionally "fair." Moreover, NMPF says the analysis ignores the expected positive impact on overall producer margins stemming from the expected decline in production and increase in consumption that together would drive up milk prices. Compared with the DMSP, the Marginal Milk Pricing (MMP) Program, as proposed by Agri-Mark, is designed to be more attractive to smaller dairy farms and farmers in higher-cost regions, according to Agri-Mark officials. The program's structure and operation is similar to the DMSP, but several aspects of the program are different: The base would be fixed at a predetermined level while the program is in operation. Supporters are concerned that, with a continuously updated base as provided under the DMSP, some operations, particularly large ones, might be encouraged to produce more milk in order to build base and profit from the expected higher prices once other producers reduce their output. The trigger for MMP would activate the program more quickly as margins decline; the national margin trigger is $7 per cwt, with farm revenue paid on 99% of base. DMSP parameters are $6 and 98%. For milk produced above base amounts, farmers would receive the average (blend) price minus the Class III price (nationally determined), or approximately 10% of the expected value (compared with 0% under the DMSP). This provision is designed to make the "penalty" for overproduction the same for all farmers nationwide (i.e., the Class III price) rather than a variable penalty depending on regional milk prices. For example, under DMSP, the implied penalty for farmers in the northeastern or southeastern United States—where production costs and milk prices are higher than in other parts of the country—would be greater than the Class III price. Agri-Mark also advocates retaining the MILC program, which benefits many of its cooperative members with small or medium-sized herds. It supports allowing producers to choose between MILC and the NMPF's proposed margin insurance payment plan. Supporters of price stabilization and supply control say that inherent incentives to overproduce need to be offset by a program to control supplies in a more measured way. The concern for overproduction could be and has been applied to commodities such as corn and wheat. But dairy generally is more susceptible to overproduction, some dairy producers and market observers say, because current policy encourages producers to maximize production and they tend to add cows even when prices are low to improve cash flow. Advocates also expect market volatility to continue and possibly increase as the United States becomes a larger player in the international markets. Supporters say a system to moderate some of the market shocks in the years ahead would benefit the dairy industry and reduce the number of farms that go out of business when profitability drops sharply. Analysis by university researchers indicates that the supply management proposals described above would reduce milk price volatility and generally reduce government expenditures on dairy programs. According to the research results, the MMP Program (Agri-Mark) and the DMSP (National Milk Producers Federation) also would marginally enhance average milk prices, primarily because the programs would increase demand by purchasing dairy products for domestic assistance programs. As analyzed, the program established under the Costa and Sanders bills introduced in the 111 th Congress would result in slightly lower average prices, but researchers say this hinges on the level of program parameters. While volatility is reduced upon implementation of any of the programs, the study results indicate that substantial volatility would remain in the market, implying that producers will still need to manage price risk for the indefinite future. In addition, large shocks from changes in either demand or supply have the potential to overwhelm any of the proposed programs, according to industry experts. Critics of supply management, including dairy processors, contend that supply control could reduce the competitiveness of the U.S. dairy industry, limit its incentive to innovate, raise consumer prices, and decrease demand for dairy products because, they argue, a pricing system based on supply control and/or cost of production potentially rewards inefficiency. Critics also argue that administratively matching supply and demand can be difficult because these factors can change quickly. In general, as members of an industry competing in a global market, U.S. dairy farms would have less incentive to reduce their cost of production because their individual shares of national production would be protected when profitability declines below certain levels. In this case, production would be reduced on all farms to avoid economic penalties. Currently, the production adjustment is generally made by farmers who can no longer continue operating because their costs are too high or they no longer have farm equity or bank credit to continue operating. In a related issue for dairy processors, prospective constraints on the growth of milk production by region would have impacts on processors interested in expanding or locating new processing plants. Moreover, critics of supply management say it will change how processors invest in manufacturing plants and new markets and products because, they say, processors will not know when program triggers will reduce milk production and drive up prices. Economists note several unintended consequences of supply management, including the incorporation of program benefits (i.e., higher and less volatile milk prices) into farm asset values such as prices that farmers or investors would be willing to pay for land, cows, dairy facilities, and the associated farm milk base. This development would likely drive up costs of producing milk. Higher milk prices could also diminish the development and use of dairy ingredients in manufactured products and encourage the use of lower-priced imported substitutes (e.g., milk protein concentrates). In contrast to a supply management approach, market-based plans focus on managing price risk rather than trying to influence prices. Other proposals that fall under this broad category would address market transparency issues or make changes in the federal milk marketing order system to improve dairy pricing. Promoters of market-based approaches say that price volatility will remain a part of the dairy industry, as it is for other commodities. As such, they claim, the best approach to address that volatility is to find ways for producers to manage price risks without limiting the industry's ability to capitalize on domestic and international demand opportunities. Critics of a policy such as the NMPF margin proposal (described below) expect that incentives to overproduce (e.g., maintain or boost production as prices fall in an attempt to maintain revenue) will aggravate the financial woes of the dairy industry indefinitely; thus, controlling potential price variability and combating depressed farm prices with supply management is necessary, they say, for the long-term financial health of producers. The NMPF initially proposed the margin program by itself but later added a supply management component due to interest by some of its members. The NMPF claims that the price targets in current dairy programs are too low to be effective and do not adequately protect dairy farmers at today's levels of input (feed) costs. They also contend that the price support program creates artificial demand for a particular product (nonfat dry milk) by guaranteeing a minimum purchase price, and that the production limit in the MILC program discriminates against large farms. The NMPF recommends eliminating these two programs and replacing them with the "Dairy Producer Margin Protection Program (DPMPP)" (and the Dairy Market Stabilization Program (DMSP) described above). The DPMPP would be a new safety net that protects a dairy farmer's "margin," that is, the national farm price of milk minus feed costs. The DPMPP program is designed to be a margin insurance program, with no payment limits, to address both catastrophic conditions and periods of low margins, providing producers with additional income until markets improve. A prospective move from program support at specified price levels (i.e., the MILC target price of $16.94 per hundredweight and minimum purchase prices for dairy products) to margin insurance is designed to protect dairy farmers regardless of current price levels. Market prices would continue to fluctuate, rising or falling as far as necessary in order for milk to continue moving through existing marketing channels. However, under certain market conditions, milk prices could be affected by a supply management program, which is also part of the NMPF policy package. Under the DPMPP, producers would receive a base level of coverage with a margin guarantee (fixed at 50% of the projected annual national margin) on 90% of a producer's historical base production. Producers would receive a payment when the actual margin, calculated quarterly, drops below the guarantee. The base coverage would be completely subsidized by the government. Additional coverage at higher margin guarantees would be available at subsidized rates. When margins are low, it would be possible for both of the NMPF proposed programs to be in operation, with the DPMPP supporting farm revenue while the DMSP reduces farm revenue. Government outlays would increase during times of low milk prices and/or high feed prices, with the overall spending level depending on final program parameters and the price-supporting feature of any supply management program that might be in effect. Elimination of the current income and price support programs would result in some cost savings. Costs for current dairy programs are projected to average $92 million per year during 2011-2020, according to the Congressional Budget Office's January 2011 baseline. The program would be scale-neutral, with farms of all sizes participating without payment limits. Small-farm advocates might argue that such a program could still encourage expansion of large dairies at the expense of smaller dairies. Analysis by the Food and Agricultural Policy Research Institute (FAPRI) indicates that the DPMPP could provide producers with more protection in times of low margins than current dairy programs because the program would cover a greater share of production (and have no payment limits). Also, the DPMPP in combination with the DMSP would provide larger payments when margins are exceptionally low and as the margin situation deteriorates. However, the current program might provide more support when margins are somewhat higher than the trigger levels in the NMPF's plan. According to FAPRI, the overall market effect is expected to be small given current expectations for average margins over the next 10 years, which are forecast above trigger levels specified in the NMPF's proposal. Supporters of the margin insurance proposal include the International Dairy Foods Association (IDFA), a group representing dairy manufacturers that has been at odds with dairy producers in the past. According to IDFA, the concept promoted by NMPF, as embodied in better risk management tools for farmers and changes to the marketing order systems, would improve market transparency and help farms and companies to better manage responses to market changes. IDFA supports NMPF's proposal for margin insurance because it is expected to result in a "more reliable income" for dairy producers and replaces "outdated programs." In contrast, to NMPF, however, IDFA strongly opposes any form of supply management that could result in higher costs for processors and possibly limit demand for their products. Another "market-based" option to help dairy farmers manage risk is a farm savings account program. The concept is a voluntary program that allows producers to shift income during profitable years into a savings account for withdrawal during less profitable years. Farmers could reduce their tax liability, and depending upon program design to encourage participation, the government could provide matching funds. Potential impacts on stabilizing dairy farm income would depend on program design and how producers respond to the program. Efforts to improve price discovery include changes to price reporting, dairy product stocks data, and the federal milk marketing orders (FMMOs). The Dairy Policy Action Coalition (DPAC), a producer organization based in Pennsylvania, advocates improved price discovery and market transparency. DPAC contends that current USDA price reporting of dairy products—which is used for setting minimum milk prices in FMMOs—does not reflect broad supply and demand factors, and that mandatory price reporting should be expanded to include more products, with its frequency increased from weekly to daily reporting. According to USDA, the department has authority under the 2008 farm bill to expand dairy price reporting, but Congress has not provided sufficient funding. DPAC says that expanded reporting would pave the way for simplifying the FMMO system, including a reduction in the number of milk classes from four to two. In September 2010, mandatory price reporting of dairy products was reauthorized through September 30, 2015 ( P.L. 111-239 ). The legislation requires an "electronic" price reporting system for dairy products (a change from the somewhat manual process that has been employed). Prices for the preceding week are to be published each Wednesday, two days earlier than the previous schedule. Daily price reporting is not required, as some had advocated, apparently owing to the cost of implementation and cost to the industry. However, a new electronic system (as is currently employed for livestock and meat) might facilitate in the future more frequent dairy price reporting or a different mix of products. To develop a more dynamic and transparent pricing system that "compensates producers fairly," the National Milk Producers Federation (NMPF) proposes to reform FMMOs by eliminating the use of current product pricing formulas (except Class IV—milk used for butter and powder). The NMPF and others argue that the current product pricing mechanism and revenue pooling system of FMMOs compensates handlers for lower-valued products and encourages overproduction. Also, the pricing formulas set fixed margins ("make allowances") for dairy manufacturers which, according to the NMPF, unfairly creates winners and losers within the dairy industry. Instead of product pricing, the NMPF recommends using a competitive pay price (prices of raw/producer milk paid in actual market transactions) for establishing minimum prices for Class I (fluid consumption) and Class II (soft products). The competitive pay price would be based on regional surveys of both regulated and unregulated cheese plants. Importantly, a minimum price would no longer be established for Class III (milk used for cheese). The NMPF expects the FMMO changes to improve price discovery for the dairy industry and reduce price volatility compared with the current system of product price formulas. The Dairy Policy Action Coalition (DPAC) also supports simplification of the federal order pricing system by reducing four milk classes to two, establishing competitive pay pricing, and moving away from end-product-pricing formulas. Some producers support retaining the current method of calculating minimum prices. The Dairy Cooperative Marketing Association (DCMA), a group of dairy cooperatives based primarily in the south, cites several advantages it sees in the current pricing system, which uses "the higher of" Class III or Class IV (milk used for dry milk products and butter) to establish Class I prices. DCMA says switching away from using "the higher of" method could lower farm prices. Tiered pricing is a term used to describe a pricing system that sets a higher price for a portion of production (sales) and a lower price for the remaining portion. Sellers of agricultural commodities can benefit from such an arrangement because consumers, at times, may be little affected by the price of the product (e.g., in buying milk for children). Because consumers tend to be reluctant to give up consumption of important products when small price increases occur, overall producer revenue can increase if higher prices are charged for this portion of demand, more than offsetting reduced revenue from lower prices charged on remaining sales. The FMMO system is built on this concept, ensuring that higher minimum prices are paid by processors for raw milk used for fluid consumption and lower minimum prices are paid for milk used in manufactured products. Some believe a change in federal milk marketing orders could be used to stabilize the milk market and boost dairy farm returns. One bill in the 111 th Congress, the Federal Milk Marketing Improvement Act of 2009 ( S. 1645 , first introduced as S. 889 ), is designed to "help farmers get a fair price for their milk" and provide relief and assistance to dairy farmers by using the cost of milk production as the basis for pricing milk. The bill would move current FMMO pricing from a market-based system to a production-cost-based system. The bill also contains provisions for USDA to administratively reduce prices received by farmers in an effort to limit milk production if the Secretary of Agriculture determines that an excess amount is being produced for the national domestic market. To set minimum federal order prices, S. 1645 would replace the use of current market prices with quarterly estimates of the national average cost of production for milk used for manufactured products. The bill would allow USDA to administratively reduce prices received by producers on up to 5% of all milk produced in the 48 contiguous states should the Secretary of Agriculture determine that there is excess milk production. Adjustments would be allowed only if there is a positive trade balance (exports greater than imports) for dairy products. The bill also allows for an additional price reduction if the basic reduction is not sufficient to reduce excess supplies. This reduction would apply only to farms that increased their production from the previous year. Federal and state milk marketing order administrators would collect the value associated with price reductions from producers and remit it to the federal government to help offset the cost of purchasing excess milk products. The Secretary of Agriculture would collect amounts in all unregulated areas. The change in the FMMO system to a cost-of-production basis for pricing implies higher prices received by dairy farmers, at least initially. These price gains would likely help more farms cover a greater share of their costs. During periods of oversupply, when USDA may need to reduce the price received by farmers, the bulk of the adjustment (i.e., lower prices received by farmers) would fall on all farmers. Any additional price reductions needed to reduce excess supplies would apply only to farms that had increased their production from the previous year. To the extent that small farms are generally thought to not increase their production, the bill would favor small farmers. Also, provisions in the bill are expected to assist new farmers by exempting them from price reductions that may be required in the event of excess milk production. While producers would likely see higher prices initially as minimum federal order prices are adjusted upward, some analysts say that the long-run competitiveness and stability of the U.S. dairy industry could be at risk because of the unknown effectiveness of provisions to discourage overproduction, given limitations on USDA to make adjustments. For example, if the trade balance in dairy products is negative, USDA could not reduce prices received by farmers, possibly resulting in price levels that would continue to encourage excess milk production. Similarly, the potential impact of the "additional" price reduction could be limited because it would apply only to farms that have increased production from the previous year. Reducing prices received by these farms may result in only a portion of the supply adjustment needed to bring the market back into balance. Farms with steady production would have no incentive to cut back. The National Farmers Organization, a farm group that negotiates prices and sales terms with commodity buyers for farmer-members, is promoting a Cooperative Marketing Initiative (CMI) to improve farm milk prices. It would be a private industry approach, working alongside the National Milk Producers Federation's Cooperatives Working Together (CWT) program (see " Privately Run Dairy Herd Buyout "). The CMI would set national production levels consistent with national usage and assign each cooperative a production level consistent with their share of usage (and further distributed to the producer level). The CMI would also set target prices at values necessary for members to produce milk profitably. Farmers would receive the target price (minus marketing expenses) on their assigned milk volume. Excess milk production would be assessed a penalty, which would be redistributed to producers who did not exceed their allocation, or used to cover any losses incurred by the cooperative. Supporters say the plan would effectively deal with changes in the dairy industry. Opponents point out that, while cooperatives represent the majority of those producing milk in the United States, a voluntary program such as this would be difficult to implement because any price enhancement resulting from the program could be quickly offset by actions of non-cooperative producers or by lax enforcement by the cooperatives themselves. The "Ration-all Milk Pricing Program" has been developed by a dairy nutrition consultant and is supported by some farmers in Pennsylvania and Ohio. The concept is to set the farm milk price for a quantity representing 90% of historical milk production at a five-year moving average price. The remaining amount of milk would be priced using bids received from processors in each FMMO. The program would be mandatory in all states and would require legislation. Supporters of the plan expect that prices received by producers would be considerably less volatile because only about 10% of a producer's output would be based on current prices. Supporters also expect that the market signal provided by the blend price (weighted average of the historical and current prices) would be sufficient to bring about the necessary change in supply to match current or expected demand for milk. Opponents point out that such a blend price would do little to encourage the necessary supply adjustments in times of falling prices. For example, if the five-year average price for Class III milk was $17.47 per hundredweight in February 2009, the blend price to the farmer would have been at least $15.72 per hundredweight (0.9 times $17.47). This price, dairy economists say, would likely have resulted in increased production in 2009, further exacerbating the oversupply situation and slowing the recovery in prices that occurred in the second half of 2009. On March 3, 2011, the Dairy Industry Advisory Committee (DIAC) voted to approve its final report to the Secretary of Agriculture. The Secretary established the committee in August 2009 to make recommendations on how USDA can best address dairy farm profitability and milk price volatility issues. Members were selected from a cross section of the dairy industry representing: producers and producer organizations, processors and processor organizations, handlers, academia, retailers, consumers, and state agencies involved in dairy at the local, regional, national and international levels. The report offers 23 specific recommendations grouped by four major topic areas. An asterisk (*) following the item number denotes that there was at least one dissenting vote among the 17 committee members. 1* – Develop an information system and index to accurately assess the general level of profitability at the farm level based on the milk-feed cost margin. 2 – Review federal milk marketing orders, particularly with respect to the impact of end-product pricing on milk price volatility and the impact of classified pricing and pooling on processing investment, competition and dairy product innovation. 3 – Simplify and improve risk management products (including the Livestock Gross Margin for Dairy Cattle insurance policy) so that they are more accessible and easier for dairy farmers to use. 4 – Promote a more efficient and effective use of USDA's Farm Loan Program and the Guaranteed Loan Program for dairy farmers because some state make better use of the programs than others. 5 – Develop a system of triggers and actions to guide the Secretary's choices for special and emergency interventions. 6 – Explore the elimination of the Dairy Product Price Support Program and the Dairy Export Incentive Program and use budget savings to enhance the safety net for producers. 7 – Strongly consider the elimination of end-product pricing in the federal milk marketing order system and explore alternative measures such as competitive pricing. 8* – Collect and publish price data on alternative measures of a competitive pay price. 9* – Adopt a federal growth management program that allows new producers to enter and allows producers to expand production. The committee was sharply divided over this recommendation (9 votes in favor, 8 votes opposed). 10 – Develop a USDA-sponsored credit mechanism (direct lending or credit guarantee) for first buyers of milk (cooperative or proprietary) to cover the margin deposits required on contracts for risk management between first buyers and producers of raw milk. 11* – Continue the Milk Income Loss Contract Program but modify it by incorporating an all-milk income/feed cost margin trigger and a margin insurance option for production above the cap. 12 – Allow dairy farm operators to create special tax-deferred savings accounts with no matching government contributions, no limit on dollars deferred per year, and no restriction on withdrawals. 13 – Continue federal monitoring and support of competitive marketing structures throughout the supply and marketing chain of the dairy industry. 14 – Continue and expand programs like the Market Access Program and the Foreign Market Development Program. 15 – Support the adoption of a maximum somatic cell count of Grade A milk in the amount of 400,000 cells per milliliter at the farm level at the Interstate Milk Shippers Conference. 16 – Explore the impacts of California-type fortification (milk solids) standards for U.S. beverage milk. 17 – Support the use of dairy descriptors (including terms such as milk, cheese, yogurt, butter) only on products made from milk. 18 – Support programs that enhance value-added opportunities for dairy farms, including educational training programs and technical assistance for farms, inspectors, and regulatory personnel. 19* – Increase incentive payments to dairy farmers for environmental practices that address social, economic and environmental issues. 20* – Continue the Environmental Quality Incentives Program and give dairy farmers preference in grant programs for implementation of energy audits and infrastructure development for value-added facilities. 21* – Phase out the blender's credit and tariff on imported ethanol. 22 – Create a program to rapidly eradicate bovine tuberculosis and Johne's disease from the U.S. dairy herd. 23* – Support efforts to provide the means for dairy farms to employ year-round long-term immigrant labor. Authorization for dairy programs will expire in 2012, with the exception of federal milk marketing orders, which are permanently authorized. The financial stress experienced by dairy farmers in 2009, and since then to a lesser degree, has generated congressional and industry interest in addressing price volatility and federal dairy programs in general. Proposals reviewed in this report might be considered as discussions on dairy policy continue and the farm bill debate unfolds. The fate of these and other future proposals will likely depend on economic conditions in the dairy sector, the ability of various dairy interests to form a consensus, and budget constraints. The status quo—that is, continuing programs for price support, direct payments, federal milk marketing orders, export subsidies, import barriers, and periodic ad hoc emergency assistance—is also a potential option. For example, a bill ( S. 459 ) was introduced March 2, 2011, to maintain certain parameters used in the MILC or countercyclical dairy program that are scheduled to decline in September 2012 (see " Milk Income Loss Contract (MILC) Program "). This report will be updated as additional proposals are introduced.
|
Financial stress encountered by dairy farmers in recent years has led Congress and the industry to reconsider how to deal with fluctuations in milk prices and financial prospects for dairy farmers. Some Members have voiced interest in alternatives to current federal programs (which expire in 2012). Alternative policies could either be incorporated into the next omnibus farm bill or enacted separately before expiration. The dairy industry is currently developing or advocating a variety of policy changes. All of the proposals discussed in this report—loosely categorized as either supply management, market-based, or tiered-pricing—have implications for U.S. dairy farmers, competitiveness of the U.S. dairy industry, and international trade. Supply management proposals such as H.R. 5288 and S. 3531, introduced in the 111th Congress, are designed to prevent depressed farm milk prices while reducing price volatility through supply management. The National Milk Producers Federation (NMPF) also has proposed a market stabilization component as part of its comprehensive package of suggested reforms to dairy policy. Supporters of price stabilization and supply management say that inherent incentives to overproduce need to be offset by a program to manage supplies in a measured way. Critics of supply management, including dairy processors, contend that such measures could reduce the competitiveness of the U.S. dairy industry, limit its incentive to innovate, and raise consumer prices, because, they argue, a pricing system based on supply control and/or cost of production potentially rewards inefficiency. The market-based approach, including a separate element of the NMPF package, represents an opposing view on how the federal government should address the problem of farm milk price volatility and periodic financial stress for dairy farmers. This approach contends that, because it is difficult to manage milk supplies and prices administratively, the best approach is to provide a government program that helps farmers manage risk associated with volatile prices of milk and feed. Specifically, a new "safety net" would be established to protect a dairy farmer's "margin"—that is, the farm price of milk minus feed costs—regardless of current price levels. Critics expect that incentives to overproduce will aggravate the financial woes of the dairy industry indefinitely, and thus argue that controlling potential price variability and combating depressed farm prices with supply management is necessary for the long-term financial health of producers. The third area of potential policy change is to alter the current pricing approach used in federal milk marketing orders (FMMOs) to directly increase dairy farm revenue. For example, one potential change to base milk pricing in FMMOs on the cost of milk production (i.e., S. 1645, introduced in the 111th Congress) would imply higher prices received by dairy farmers. However, some are concerned that the long-run competitiveness and stability of the U.S. dairy industry could be at risk because of the unknown effectiveness of provisions to discourage overproduction. On March 3, 2011, the U.S. Department of Agriculture's Dairy Industry Advisory Committee approved its final report to the Secretary, who established the committee to make recommendations on how USDA can best address dairy farm profitability and milk price volatility. Many of the group's 23 recommendations fall into the market-based approach, including a recommendation for margin insurance on quantities of milk that exceed the cap for the Milk Income Loss Contract Program (MILC) and a tax-deferred savings accounts for dairy farmers. The committee narrowly passed a recommendation for a supply management program.
|
U.S. interests in the Western Hemisphere are diverse, and include economic, political, security, and humanitarian concerns. Geographic proximity has ensured strong economic linkages between the United States and the region, with the United States being the major trading partner and largest source of foreign investment for many countries. Free trade agreements (FTAs) have augmented U.S. economic relations with 11 countries in the region. Latin American nations, primarily Mexico and Venezuela, supply the United States with almost one-third of its imported crude oil. The Western Hemisphere is also the largest source of U.S. immigration, both legal and illegal, with geographic proximity and economic and security conditions being major factors driving migration trends. Curbing the flow of illicit drugs from Latin America and the Caribbean has been a key component of U.S. relations with the region and a major interest of Congress for some three decades. In recent years, this has included close security cooperation with Mexico, Central America, and the Caribbean to combat drug trafficking and related violence. With the exception of Cuba, the region has made enormous strides in terms of democratic political development over the past three decades, but the rise of undemocratic practices in several countries, especially Venezuela, has been a U.S. concern. U.S. policy toward the Latin American and Caribbean region is conducted in the context of significant economic and political changes in the hemisphere as well as the region's increasing independence from the United States. The Latin American and Caribbean region has made significant advances over the past three decades in terms of both political and economic development. In the early 1980s, 16 countries in the region were governed by authoritarian regimes, both on the left and the right, but today, all governments with the exception of Cuba are, at least formally, elected democracies. The threat to elected governments from their own militaries has dissipated in most countries. Free and fair elections have become the norm in most countries in the region, even though some elections have been controversial with allegations of irregularities. In 2015, eight countries successfully completed elections for head of government. Long-ruling parties were voted out of office in St. Kitts and Nevis, Guyana, Trinidad and Tobago, and Argentina, and incumbents were reelected in Suriname, Belize, and St. Vincent and the Grenadines. In Guatemala, just ahead of its 2015 presidential election, the country became embroiled in massive corruption scandals that led to the arrest of the vice president in August and the resignation of President Otto Pérez Molina in September. The country then held two presidential election rounds in September and October 2015, with former actor Jimmy Morales, who had campaigned on a strong anticorruption platform, winning the second round by a large margin (see " Guatemala ," below). 2016 Elections. To date in 2016, six countries have held elections for head of government. In a close parliamentary race in Jamaica in February, the opposition Jamaica Labour Party, led by Andrew Holness, defeated the incumbent People's National Party government, led by Prime Minister Portia Simpson Miller. In the Dominican Republic , incumbent President Danilo Medina of the center-left Dominican Liberation Party was reelected in a landslide in May. After two presidential rounds in Peru in April and June, Pedro Pablo Kuczynski of the centrist Peruvians for Change defeated Keiko Fujimori from the center-right Popular Force by a slim margin. Most recently in June, St. Lucia held parliamentary elections in which the opposition United Workers Party, led by Allen Chastanet, defeated the St. Lucia Labour party of Prime Minister Kenny Anthony. In Nicaragua , incumbent President Daniel Ortega of the Sandinista party won a third consecutive term in controversial elections held on November 6, 2016, which were criticized by many, including the United States. The State Department characterized the elections as flawed because of the government's sidelining of opposition candidates, limits imposed on domestic observation at the polls, and other actions that denied democratic space in the electoral process (see " Nicaragua ," below). In Haiti , a first presidential round was held in October 2015, but allegations of fraud ultimately led to the election's nullification. After multiple delays, a new presidential election was held on November 20, 2016, in which Jovenel Moise won almost 56% of the vote and is scheduled to be inaugurated in February 2017 (see " Haiti ," below). Challenges to Democracy . Despite significant improvements in political rights and civil liberties, several countries in the region still face considerable challenges. In a number of countries, weaknesses remain in the state's ability to deliver public services, ensure accountability and transparency, advance the rule of law, and ensure citizen safety and security. There are also numerous examples of elected presidents over the past 25 years who left office early amid severe social turmoil and economic crises, the presidents' own autocratic actions contributing to their ouster, or high-profile corruption. The September 2015 resignation of Guatemalan President Pérez is the most recent example. In Brazil, a widespread corruption scandal and a sharp economic downturn were key factors leading to the suspension of President Dilma Rousseff from office in April 2016, followed by an impeachment trial by Brazil's Senate removing her from office in August 2016 (see " Brazil ," below). The quality of democracy in several countries in the region has eroded in recent years. One factor is increased organized crime. Mexico and several Central American countries have been especially affected because of the increased use of the region as a drug transit zone and the associated rise in corruption, crime, and violence. A second factor negatively affecting democracy in several countries is the executive's abuse of power. Elected leaders have sought to consolidate power at the expense of minority rights, leading to a setback in liberal democratic practices. Venezuela stands out in this regard. In recent years, there has also been a deterioration of media freedom in several countries precipitated by the increase in organized crime-related violence and by politically driven attempts to curb critical or independent media. The human rights group Freedom House compiles an annual evaluation of political rights and civil liberties in which it categorizes countries as free, partly free, and not free. In its 2016 report (covering 2015), the group ranked just one country as not free: Cuba. It ranked 11 countries as partly free—Bolivia, Colombia, the Dominican Republic, Ecuador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Paraguay, and Venezuela—and the remaining 21 countries of the Latin American and Caribbean as free. According to the report, the Dominican Republic was downgraded in part because of decreased space for independent media and the implementation of a law preventing Dominicans of Haitian descent and Haitian migrants from exercising their civil and political rights. Freedom House also noted growing threats to freedom and democracy posed by criminal gangs, political violence, and systemic corruption in the Central American countries of El Salvador, Guatemala, and Honduras. Freedom House maintains that Venezuela deserves special scrutiny because of the resistance of the current government of President Nicolás Maduro to the opposition's victory in December 2015 legislative elections. It notes that the deteriorating political and economic situation in Venezuela is one of the region's most significant challenges (see " Venezuela ," below). Some observers see the ebbing of the so-called pink tide of leftist populist governments in the region as a positive trend. The November 2015 election of a center-right government in Argentina ended the leftist populism known as Kirchnerismo and began to change regional dynamics in Latin America. Despite the Venezuelan government's efforts to thwart the opposition's power, some view the opposition's triumph at the ballot box in December 2015 as the beginning of the end of the populist leftist model of government advanced by former President Hugo Chávez. Along these lines, some observers see the February 2016 defeat of a referendum in Bolivia that would have allowed populist President Evo Morales to seek a third consecutive presidential term as another setback to the pink tide. A second factor potentially affecting democratic governance is the recent peace agreement between the Colombian government and the leftist Revolutionary Armed Forces of Colombia (FARC). This development has raised hopes that the hemisphere's oldest civil conflict, which dates back to the 1960s, is finally resolved (see " Colombia ," below). Economic Challenges. While the 1980s were commonly referred to as the lost decade of development as many countries were bogged down with unsustainable public debt, the 1990s brought about a shift from a strategy of import-substituting industrialization to one focused on export promotion, attraction of foreign capital, and privatization of state enterprises. Latin America experienced an economic downturn in 2002 (brought about in part because of an economic downturn in the United States), but recovered with strong growth rates until 2009, when a global economic crisis again affected the region with an economic contraction of about 1.3%. Some countries experienced deeper recession in 2009, especially those more closely integrated with the U.S. economy, such as Mexico, while other countries with more diversified trade and investment partners experienced lesser downturns. The region rebounded in 2010 and 2011, with growth rates of 6.1% and 4.9%, respectively, but growth began to decline after that and registered just 1% in 2014. In its October 2016 economic forecast, the International Monetary Fund (IMF) projected that economic growth in Latin America and the Caribbean would contract 0.6% in 2016 after no growth in 2015 (see Table 1 ). The global decline in commodity prices and China's economic slowdown have affected the region's economies. In 2015, economic contractions in Brazil (-3.8%) and Venezuela (-6.2%) dragged down growth rates for South America and the region as a whole. According to the IMF, business and consumer confidence appears to have bottomed out in Brazil, although the projection for 2016 is for an economic contraction of 3.3% followed by an increase of 0.5% in 2017. The Venezuelan economy remains in deep recession because of the rapid decline in the price of oil and economic mismanagement; the economy is projected to contract 10% in 2016 and 4.5% in 2017. Ecuador has also been significantly affected by the drop in oil prices, with the economy projected to contract 2.3% in 2016 and 2.7% in 2017. Since the early 2000s, Latin America has made significant progress in combating poverty and inequality. In 2002, almost 44% of the region's population were considered to be living in poverty, but by 2012 that figure had dropped to 28%, representing 164 million people. Two key factors accounting for this decline were increasing per capita income levels and targeted public expenditures known as conditional cash transfer programs for vulnerable sectors. Brazil and Mexico were pioneers in these targeted programs that have spread to other countries. The poverty rate for the region was relatively unchanged at 28.1% in 2013 and 28.2% in 2014. In 2015, however, with several countries experiencing contracting economies, poverty for the region increased to 29.2%, with an estimated 175 million people in the region living in poverty, up from 169 million in 2014. With projections of economic contraction for the region in 2016, poverty levels for the region likely will increase. In recent years, Latin America's relatively sustained political stability and, until recently, steady economic performance (with some exceptions) increased the region's confidence in solving its own problems, and lessened the region's dependency on the United States. The region's growing ideological diversity has also been a factor in the region's increased independence from the United States, as has Brazil's rising regional and global influence. Latin American and Caribbean countries have diversified their economic and diplomatic ties with countries outside the region. China, for example, has become a major trading partner for many countries in the region, ranking as one of the top two export and import markets. Total Chinese trade with the region grew from almost $18 billion in 2002 to almost $262 billion in 2014, before dropping to $235 million in 2015. Nevertheless, the United States remains the single largest trading partner for many countries; total U.S. trade with the region amounted to $867 billion in 2014 and $797 billion in 2015, more than three times that of China's trade with the region. Several Latin American regional integration organizations have been established in the past few years, a reflection of the region's increasing independence, growing internal cooperation, and ideological diversity. The Venezuelan-led Bolivarian Alliance of the Americas (ALBA, originally established as the Bolivarian Alternative for the Americas) was launched by President Hugo Chávez in 2004 with the goals of promoting regional integration and socioeconomic reform and alleviating poverty. In addition to Venezuela, this 11-member group currently includes Bolivia, Cuba, Ecuador, and Nicaragua, as well as the Caribbean island nations of Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines. Despite its established goals, ALBA was most often associated with the anti-American rhetoric of some of its Latin American members. In the aftermath of President Chávez's death in March 2013, some observers questioned the future of the Venezuelan-founded alliance. Moreover, the precipitous decline in the price of oil since 2014 has further challenged the ability of Venezuela to extend its influence in the region. Another regional organization is the 12-member Union of South American Nations (UNASUR), established in 2008 (largely because of Brazil's influence) to promote political, economic, and security coordination in South America. It has served as a forum for dispute resolution. For example, the organization played a role in defusing tensions between Colombia and Venezuela in 2008, and helped resolve internal political conflicts in Bolivia in 2008 and Ecuador in 2010. Some analysts, however, have raised questions about UNASUR's overall efficacy, financial support, and ability to develop specialized capabilities and programs. In 2014, in an attempt to quell political unrest in Venezuela, UNASUR foreign ministers were initially successful in establishing a dialogue between the government and the political opposition, but talks ultimately broke down, and were not restarted. A regional trade integration arrangement, the Pacific Alliance, first emerged in 2011 with the primary goal of facilitating the flow of goods, services, capital, and people among its members. The Alliance currently includes Chile, Colombia, Mexico, and Peru. Costa Rica and Panama are candidates for membership. Different from other initiatives described above, the Alliance welcomed the United States as an observer in July 2013. A region-wide organization established in 2011, the Community of Latin American and Caribbean States (CELAC) consists of 33 hemispheric nations, but excludes the United States and Canada. CELAC's goal is to boost regional integration and cooperation. While some observers have concerns that CELAC could be a forum for countries that have tense or difficult relations with the United States, others point out that strong U.S. partners in the region are also members. Some observers have predicted that CELAC could diminish the role of the Organization of American States (OAS), while others maintain that CELAC does not have a permanent staff or secretariat that could compete with the OAS. In January 2015, China hosted the first China-CELAC Forum in which countries agreed to a five-year cooperation plan. Later in January 2015, CELAC held its third summit in Costa Rica. Ecuador hosted the fourth CELAC summit in January 2016. To some extent, CELAC's establishment reflects a Latin American desire to lessen U.S. influence in the region; however, the United States remains very much engaged in the region bilaterally and multilaterally through the OAS and its numerous affiliated organizations. Moreover, U.S. officials have strongly supported the efforts of OAS Secretary-General Luis Almagro, elected to a five-year term in May 2015, to push for the protection of democracy and human rights in the region. In addition, the Summit of the Americas process, affiliated with the OAS, remains an important mechanism for the United States to engage with Latin American nations at the highest level. While the sixth Summit of the Americas, held in Colombia in April 2012, displayed U.S. divergence from the region in terms of policy toward Cuba and anti-drug strategy, the meeting also included a variety of initiatives to deepen hemispheric integration and address key hemispheric challenges. A looming challenge for the United States was how to deal with the seventh Summit of the Americas to be hosted by Panama in April 2015. Cuba had expressed interest in attending the sixth summit, but ultimately was not invited to attend. The United States and Canada had expressed opposition to Cuba's participation. Previous summits had been limited to the hemisphere's democratically elected leaders. Many Latin American countries vowed not to attend the 2015 summit unless Cuba was invited to attend. As a result, Panama announced in August 2014 that it would invite Cuba to the summit, presenting a dilemma for the Obama Administration. In December 2014, however, when President Obama announced a new policy approach toward Cuba, he said that United States was prepared to have Cuba participate in the summit. Cuba ultimately participated in the summit in Panama featuring a historic meeting between President Obama and President Raúl Castro. The Obama Administration set forth a broad framework for U.S. policy toward Latin America and the Caribbean centered on four pillars or priorities: promoting economic and social opportunity; ensuring citizen security; strengthening effective institutions of democratic governance; and securing a clean energy future. The State Department maintained that these policy "priorities are based on the premise that the United States has a vital interest in contributing to the building of stable, prosperous, and democratic nations" in the hemisphere that can play an important role in dealing with global challenges. The Obama Administration stressed that its policy approach toward the region was one emphasizing partnership and shared responsibility, with policy conducted on the basis of mutual respect through engagement and dialogue. President Obama reemphasized the theme of equal partnership at the sixth Summit of the Americas in April 2012 when he said that "in the Americas there are no senior or junior partners, we're simply partners." In remarks at the June 2012 OAS General Assembly meeting in Bolivia, then-Assistant Secretary of State for Western Hemisphere Affairs Roberta Jacobson reiterated the commitment of the United States to work with hemispheric nations "in the spirit of genuine and equal partnership to advance liberty and prosperity for all the citizens of the hemisphere." In a November 2013 OAS address, Secretary of State John Kerry asserted that "the era of the Monroe Doctrine is over." Secretary Kerry emphasized the importance of the United States working with other hemispheric nations as equal partners to promote and protect democracy, security, and peace; to advance prosperity though development, poverty alleviation, and improved social inclusion; and to address the challenges posed by climate change. Secretary of State Kerry stated, "the relationship that we seek and that we have worked hard to foster is not about a United States declaration about how and when it will intervene in the affairs of other American states. It's about all of our countries viewing one another as equals, sharing responsibilities, cooperating on security issues, and adhering not to doctrine, but to the decisions that we make as partners to advance the values and the interests that we share." Then-Assistant Secretary of State Jacobson reiterated in a December 2013 address in Miami, FL, that "the administration is committed to sustained, productive engagement in the Americas." She emphasized that the various partnership initiatives between the United States and Latin America involved U.S. officials sitting down with regional counterparts to understand their priorities and needs and discussing the ways in which the United States might support them. In December 2014, President Obama announced major changes in U.S. policy toward Cuba, moving away from the long-standing sanctions-based policy toward a policy emphasizing engagement and moving toward normalization of U.S.-Cuban relations. As part of the policy shift, the Administration eased certain sanctions on travel and commerce with Cuba, removed Cuba from the so-called state sponsors of terrorism list, and reestablished diplomatic relations. Latin American and Caribbean leaders as well as regional organizations such as the Caribbean Community (CARICOM), OAS, and UNASUR hailed the change in U.S. policy. President Obama stated at the April 2015 Summit of the Americas in Panama that the shift in U.S. policy toward Cuba "represents a turning point for our entire region" and noted that this was "the first time in more than a half century that all the nations of the Americas are meeting to address our future together." Vice President Joe Biden contended in a May 2016 speech on the Western Hemisphere that the U.S. policy shift on Cuba from isolation to engagement "proved that our promise to listen rather than dictate to the region was more than just words." He said that many Latin American leaders told him how the change in U.S. policy toward Cuba has enhanced their ability to build partnerships with the United States. The policy priority of expanding economic opportunity focuses on one of the key problems facing Latin America: lingering poverty and inequality. As noted above, at the end of 2015, an estimated 175 million people in Latin America were living in poverty—29.2% of the region's population—and 75 million people, or 12.5% of the population, were living in extreme poverty or indigence. Although these statistics reflect a significant improvement from 2002, when almost 44% of the region's population lived in poverty, poverty began to rise again because of the region's recent economic downturn. In addition to traditional U.S. development assistance programs focusing on health and education, expanding economic opportunity also involved several innovative programs and initiatives. The Pathways to Prosperity Initiative , initially launched in 2008, is designed to help countries learn from each other's experiences through the exchange of best practices and collaboration in order to empower small business, facilitate trade and regional competitiveness, build a modern and inclusive workforce, and encourage sustainable business practices. The OAS Inter-American Social Protection Network began in 2009 with U.S. support to facilitate an exchange of information on policies, experiences, programs, and best practices in order to reduce social disparities and inequality and reduce extreme poverty. President Obama launched the 100,000 Strong in the Americas initiative in 2011 to increase the number of Latin American students studying in the United States as well as to increase the number of U.S. students studying in countries throughout the hemisphere. As part of the Obama Administration's Feed the Future Initiative to combat global hunger and advance food security, three countries in the Americas—Guatemala, Haiti, and Honduras—receive targeted funding for the development of poor rural areas aimed at helping vulnerable populations escape hunger and poverty. At the sixth Summit of the Americas held in Colombia in April 2012, President Obama announced several initiatives to expand economic opportunity. The Small Business Network of the Americas (SBNA) is an initiative designed to help small businesses participate in international trade by linking national networks of small business support centers. The Women ' s Entrepreneurship in the Americas (WEAmericas) program is a public-private partnership designed to increase women's economic participation and address barriers to women starting and expanding small and medium enterprises. The Innovation Fund of the Americas , launched by the U.S. Agency for International Development (USAID), is an initiative to help finance lower cost and more effective solutions to difficult development challenges. The policy priority of advancing citizen security reflects one of the most important concerns among Latin Americans. High levels of crime and violence, often associated with gangs and drug trafficking, are significant problems in many countries. The Central America-Mexico corridor is the route for the majority of illicit drugs from South America entering the United States. Drug trafficking-related violence in Mexico rose to unprecedented levels, and murder rates in several Central American and Caribbean countries have been among the highest in the world. U.S. support to counter drug trafficking and production in the region has been a key focus of U.S. policy toward the region for more than 30 years. The most significant U.S. support program was Plan Colombia, begun in FY2000, which helped Colombia to combat both drug trafficking and terrorist groups financed by the drug trade. The Colombia Strategic Development Initiative (CSDI) was begun in 2011 to align U.S. assistance with the follow-up strategy to Plan Colombia designed to develop a functioning state presence in remote, but strategically important, areas. In its FY2017 foreign aid budget request, the Administration began planning for U.S. support to Colombia in a post-peace accord era (also see " Colombia ," below). U.S. support to combat drug trafficking and reduce crime has also included a series of partnerships with other countries in the region: the Méri da Initiative, which began in 2007, and has led to unprecedented bilateral security cooperation with Mexico; the Central America Regional Security Initiative (CARSI) , begun in 2008, and the Caribbean Basin Security Initiative (CBSI) , begun in 2009. (Also see " Mexico ," " Central America ," and " Caribbean Security and Energy Issues ," below.) The policy priority of strengthening democratic governance has the goal of building on progress that the region made over the past three decades, not only in terms of regular free and fair elections, but also in terms of respect for political rights and civil liberties. Despite this progress, many countries in the region still face considerable challenges. The United States provides foreign aid to support the rule of law and human rights, good governance (including anticorruption efforts), political competition, and consensus-building and civil society. Improving and strengthening democratic governance includes support to improve the capacity of state institutions to address citizens' needs through responsive legislative, judicial, law enforcement, and penal institutions, as well as support to nongovernmental organizations working on democracy and human rights issues. It also includes defending press freedoms and democratic rights, such as free and fair elections and the protection of minority rights. The Obama Administration also committed to advance the human rights of lesbian, gay, bisexual, transgender, and intersex (LGBTI) individuals as part of its human rights engagement in the hemisphere. U.S. officials continued to speak out about human rights abuses in countries such as Cuba and Venezuela, threats to political rights and civil liberties in other countries in the region, such as Nicaragua, and the erosion of full respect for freedom of expression in the region. The Administration also contended that hemispheric nations should collectively remain on guard against efforts to weaken the Inter-American human rights system. U.S. officials also spoke out about the threat that corruption has posed to many countries in the region and the need to strengthen democratic institutions and the rule of law. In April 2016, then-Assistant Secretary for Western Hemisphere Affairs Roberta Jacobson said that without the rule of law being deeply rooted and entrenched throughout the hemisphere, it will be impossible to confront such challenges as climate change, transnational gangs, or authoritarian despots. She noted that President Obama pointed out that corruption siphons billions of dollars that could feed children or build schools or infrastructure and that corruption stifles economic growth, promotes inequality, abets human rights abuses, and fuels organized crime and instability. In 2009, the Obama Administration introduced the Energy and Climate Partnership of the Americas (ECPA) , designed to strengthen inter-American collaboration on clean energy. Many countries in Latin America and the Caribbean are vulnerable to climate change and struggle with energy security. ECPA includes voluntary bilateral and multi-country initiatives to promote clean energy, advance energy security, and reduce greenhouse gas emissions. Some of the initiatives involve international and regional organizations and the private sector. At the sixth Summit of the Americas in 2012, President Obama joined with Colombia in Connecting the Americas 2022 , an initiative with the goal of achieving universal access in the hemisphere to reliable, clean, and affordable electricity. In 2014, the Administration launched a Caribbean Energy Security Initiative to promote cleaner and more sustainable energy in the region. In 2015, a clean energy financing facility for the Caribbean and Central America was established. (Also see " Climate Change and Clean Energy " and " Caribbean Security and Energy Issues ," below.) During the Obama Administration's first six years, there was significant continuity in U.S. policy toward Latin America, with the Administration pursuing some of the same basic policy approaches as the Bush Administration. Nevertheless, the Obama Administration also made several changes, including an overall emphasis on partnership and shared responsibility. At the sixth Summit of the Americas in April 2012, President Obama reemphasized the theme of equal partnership when he said that "in the Americas there are no senior or junior partners, we're simply partners." Like the Bush Administration, the Obama Administration provided significant anti-drug and security support to Colombia and significant support to Mexico and Central America to combat drug trafficking and organized crime through the Mérida Initiative and CARSI. Assistance to Mexico, however, has shifted toward more support for rule of law programs (including police, judicial, and penal reform) and programs to help communities withstand the pressures of crime and violence. In anticipation of a potential "balloon effect" of drug trafficking shifting to the Caribbean region, the Obama Administration also established CBSI, the origin of which, however, dates back to the Bush Administration. Assistance for Colombia became more evenly balanced between enhancing rule of law, human rights, and economic development programs on the one hand, and continuing efforts on security and drug interdiction on the other. Overall U.S. assistance levels to Colombia began to decline as the country began taking over responsibility for programs once funded by the United States. On trade matters, implementing bills for FTAs with Colombia and Panama that were negotiated under the Bush Administration ultimately were introduced and enacted into law in October 2011 ( P.L. 112-42 and P.L. 112-43 ) after extensive work by the Obama Administration to resolve outstanding congressional concerns related to both agreements. In 2015, Congress enacted P.L. 114-27 , an extension of the Generalized System of Preferences (GSP) through 2017, benefitting 15 countries in the region. Another trade initiative begun informally under the Bush Administration and continued by the Obama Administration through formal trade negotiations was the proposed Trans-Pacific Partnership (TPP) trade agreement with Mexico, Chile, Peru, and eight other Pacific countries. TPP trade ministers concluded the agreement in October 2015, and the President released the text of the agreement and notified Congress in November 2015. The 114 th Congress, however, did not take any action on implementing legislation, and President-elect Trump announced in November 2016 his intention to withdraw from the TPP. The agreement could have had significant implications for U.S. trade and investment ties with the three Latin American countries that are parties to the agreement, as well as with other Latin American countries that could possibly have joined in the future. Just as the Bush Administration had, the Obama Administration expressed support for comprehensive immigration reform, an especially important issue in U.S. relations with Mexico and Central America. In the absence of congressional action on comprehensive reform, President Obama took executive action in 2012 providing relief from deportation for certain immigrants who arrived in the United States as children. President Obama took further executive action in 2014 that would have provided relief from deportation and work authorizations for more categories of unauthorized migrants, but court challenges prohibited implementation of the initiatives. In other areas, the Obama Administration made policy changes on Latin America that more clearly differentiated it from the Bush Administration. As described above, the Administration early on put more of an emphasis on partnership and shared responsibility in its policy toward the region. It established numerous partnership programs in such areas as security, energy, and economic and social opportunity. It emphasized policy conducted on the basis of mutual respect through engagement and dialogue. Perhaps most significantly, as noted above, the Obama Administration announced major changes in Cuba policy in late 2014, moving away from a policy of isolation toward a normalization of relations. The policy shift on Cuba was lauded throughout the region and has changed the dynamics of a long-standing irritant in U.S. relations with Latin America. Beyond Cuba, the Administration pursued several other policy shifts. While it pressed for dialogue in Venezuela, the Administration also imposed sanctions (including visa restrictions and asset blocking) on current or former Venezuelan officials involved in human rights abuses. In Central America, spurred in part by a surge in 2014 of unaccompanied children and other migrants seeking to enter the United States, the Administration developed a broader approach in 2015 known as the Strategy for Engagement in Central America, which goes beyond security concerns to address economic development and governance issues. In the Caribbean, the Administration also moved beyond security concerns to address the energy needs of countries that are heavily dependent on energy imports, launching a Caribbean Energy Security Initiative (CESI) in 2014 with the goal of promoting a cleaner and sustainable energy future. Congress traditionally has played an active role in policy toward Latin America and the Caribbean in terms of both legislation and oversight. In the 113 th Congress, legislative action included a measure directing the Secretary of State to develop a strategy for adoption of proposed reforms at the OAS ( P.L. 113-41 ); approval of the U.S.-Mexico Transboundary Hydrocarbons Agreement (a provision in P.L. 113-67 ); the 2014 farm bill ( P.L. 113-79 ), with provisions modifying the U.S. cotton program related to a trade dispute with Brazil and requiring State Department reports on a U.S.-Mexico water dispute in the Rio Grande Basin; omnibus appropriations measures for FY2013 ( P.L. 113-6 ), FY2014 ( P.L. 113-76 ), and FY2015 ( P.L. 113-235 ), which included foreign aid appropriations with numerous provisions on Latin America; a measure requiring an annual report through 2017 on the status of post-earthquake recovery and development efforts in Haiti ( P.L. 113-162 ); and a measure to impose sanctions on those persons responsible for certain human rights abuses in Venezuela ( P.L. 113-278 ). The most significant legislative action on Latin America and the Caribbean in the first session of the 114 th Congress was the enactment of the FY2016 omnibus appropriations measure ( P.L. 114-113 ) in December 2015. The law included numerous provisions on foreign aid to the region, including $750 million for ramped up funding for Central America to address economic, security, and governance challenges. The FY2016 National Defense Authorization Act ( P.L. 114-92 ), enacted in November 2015, also has provisions regarding increased support for Central America as well as prohibitions against funding for the closure of the U.S. Naval Station at Guantanamo Bay, Cuba. Earlier in the year, Congress approved an extension of the Generalized System of Preferences (GSP) through 2017 in the Trade Preferences Extension Act ( P.L. 114-27 ), enacted in June, which benefits some 15 countries in the region. In other action, the House passed H.Res. 536 in December 2015, expressing support for freedom of the press in the region and condemning violations of press freedom and violence against journalists. In the second session in 2016, Congress took action on several measures related to the region. In July, Congress enacted legislation extending the termination date of the requirement to impose targeted sanctions on individuals for human rights abuses in Venezuela ( P.L. 114-194 ). In September, the House approved H.Res. 851 , also related to Venezuela, which among its provisions expressed profound concern about the humanitarian situation, urged the release of political prisoners, and called for the Venezuelan government to hold a presidential recall referendum in 2016. Also in September, Congress enacted a legislative vehicle ( P.L. 114-223 , Division B) that provided FY2016 supplemental funding to control the spread of the Zika virus in the Americas. As the 114 th Congress neared its end in December 2016, Congress completed action on several additional measures with provisions on Latin America and the Caribbean. P.L. 114-291 requires the Secretary of State, in coordination with the Administrator of USAID, to submit a multiyear strategy for U.S. engagement with the Caribbean. P.L. 114-323 , the FY2017 Department of State Authorities Act, in Title VI established a Western Hemisphere Drug Policy Commission to conduct a comprehensive review of U.S. drug control policy in the Western Hemisphere, including an evaluation of counternarcotics assistance programs. The FY2017 National Defense Authorization Act (NDAA), P.L. 114-328 ( S. 2943 ), signed into law by the President on December 23, has several provisions on the region, including those extending a unified counterdrug and counterterrorism campaign in Colombia for two years (Section 1013); continuing a prohibition on use of funds for realigning forces at or the closure of the U.S. Naval Station and Guantanamo Bay, Cuba (Section 1035); requiring the Secretaries of Defense and State to submit a joint report on military units that have been assigned to do policing or other law enforcement duties in El Salvador, Guatemala, and Honduras, and detailing U.S. government assistance for those units (Section 1069); and restricting FY2017 funding for Cuba's participation in certain joint or multilateral exercises or related security conference between the U.S. and Cuban governments (Section 1286). With regard to FY2017 foreign aid appropriations, Congress did not complete action on stand-alone legislation, although committee-reported House and Senate bills H.R. 5912 and S. 3117 had numerous provisions on assistance to the region. Instead, Congress enacted a continuing resolution ( P.L. 114-254 ) in December funding most foreign aid programs at the FY2016 level, minus an across-the-board reduction of almost 0.2%, through April 28, 2017. The 115 th Congress will face completing action on FY2017 foreign aid appropriations. Oversight attention in the 114 th Congress focused on such issues as U.S. interests in Latin America and the Caribbean; the Administration's policy shift on Cuba, including issues related to U.S. national security, human rights, U.S. trade, U.S. property claims, security concerns surrounding the resumption of regular air service with Cuba, and U.S. agricultural trade with Cuba; the Administration's aid request for Central America and the migration crisis in that subregion; Venezuela's economic and political crisis; an overview of the situation in Haiti; the activities of Iran in Latin America; energy issues; the status of Colombia's peace talks; threats to press freedom in the Americas; Chinese and Russian engagement in the region; the human rights situation in both Cuba and Venezuela; the Zika epidemic in the hemisphere; U.S. engagement with the Caribbean; and the democratic setback in Nicaragua. (See the Appendix for a listing of hearings.) Although many Latin American and Caribbean nations have made significant development progress over the past two decades, foreign aid remains an important tool for advancing U.S. policy priorities in the hemisphere. Current aid programs reflect the diverse needs of the countries of the region. Some nations receive a broad range of U.S. assistance, with projects in areas such as democracy promotion, economic reform, education, health, environmental protection, citizen security, and counternarcotics. Others no longer require traditional development assistance but continue to receive low levels of aid, usually targeted toward strengthening security capabilities. The Obama Administration's FY2017 foreign aid budget request included $1.74 billion for Latin America and the Caribbean to be provided through the State Department and USAID, which is roughly equal to the amount that Congress appropriated for the region in FY2016. Aid to the region has increased each year since FY2014 but remains below what was provided in FY2012. In recent years, the vast majority of U.S. assistance for the region has been dedicated to implementing a new U.S. Strategy for Engagement in Central America and ongoing programs in Colombia, Haiti, and Mexico. In addition to State Department and USAID funding, some countries in Latin America and the Caribbean receive assistance through U.S. agencies such as the Department of Defense (DOD), the Inter-American Foundation, the Millennium Challenge Corporation, and/or the Peace Corps. Key Policy Issues: The Senate and House Appropriations Committees reported out their respective FY2017 State Department, Foreign Operations, and Related Programs appropriations bills, S. 3117 and H.R. 5912 , in June and July 2016; however, those measures never received floor consideration. Instead, Congress opted to fund foreign aid programs through a series of stopgap measures. On December 10, 2016, President Obama signed into law a continuing resolution ( P.L. 114-254 ) that will fund most foreign aid programs at the FY2016 level, minus an across-the-board reduction of 0.1901% (hereafter referred to as almost 0.2%), until April 28, 2017. The measure replaced a previous continuing resolution ( P.L. 114-223 ) that funded most foreign aid programs at the FY2016 level, minus an across-the-board reduction of 0.496%, between October 1, 2016, and December 9, 2016. P.L. 114-223 also included $145.5 million in supplemental FY2016 appropriations for global health assistance to address the Zika virus outbreak. All of the supplemental global health assistance was allocated to Latin America and the Caribbean to provide targeted support to those affected by the Zika virus. The incoming 115 th Congress will need to complete action on FY2017 appropriations for the balance of the fiscal year. The 114 th Congress enacted two other legislative measures that affect U.S. foreign aid to Latin America and the Caribbean. As noted above, in December 2016, President Obama signed into law P.L. 114-323 , which among its provisions established a Western Hemisphere Drug Policy Commission. The new commission will conduct a comprehensive review of U.S. drug control policy in the hemisphere, including an evaluation of counternarcotics assistance programs, such as the Colombia Strategic Development Initiative, the Merida Initiative, the Caribbean Basin Security Initiative (CBSI), and the Central America Regional Security Initiative (CARSI). As noted above, the FY2017 NDAA, P.L. 114-328 , enacted in December 2016, modified and codified a number of authorities that allow DOD to provide security assistance to foreign nations. Among its provisions, the law extended DOD's authority to support a unified counterdrug and counterterrorism campaign in Colombia for two years; mandated that DOD submit an annual budget request for all security cooperation programs; and required DOD to develop an assessment, monitoring, and evaluation framework for security cooperation programs. In addition to these legislative initiatives, the 114 th Congress held several oversight hearings that examined the implementation and effectiveness of foreign aid programs in Latin America and the Caribbean (see Appendix for hearings). For additional information, see CRS Report R44647, U.S. Foreign Assistance to Latin America and the Caribbean: Trends and FY2017 Appropriations , by [author name scrubbed]. Latin America is a leading source of both legal and illegal migration to the United States. Mexico, El Salvador, Cuba, Guatemala, and the Dominican Republic are among the top 10 countries of origin for the U.S. foreign-born population. Factors that have fueled Latin American migration to the United States have included familial ties, poverty and unemployment, political and economic instability, natural disasters, proximity, and crime and violence. Since the mid-1990s, increased border enforcement has made unauthorized entry into the United States more difficult and expensive. This has prompted migrants to rely on alien smugglers ( coyotes ), many of whom collude with Mexican criminal groups, to transit Mexico and cross the U.S.-Mexico border. During the journey, migrants have been vulnerable to kidnapping, human trafficking, and other abuses. Latin American governments have supported the enactment of comprehensive immigration reform in the United States that would normalize the status of illegal immigrants and create guest worker programs to facilitate circular migration. The House and the Senate considered immigration measures on a variety of issues in the 114 th Congress, but comprehensive immigration reform was not on the agenda. In the absence of comprehensive reform, governments welcomed President Obama's 2012 executive action that provided relief from removal (deportation) for certain immigrants who arrived to the country as children. El Salvador, Haiti, Honduras, and Nicaragua have advocated for extensions of their eligibility for temporary protected status (TPS) and Guatemala has requested inclusion in the program. TPS is a discretionary, humanitarian benefit granted to eligible nationals after the Department of Homeland Security (DHS) determines that a country has been affected by ongoing armed conflict, natural disaster, or other extraordinary conditions that limit the country's ability to accept the return of its nationals from the United States. Eligibility for TPS currently is scheduled to expire for Haiti in July 2017, for Honduras and Nicaragua in January 2018, and for El Salvador in March 2018. Latin America and the Caribbean is also the top destination for U.S. removals (deportations). In FY2015, DHS deported 235,413 individuals worldwide, some 94% of whom were returned to Mexico and the "northern triangle" countries of Central America (El Salvador, Guatemala, and Honduras). Mexico remains concerned about the safety of Mexican deportees arriving into dangerous localities. Caribbean and Central American countries are concerned about the effect of U.S. deportations of those with criminal records on their countries. These countries have asked the U.S. government to provide better information on deportees with criminal records and to provide reintegration assistance to help support returning nationals. DHS has begun to provide criminal history information to certain countries, and USAID has provided reception and reintegration assistance to the northern triangle countries. Mexico and Central American governments are providing increased consular services to their citizens living in the United States, including referrals to legal services for those facing deportation. As illegal emigration from Mexico has declined, illegal emigration of both families and unaccompanied children from Central America's northern triangle countries surged in mid-2014 and has remained at elevated levels since then. Migration flows of children and families declined somewhat in 2015 due to Mexico's increased immigration enforcement but resurged in 2016. Analysts maintain that sustainable reductions in those flows, which include asylum-seekers, would require the countries of origin and the international community to take steps to address the poor security and socioeconomic conditions causing Central Americans to migrate. Over the past several years, the number of undocumented Cubans entering the United States by land has increased significantly, with a majority entering through the U.S. southwest border. Although this route is not new for Cubans, the Cuban government's 2013 relaxation of its exit rules for citizens and concerns that the United States might change its immigration policy for Cubans have prompted a large increase in the number of Cubans making the overland journey. In the past year, thousands of Cubans became stranded in Central American transit countries due to changes in visa and migration policies of those governments. These developments required Mexico and Central American governments to negotiate ways for the Cubans to pass through the region and on to the U.S. southwestern border. The Dominican government has taken steps to address the citizenship status and rights of people of Haitian descent and undocumented individuals living in the Dominican Republic through implementation of a naturalization law and regularization plan. The U.S. government and others are seeking to ensure that the naturalization and regularization plans benefit all who should qualify and that deportations are conducted transparently. U.S. humanitarian and protection assistance is being provided through U.N. and other entities. Key Policy Issues: The 114 th Congress provided foreign assistance to help address some of the factors fueling migration from Central America, to support Mexico's migration management and border security efforts, and to support migration-related programs implemented by the U.N. High Commissioner for Refugees and the International Organization for Migration (see " Central America " and " Mexico " sections, below). Congress held a hearing on border security challenges in the Western Hemisphere, including the rise in African, Asian, and Haitian migration to the southwestern border that has occurred this year. Congress also conducted oversight of State Department assistance that is being implemented by DHS to bolster country and regional responses to migration challenges, and of the Central American Minors (CAM) in-country refugee/parole processing program established by the Obama Administration in late 2014. Legislation was introduced in both houses, the Secure the Northern Triangle Act ( S. 3106 and H.R. 5850 ), which would have authorized foreign assistance to address migration push factors in Central America, increased efforts against alien smuggling, and provided legal aid to Central American asylum seekers in the United States. For additional information, see CRS Report R43702, Unaccompanied Children from Central America: Foreign Policy Considerations , coordinated by [author name scrubbed]; CRS In Focus IF10371, U.S. Strategy for Engagement in Central America: Background and FY2017 Budget Request , by [author name scrubbed] and [author name scrubbed]; CRS Report R44020, In-Country Refugee Processing: In Brief , by [author name scrubbed]; CRS In Focus IF10215, Mexico's Recent Immigration Enforcement Efforts , by [author name scrubbed]; CRS Insight IN10317, The Dominican Republic: Tensions with Haiti over Citizenship and Migration Issues , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]; CRS Report RL33200, Trafficking in Persons in Latin America and the Caribbean , by [author name scrubbed]; and CRS Report R43926, Cuba: Issues and Actions in the 114th Congress , by [author name scrubbed]. The Latin American and Caribbean region is one of the fastest-growing regional trading partners for the United States. Despite challenges such as diplomatic tensions or violence in certain countries, economic relations between the United States and most of its trading partners in the region remain strong. The United States accounts for roughly 40% of the Latin American and Caribbean region's imports and 30% of its exports. Most of this trade is with Mexico, which accounted for 72% of U.S. imports from the region and 61% of U.S. exports to the region in 2015. In 2015, total U.S. exports to Latin America and the Caribbean were valued at $388.3 billion while U.S. imports were valued at $412.3 billion (see Table 3 ). The United States has strengthened economic ties with Latin America and the Caribbean over the past two decades through the negotiation and implementation of free trade agreements (FTAs). Starting with the North American Free Trade Agreement (NAFTA), which entered into force in January 1994, the United States has entered into six FTAs involving 11 countries, including Mexico, Chile, Colombia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Panama, and Peru. The United States concluded trade negotiations for a Trans-Pacific Partnership agreement, a proposed free trade agreement among 12 countries, which include Chile, Mexico, and Peru. Some of the largest economies in South America, however, such as Argentina, Brazil, and Venezuela, have resisted the idea of forming comprehensive free trade agreements with the United States. As a result, there are numerous other bilateral and plurilateral trade agreements throughout the Western Hemisphere that do not include the United States. In addition to FTAs, the United States has extended unilateral trade preferences to some countries in the region through trade preference programs such as the Caribbean Basin Trade Partnership Act (CBTPA) and the Generalized System of Preferences (GSP). GSP was renewed in June 2015, under the Trade Preferences Extension Act ( P.L. 114-27 ), which authorizes GSP through December 31, 2017. Most countries in the region also belong to the World Trade Organization (WTO) and are engaged in WTO multilateral trade negotiations. As productivity increases in countries that have an FTA with the United States, such as Mexico, numerous analysts have proposed that the United States employ trade policy to further hemispheric cooperation and focus on improving regional supply networks. The next possible step toward trade integration appeared to be the proposed Trans-Pacific Partnership (TPP) trade agreement, which potentially could have significant implications for U.S. trade and investment ties with Mexico, Chile, and Peru, as well as with Canada and seven other countries in the Pacific (other Latin American countries could possibly join in the future). The proposed TPP would have altered some rules governing trade related to NAFTA and provided updated provisions in areas such as intellectual property rights (IPR) protection, investment, services trade, worker rights, and the environment. Central American and other countries in the region were concerned that it could weaken their relative trade competitiveness, especially in the apparel and textiles industries. Key Policy Issues: During the 114 th Congress, the proposed TPP was of congressional interest, especially in the areas of worker rights, IPR protection, the environment, services trade, investment, regulatory cooperation, and rules-of-origin provisions. Congress also took an interest in the possible effects of a TPP on Central America. Given that three countries from Latin America are parties to the TPP, some policymakers considered options on whether the United States should broaden trade policy efforts to the region as a whole. Another issue of congressional interest was the Pacific Alliance, a trade liberalization initiative among Chile, Colombia, Mexico, and Peru. The United States was granted observer status to the Alliance in July 2013, allowing it to attend negotiating rounds and participate in other Pacific Alliance activities. Energy reform in Mexico and the implications for U.S. oil imports from Mexico and for U.S. business and investment opportunities were also of interest to Congress (also see " Mexico ," below.) Looking ahead, President-elect Trump announced in November 2016 his intention to withdraw from the TPP. The President-elect also has stated his desire to examine the ramifications of withdrawing from NAFTA once he is in office. For additional background, see CRS In Focus IF10047, North American Free Trade Agreement (NAFTA) , by [author name scrubbed]; CRS Report R42965, The North American Free Trade Agreement (NAFTA) , by [author name scrubbed] and [author name scrubbed]; CRS Report R44489, The Trans-Pacific Partnership (TPP): Key Provisions and Issues for Congress , coordinated by [author name scrubbed] and [author name scrubbed]; CRS In Focus IF10000, TPP: An Overview , by [author name scrubbed] and [author name scrubbed] and CRS Report R43748, The Pacific Alliance: A Trade Integration Initiative in Latin America , by [author name scrubbed]. Latin America and the Caribbean feature prominently in U.S. counternarcotics policy due to the region's role as a source and transit zone for several illicit drugs destined for U.S. markets—cocaine, marijuana, methamphetamine, and opiates. Heroin abuse and opioid-related deaths in the United States have grown in recent years, raising questions among policymakers about how to address foreign sources of opioids—particularly Mexico, which has experienced an uptick in recent years in the cultivation of opium poppy and the production of heroin. Policymakers are also considering the effect of Colombia's widely anticipated peace accord with the Revolutionary Armed Forces of Colombia (FARC), an organization that has long played a significant role in Latin American drug trafficking. Contemporary drug trafficking and transnational crime syndicates in the region have contributed to degradations in citizen security and economic development, often resulting in record levels of violence and drug trafficking-related homicides. Despite significant efforts to combat the drug trade, many governments in Latin America continue to suffer from overtaxed criminal justice systems and overwhelmed law enforcement and border control agencies. Moreover, extensive government corruption, entrenched by deeply influential criminal kingpins, frustrates efforts to interdict drugs, investigate and prosecute traffickers, and recover illicit proceeds. There is a widespread perception, particularly among many Latin American observers, that continuing U.S. demand for illicit drugs is largely to blame for the Western Hemisphere's ongoing crime and violence problems. Ongoing struggles to deal with the violent and destabilizing effects of the illicit drug trade have spurred some Latin American leaders and others to explore drug policy alternatives. Many Latin American stakeholders hoped that the April 2016 U.N. General Assembly Special Session on illicit drugs would spur further consideration of alternative drug policy options, including in particular changes in policy approaches to marijuana-related crimes. Some countries in Latin America have already begun the process of modifying domestic drug laws to decriminalize and reduce or alter the penalties and consequences of certain aspects of the drug control regime, such as for drug possession and consumption as well as for drug supply reduction. In an unprecedented move, Uruguay enacted legislation to establish a nationally regulated legal market for domestic, recreational consumption of cannabis in late December 2013. Bolivia has also sought a different approach to counternarcotics policy, including ending its reliance on U.S. antidrug support and decriminalizing certain activities involving coca leaf. In a major reversal that ends a central tenet of U.S.-supported counternarcotics activities in Colombia, the Colombian government announced in May 2015 the end of its campaign of aerial eradication. The decision to halt such spraying, which had been implemented with substantial U.S. support since the 1990s, followed a March 2015 World Health Organization announcement that the herbicide used to eradicate coca crops "probably" causes cancer in humans. Key Policy Issues: Because of the region's role as a source and transit zone, U.S. counternarcotics policy will continue to be a major aspect of U.S. relations with Latin America and the Caribbean. The 114 th Congress was engaged in regional debates on drug policy reform, particularly as it evaluated the Obama Administration's counternarcotics goals in the Western Hemisphere, including counternarcotics and foreign aid budget plans as well as the distribution of domestic and international drug control funding, and the relative balance of civilian, law enforcement, and military roles in regional anti-drug efforts. As noted above, Congress enacted P.L. 114-323 in December 2016, which, among its provisions, established a drug policy commission directed to review and report on U.S. foreign policy efforts and programs in the hemisphere to combat drug trafficking, abuse, and related consequences. For additional information, see CRS Report RL34543, International Drug Control Policy: Background and U.S. Responses , by [author name scrubbed]. Also see CRS Report R41349, U.S.-Mexican Security Cooperation: The Mérida Initiative and Beyond , by [author name scrubbed] and [author name scrubbed]; CRS Report R41731, Central America Regional Security Initiative: Background and Policy Issues for Congress , by [author name scrubbed] and [author name scrubbed]; and CRS In Focus IF10400, Heroin Production in Mexico and U.S. Policy , by [author name scrubbed] and [author name scrubbed]. Compared to other parts of the world, the potential threat emanating from terrorism is low in most countries in Latin America. Most terrorist acts occur in the Andean region of South America, committed by two Colombian guerrilla groups—the Revolutionary Armed Forces of Colombia (FARC) and the National Liberation Army (ELN)—and one Peruvian guerrilla group, the Shining Path (SL). All three of these groups have been designated by the U.S. State Department as Foreign Terrorist Organizations (FTOs). The FARC, however, has been engaged in peace negotiations with the Colombian government since 2012, culminating in a peace accord signed in September 2016. Although the accord was narrowly rejected by a national plebiscite in early October, both sides hammered out a new peace accord in November 2016, which was ratified by Colombia's Congress at the end of that month. Negotiations between the Colombian government and the smaller ELN had several false starts in 2016, although to date formal talks with the government have not started. The Shining Path has been significantly diminished because of Peruvian military operations. For a number of years, there also has been U.S. concern about Iran's increasing activities in the region as well as those of Hezbollah, the radical Lebanon-based Islamic group with close ties to Iran. Both are reported to be linked to the 1994 bombing of the Argentine-Israeli Mutual Association (AMIA) that killed 85 people in Buenos Aires. More recently, U.S. concerns have included financial and ideological support in South America and the Caribbean for the Islamic State (also known as the Islamic State of Iraq and the Levant, ISIL/ISIS), including the issue of individuals from the region leaving to fight with the Islamic State. The United States employs various policy tools to counter terrorism in the region, including sanctions, antiterrorism assistance and training, law enforcement cooperation, and multilateral cooperation through the Organization of American States (OAS). In addition to sanctions against U.S.-designated FTOs in the region, the United States has imposed an arms embargo on Venezuela since 2006 because the Department of State has determined that Venezuela is not fully cooperating with U.S. antiterrorism efforts. The United States has also imposed sanctions on several current and former Venezuelan officials for assisting the FARC and on numerous individuals and companies in Latin America for providing support to Hezbollah. Cuba had been on the State Department's so-called list of state sponsors of terrorism since 1982, but in May 2015, the Obama Administration rescinded Cuba's designation as part of its overall policy shift on Cuba. Over the past several years, Congress has introduced legislation and held oversight hearings pertaining to terrorism issues in the Western Hemisphere. The 112 th Congress enacted the Countering Iran in the Western Hemisphere Act of 2012 ( P.L. 112-220 ) 2012, which required the Administration to conduct an assessment and present "a strategy to address Iran's growing hostile presence and activity in the Western Hemisphere." An unclassified portion of the 2013 report contended that Iranian influence was waning. Key Policy Issues: The 114 th Congress continued oversight of terrorism concerns in the Western Hemisphere, with House hearings on the activities of Iran and Hezbollah, the peace agreement in Colombia, border security management and concerns, and terrorist financing in South America (see Appendix ). As noted above, a provision in the FY2017 NDAA, P.L. 114-328 (Section 1013), enacted in December 2016, extended a unified counterdrug and counterterrorism campaign in Colombia for two years. Several legislative initiatives were introduced but ultimately not approved or considered. The House passed H.R. 4482 in April 2016, which would have required the Secretary of Homeland Security to prepare a southwestern border threat analysis and strategic plan, including efforts to detect and prevent terrorists and instruments of terrorism from entering the United States. With regard to the AMIA bombing and Iran, two Senate resolutions were introduced: S.Res. 167 would have called for an internationally backed investigation into the January 2015 death of the AMIA special prosecutor in Argentina, Alberto Nisman, and urged the President to continue to monitor Iran's activities in Latin America and the Caribbean, and S.Res. 620 would have, among its provisions, encouraged Argentina to investigate and prosecute those responsible for the AMIA bombing and the death of Nisman. Several initiatives dealt with Cuba's harboring of U.S.-wanted fugitives, an issue that had been noted for many years in the State Department's annual terrorism report. For additional information, see CRS Report RS21049, Latin America: Terrorism Issues , by [author name scrubbed] and [author name scrubbed]; CRS Report R43926, Cuba: Issues and Actions in the 114th Congress , by [author name scrubbed]; CRS Insight IN10591, Colombia Adopts Revised Peace Accord: What Next? , by [author name scrubbed]; CRS Report R43816, Argentina: Background and U.S. Relations , by [author name scrubbed] and [author name scrubbed] . The OAS is the oldest multilateral regional organization in the world. Since its foundation in 1948, the OAS has served as a forum through which the United States has sought to foster regional cooperation and advance U.S. priorities in the Western Hemisphere. OAS actions reflected U.S. policy for much of the 20 th century, as other members sought to closely align themselves with the dominant economic and political power in the region. This dynamic has changed to a certain extent over the past 15 years, as Latin American and Caribbean governments have adopted more independent foreign policies. Although the core pillars of the organization's mission—democracy promotion, human rights protection, economic and social development, and regional security cooperation—still generally align with U.S. policy toward the region, the OAS has become less receptive to U.S. initiatives and more prone to inaction. The organization also has struggled to obtain the funding it needs to carry out its mandates. As OAS decisions have begun to reflect the increasing independence of the organization's member states, U.S. policymakers occasionally have expressed concerns about the direction of the organization. Some Members of Congress have asserted that the OAS is failing in its mission to support democracy and human rights, and they have argued that the U.S. government should use its influence in the organization, including funding, to compel stronger action on those issues. Others contend that the OAS remains an important forum for advancing U.S. relations with the other nations of the hemisphere and that U.S. policy should seek to strengthen the organization so it can more effectively carry out its mission. Key Policy Issues: The 114 th Congress continued to appropriate funding for the OAS and oversee U.S. policy at the organization. The FY2016 Consolidated Appropriations Act ( P.L. 114-113 ) provided funding for the U.S. assessed contribution to the OAS, which accounts for nearly 60% of all membership dues paid to the organization. It also provided a $2.3 million voluntary contribution for OAS development assistance programs and a $4.1 million voluntary contribution for the OAS Fund for Strengthening Democracy, which included $2 million for the Inter-American Commission on Human Rights (IACHR). Congress passed a continuing resolution ( P.L. 114-254 ) in December 2016 that will fund most foreign operations in FY2017 at the FY2016 level, minus an across-the-board reduction of about 0.2%, until April 28, 2017. The Senate Appropriations Committee's FY2017 foreign operations appropriations bill, S. 3117 , would have increased assistance to the OAS, but it never received floor consideration. According to the bill's report, S.Rept. 114-290 , the bill would have provided at least $16.5 million for voluntary contributions to the OAS: $1 million for OAS development assistance programs, $4 million for the OAS Fund for Strengthening Democracy, $7 million for the IACHR (which was facing a budget crisis), and $4.5 million for a recently established OAS Mission to Support the Fight Against Corruption and Impunity in Honduras (MACCIH). S.Rept. 114-290 also noted the budgetary challenges faced by the OAS and urged the Secretary-General to "develop a 5-point financial plan that emphasizes the comparative advantages of the OAS in supporting democracy, monitoring electoral processes, and protecting human rights." The 114 th Congress took action on several other legislative measures that included provisions related to the OAS. As noted above, Congress enacted P.L. 114-323 in December 2016, which established a drug policy commission to conduct a comprehensive review of U.S. counternarcotics policy in the hemisphere. The law directed the new commission to consult with the OAS's Inter-American Drug Abuse Control Commission (CICAD) as it carries out its work. In December 2015, the House adopted H.Res. 536 , which urged countries in the Western Hemisphere to uphold the principles outlined in the Inter-American Democratic Charter and to implement recommendations from the IACHR's Office of the Special Rapporteur for Freedom of Expression. In September 2016, the House passed the Nicaraguan Investment Conditionality Act ( H.R. 5708 ), which, among its provisions, directed the U.S. Permanent Representative to the OAS to use the voice, vote, and influence of the United States to advocate for OAS electoral observation missions to Nicaragua in 2016 and 2017. For additional information, see CRS Report R42639, Organization of American States: Background and Issues for Congress , by [author name scrubbed]. Latin America and the Caribbean face numerous risks from climate change, according to many sources. Paradoxically, these countries have contributed only a modest portion of the world's carbon dioxide (CO 2 ) emissions, the primary component of greenhouse gases. The region generates only an estimated 7% of the world's greenhouse gases—10% if emissions from forest and land degradation are included. This is in part due to the region's clean energy matrix. Some countries are endowed with abundant water resources, such as rivers and glaciers, and produce hydroelectric power. Still, Brazil, Ecuador, Bolivia, and other nations have high rates of deforestation that release carbon dioxide to the atmosphere. Tourism and agriculture are important sources of income in the region. Increased erosion and projected increases in severe weather events, such as more violent storms and flooding, and predicted sea-level rise could undermine coastal tourism. As global temperatures increase, Latin America may face more frequent crop declines or failures, risks to livestock productivity, declining biodiversity, lower fish catches, coral reef die-offs, and other threats to livelihoods. More widespread risk from certain diseases has been forecast. Three mosquito-borne illnesses have spread from Latin America and the Caribbean to the United States in recent years, including an epidemic of Zika virus infections in 2016 (see " Zika Virus " section, below). Severe drought struck parts of Brazil and Central America in 2015 and Bolivia and Venezuela in 2016. The December 2014 U.N. climate conference, known as COP 20, held in Lima, Peru, drew attention to the challenge of climate change in the Western Hemisphere. Latin American countries have showcased advances in low-carbon energy production, such as solar, wind, or biofuels. Brazil has made significant headway over the past decade in reducing deforestation in the Amazon—protecting the earth's largest trap for CO 2 . Mexico has been a regional and global leader during the administrations of Felipe Calderón (2006-2012) and Enrique Peña Nieto (2012-present). In March 2015, Mexico was the first developing country in the world to submit its climate change pledge—or an Intended Nationally Determined Contribution (INDC)—for the U.N. climate conference to be held in Paris in December 2015. The Twenty-First Conference of the Parties to the United Nations Framework Convention on Climate Change (COP 21) lasted from November 30 through December 12, 2015 and produced the so-called Paris Agreement. With nearly worldwide attendance, the COP21 conference convened delegations from 195 countries. At the end of the conference, the delegates announced that the agreement they had hammered out pledged nations to reduce their greenhouse gas emissions and cooperate on a common goal of adapting to climate change, and they also agreed on ways to provide financial and other support. The agreement went into force on November 4, 2016, after more than 72 states (representing more than 56% of global CO 2 emissions), deposited their instruments of ratification. The Paris Agreement aims at ambitious goals of greenhouse gas emission reduction and mitigation through voluntary pledges and will depend on country peer pressure to realize those goals. How Latin America and the Caribbean nations address climate change in 2017 and beyond may depend on the perceived risks and benefits of low-carbon growth. A single "regional" viewpoint is unlikely given the diversity of political perspectives, geographies, and fragmentation of efforts between regional organizations. On the other hand, there is significant consensus in Latin America that climate change is an important policy issue, according to a 2016 Pew Center study of respondents globally. Additionally, the harsh effects of the 2015-2016 stronger-than-usual El Niño weather phenomena has led to floods in some countries and droughts in other parts of the region, such as Central America and Bolivia. Some observers maintain that sustainable growth and prosperity can be achieved with low CO 2 -emissions development, but how Latin American and Caribbean nations will balance projected lower growth rate—and even contraction—with progress on climate concerns remains to be seen. "Securing a clean energy future" was one of four pillars of the Obama Administration's policy approach in Latin America and the Caribbean. The Administration's Energy and Climate Partnership of the Americas (ECPA) was one avenue for achieving this goal. ECPA promoted clean energy technologies, built hemispheric partnerships, and developed new clean energy initiatives among governments, private industry, and civil society. After 40 different initiatives and projects launched under ECPA, new U.S. assistance concluded in FY2014, but existing projects continued through the end of FY2016. In October 2015, U.S. Secretary of State John Kerry launched a $10 million clean energy initiative for Central America and the Caribbean. The effort targeted the private sector to increase financial assistance and investment in clean energy projects. (Also see " Caribbean Security and Energy Issues " below.) Key Policy Issues: Western Hemisphere countries received $71.4 million in foreign assistance under the Administration's Global Climate Change Initiative (adaptation, clean energy, and sustainable landscapes) in FY2015 and an estimated $70.5 million in FY2016. The FY2017 request was for $70.7 million. Members of the 114 th Congress had some interest in these programs and how they worked for nations in the region, and how the U.S. policy framework toward climate and energy related to the pledges or INDCs of Latin American countries announced in Paris. For additional information, see CRS Insight IN10590, Paris Climate Change Agreement to Enter into Force November 4 , by [author name scrubbed]. During the second session, the 114 th Congress considered how the United States should respond to the spread of the Zika virus throughout the Western Hemisphere. The Zika virus is a mosquito-borne illness that has no treatment or vaccine and can cause microcephaly—a severe birth defect—and other neurological complications. The number of people in the Western Hemisphere affected by Zika is unknown, but nearly all countries in Latin America and the Caribbean have recorded cases of the virus. Brazil has registered the most confirmed cases of Zika in Latin America, as well as the vast majority of Zika-associated microcephaly. Zika responses in the region have been led by Brazil and Colombia, multilateral organizations such as the World Health Organization (WHO)/Pan American Health Organization (PAHO), and the U.S. government. Health experts have expressed some concerns about the capacity of some health systems—particularly in Central America and the Caribbean—to prevent, diagnose, and care for Zika cases and associated complications, particularly among pregnant women. In February 2016, the Obama Administration submitted an emergency request for almost $1.9 billion in supplemental funding to respond to the Zika outbreak, including $526 million for international efforts. In April, the Administration announced that it would reprogram $589 million in unobligated funds for efforts to address the Zika outbreak. USAID has reprogrammed $215 million of that funding—including a $78 million transfer to the Centers for Disease Control and Prevention (CDC)—for international efforts. USAID is prioritizing vector control, behavioral and social change communication to help prevent the spread of Zika, and the delivery of maternal and reproductive health services. It is also incentivizing innovations and research. USAID is focusing on Haiti, Guatemala, El Salvador, Honduras, and the Dominican Republic. The CDC is engaging in joint research on Zika with Brazil, Colombia, and other countries; working to develop a Zika vaccine; and supporting other countries' surveillance, diagnostic, and treatment capabilities. Key Policy Issues: In May 2016, both the House and the Senate passed supplemental appropriations measures ( H.R. 5243 ) and ( S.Amdt. 3900 to H.R. 2577 ) for Zika response but never agreed to a conference agreement on the Zika supplemental request. In September 2016, Congress enacted a FY2017 continuing resolution ( P.L. 114-223 ) that funded most foreign aid programs between October 1, 2016, and December 9, 2016; the measure also became the vehicle for Congress to provide $145.5 million in supplemental FY2016 appropriations for global health assistance to help governments in the region support those who have been affected by the Zika virus outbreak. For more information, see CRS Report R44545, Zika Virus in Latin America and the Caribbean: U.S. Policy Considerations , coordinated by [author name scrubbed], and CRS Report R44460, Zika Response Funding: Request and Congressional Action , coordinated by [author name scrubbed]. Argentina, a South American country with a population of almost 43 million, has had a vibrant democratic tradition since its military relinquished power in 1983. Current President Mauricio Macri—the leader of the center-right Republican Proposal (PRO) and the candidate of the Let's Change coalition representing center-right and center-left parties—won the 2015 presidential race and was inaugurated in December 2015. He succeeded two-term President Cristina Fernández de Kirchner, from the center-left faction of the Peronist party known as the Front for Victory (FPV), who was first elected in 2007 (succeeding her husband, Néstor Kirchner, who served one term). In a close race, Macri defeated the FPV's Daniel Scioli. Macri's election ends the 12-year run of so-called Kirchnerismo that helped Argentina emerge from a severe economic crisis in 2001-2002 but also was characterized by protectionist and unorthodox economic policies and at times difficult relations with the United States. Argentina has Latin America's third-largest economy and is endowed with vast natural resources. Agriculture has traditionally been a main economic driver, but the country also has a diversified industrial base and a highly educated population. In 2001-2002, a severe economic crisis precipitated by unsustainable debt led to the government defaulting on nearly $100 billion in foreign debt owed to private creditors, the International Monetary Fund (IMF), and foreign governments. Subsequent Argentine administrations resolved more than 90% of the country's debt owed to private creditors through two debt restructurings offered in 2005 and 2010; repaid debt owed to the IMF in 2006; and, in May 2014, reached an agreement to repay foreign governments, including the United States. Reaching a settlement with the private creditors that did not participate in the exchanges—the "holdouts"—was a more protracted process. Macri made it a priority to resolve the 15-year standoff with private creditors, and, in February 2016, the Argentine government reached an agreement with the major remaining holdouts. In April 2016, the government successfully issued $16.5 billion in new government bonds and paid $9.3 billion to holdout creditors, effectively resolving the default. U.S.-Argentine relations generally have been characterized by robust commercial relations and cooperation in such issues as nonproliferation, human rights, education, and science and technology. Under the Kirchner governments, however, there were periodic tensions in relations. Macri's election brought to power a government that has demonstrated a commitment to improved relations with the United States. The Obama Administration moved forward swiftly with engaging the new government on a range of bilateral issues and pursuing cooperation on various regional and global challenges. Demonstrating the significant change in relations, President Obama traveled to Argentina in March 2016 for a state visit that increased cooperation in such areas as trade and investment, renewable energy, climate change, and citizen security. President Obama also announced a comprehensive effort to declassify additional U.S. documents from the era of military rule in Argentina in which thousands were killed. Secretary of State John Kerry traveled to Argentina in August 2016 to launch a High-Level Dialogue with Argentina to serve as a mechanism to ensure sustained engagement on bilateral issues and approaches toward regional and global challenges, including respect for democracy and human rights in the Americas. Key Policy Issues: U.S.-Argentine relations have largely been an oversight issue for Congress. In the aftermath of Macri's election, key Members of Congress urged the Obama Administration to prioritize relations with Argentina. Over the years, an interest of Congress has been progress in the investigation and prosecution of those responsible for the 1994 bombing of the Argentine-Israeli Mutual Association (AMIA), which killed 85 people, and more recently in the investigation into the January 2015 death of the special prosecutor in the AMIA investigation, Alberto Nisman. With regard to trade, some Members of Congress have attempted to block the lifting of U.S. import restrictions on fresh beef and lemon imports from Argentina. Two Senate resolutions were introduced on Argentina in the 114 th Congress but not considered. As noted above, S.Res. 167 would have called for an internationally backed investigation into the death of the AMIA special prosecutor. S.Res. 620 would have supported the partnership between Argentina and the United States, encouraged the State Department to coordinate an interagency strategy to increase cooperation with Argentina, commended President Macri for far-reaching economic reforms and praised the government for resolving its dispute with international creditors, and encouraged the government to investigate and prosecute those responsible for the AMIA bombing and the death of Nisman. For additional information, see CRS Report R43816, Argentina: Background and U.S. Relations , by [author name scrubbed] and [author name scrubbed]; CRS Insight IN10378, Argentina Votes for Change in 2015 Presidential Election , by [author name scrubbed]; and CRS Report RS21049, Latin America: Terrorism Issues , by [author name scrubbed] and [author name scrubbed]. As a large country with tremendous natural resources, Brazil has long held potential to become a world power. Its rise to prominence has been hindered by setbacks, however, including an extended period of military rule (1964-1985) and uneven economic performance. Brazil gradually consolidated liberal democracy following its political transition, and implemented economic reforms in the 1990s that laid the foundation for stronger growth. A boom in international demand for Brazilian commodities during the first decade of this century fueled a period of rapid economic expansion, which contributed to, and was reinforced by, the growth of Brazil's middle class. In addition to providing the Brazilian government with the resources necessary to address long-standing social disparities, this economic growth strengthened Brazil's international stature. After more than a decade of advancements, Brazil is once again facing economic and political crises. The economy, which began to slow in 2011 with the end of the global commodity boom, contracted by an estimated 3.8% in 2015 and is expected to contract by 3.3% in 2016. Some Brazilians who joined the middle class during the boom years have fallen back into poverty as unemployment has climbed to nearly 12%. At the same time, a sprawling corruption investigation involving the diversion of public sector funds to bribes and electoral campaigns has implicated prominent business leaders and government officials. The Brazilian Congress seized upon citizen discontent to impeach President Dilma Rousseff and permanently remove her from office in August 2016. Although President Michel Temer, who served as vice president under Rousseff, has pushed forward far-reaching policy reforms, the Brazilian economy has shown few signs of recovery. Political stability also has remained elusive, as corruption allegations against Temer and other high-profile politicians have continued to roil Brazil's political class. The United States traditionally has enjoyed robust economic and political relations with Brazil. The Obama Administration considered Brazil a "major global player" and an "indispensable partner" on issues ranging from international development to climate change. Nevertheless, the relationship has been strained from time to time as the countries' independent foreign policies and occasionally divergent national interests have led to disagreements. Press reports in 2013 about alleged National Security Agency (NSA) activities in Brazil contributed to a particularly frosty period in relations, but bilateral cooperation gradually resumed, paving the way for President Rousseff's official visit to the White House in June 2015. There has been considerable continuity in U.S.-Brazilian relations over the past year despite the change in government in Brazil. Bilateral dialogues, which facilitate policy coordination, continued throughout the impeachment process against President Rousseff. In the aftermath of Rousseff's removal, the Obama Administration expressed confidence that the process had been carried out in accordance with Brazil's constitutional framework and pledged to continue working with the Brazilian government on issues of mutual concern. Key Policy Issues: The 114 th Congress approved two legislative measures that directly influenced U.S.-Brazil relations. As part of the Trade Preferences Extension Act of 2015 ( P.L. 114-27 ), Congress renewed the Generalized System of Preferences (GSP) program, which provides non-reciprocal, duty-free tariff treatment to certain products imported from Brazil and other designated developing countries. In the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ), Congress authorized reforms to the International Monetary Fund (IMF) that had been pending since 2010 and provided greater voting power to Brazil and other emerging economies. The law also provided foreign assistance for Brazil, including $10.5 million to support conservation programs in the Brazilian Amazon. For FY2017, a continuing resolution, P.L. 114-254 , is funding most foreign aid programs at the FY2016 level, minus an across-the-board reduction of about 0.2%, until April 28, 2017. A few other measures related to Brazil were introduced in the 114 th Congress. H.Res. 815 , introduced in July 2016, would have expressed the sense of Congress that governments, including the Brazilian government, should inform travelers about the Zika virus and take steps to prevent its transmission. Two other bills were designed to pressure Brazil to amend its constitution to allow the extradition of Brazilian nationals; H.R. 2784 would have suspended foreign assistance to Brazil, and H.R. 2785 would have suspended the issuance of visas to Brazilian nationals, until it changes its extradition policies. In addition to considering legislation, several Members of the 114 th Congress spoke out about developments in Brazil. Some Members raised concerns about the precautions taken to prevent the spread of Zika as Brazil prepared to host the Summer Olympics in August 2016. Others raised concerns about the impeachment process in Brazil, which they asserted was a threat to democracy. For additional information, see CRS Insight IN10471, Brazil in Crisis , by [author name scrubbed]; CRS Report RL33456, Brazil: Background and U.S. Relations , by [author name scrubbed]; CRS In Focus IF10447, U.S.-Brazil Trade Relations , by [author name scrubbed]; CRS Report R44545, Zika Virus in Latin America and the Caribbean: U.S. Policy Considerations , coordinated by [author name scrubbed]; and CRS Report R44575, The 2016 Olympic Games: Health, Security, Environmental, and Doping Issues , coordinated by [author name scrubbed] and [author name scrubbed]. Because of their geographic location, many Caribbean nations are transit countries for illicit drugs destined for the U.S. and European markets. Currently, of the 16 countries in the Caribbean region, President Obama identified four—the Bahamas, Belize, the Dominican Republic, Haiti, and Jamaica—as major drug-producing or drug-transit countries in September 2016, pursuant to annual legislative drug certification requirements. Many other Caribbean nations, particularly in the eastern Caribbean, are also vulnerable to drug trafficking and associated crimes. Homicide rates in several Caribbean countries have increased in recent years because of gangs and organized crime, competition between drug trafficking organizations, and the availability of firearms. In 2009, the Obama Administration developed the Caribbean Basin Security Initiative (CBSI) through a process of dialogue with Caribbean countries with the goal of reducing illicit trafficking in the Caribbean, advancing public safety and security, and promoting social justice. U.S. funding for the program from FY2010 through FY2016 amounted to an estimated $444 million with assistance in the following five areas: maritime and aerial security cooperation; law enforcement capacity building; border/port security and firearms interdiction; justice sector reform; and crime prevention and at-risk youth. The House Appropriations Committee version of the FY2016 foreign aid appropriations measure, H.R. 2772 , would have provided about $8 million in additional assistance for the CBSI above the Administration's request of $53.5 million, whereas the Senate Appropriations Committee version, S. 1725 , would have provided $9 million less. Ultimately, Congress provided $57.7 million for the CBSI in FY2016, as set forth in the explanatory statement to the FY2016 omnibus appropriations measure, P.L. 114-113 , about $4.2 million above the amount requested. Many Caribbean nations depend on energy imports and over the last decade have participated in Venezuela's PetroCaribe program, in which they purchase Venezuelan oil under preferential financing terms. In 2014, the Obama Administration launched a Caribbean Energy Security Initiative (CESI), which has the goal of promoting a cleaner and more sustainable energy future in the Caribbean. The initiative includes a variety of U.S. activities to facilitate cleaner energy sources, develop collaborative networks on clean energy, finance clean energy projects, increase energy efficiency, and expand access to electricity, information, and technology. The report to S. 1725 ( S.Rept. 114-79 ) recommended $5 million for the CESI in FY2016. Ultimately, the explanatory statement to the FY2016 omnibus measure, P.L. 114-113 , measure provided $2 million for the program. In January 2015, Vice President Biden hosted a Caribbean Energy Security Summit in Washington, DC; representatives from regional governments, regional and multilateral development banks, the Caribbean Community (CARICOM), and the OAS reiterated their commitment to support a cleaner and more sustainable energy future in the Caribbean. In April 2015, President Obama met with Caribbean leaders in a U.S.-Caribbean Community Summit in Jamaica, where part of the summit focused on improving energy security, reducing energy costs, and combating climate change. The President announced the launch of a Clean Energy Finance Facility for the Caribbean and Central America to encourage investment in clean energy projects. He also announced a task force of representatives from the United States, governments in the region, and regional institutions. Secretary of State John Kerry announced the opening of the facility in October 2015. Vice President Biden hosted a follow-up U.S.-Caribbean-Central American Energy Summit in May 2016 in Washington, DC, and the above-noted task force issued a report addressing energy security issues, which urged countries to diversify their energy sources. Key Policy Issues: Concern about drug trafficking through the Caribbean sustained congressional interest in the CBSI program. For FY2017, the Administration requested $48.4 million for the CBSI, a 16% reduction from FY2016. The House Appropriations Committee report to accompany the House version of the FY2017 foreign aid appropriations bill ( H.Rept. 114-693 to H.R. 5912 ) would provide $57.7 million for the CBSI, the same amount appropriated in FY2016, whereas the Senate Appropriations Committee's report to accompany the Senate version of the bill ( S.Rept. 114-290 to S. 3117 ) would provide $53.6 million. In addition to the CBSI, the Senate report would also provide $2 million for the Caribbean Energy Security Initiative. Congress did not complete action on these bills, but in December 2016, it enacted a FY2017 continuing resolution ( P.L. 114-254 ) that funded most foreign aid programs at the FY2016 level, minus an across-the-board reduction of almost 0.2%, through April 28, 2017. In December 2016, Congress enacted P.L. 114-291 , the United States-Caribbean Strategic Engagement Act of 2016—which has the objective of increasing engagement with the Caribbean. The measure requires the Secretary of State, in coordination with the USAID Administrator, to submit a multiyear strategy to Congress for U.S. engagement with the Caribbean region. Among other requirements, the strategy is to encourage Caribbean efforts to improve energy security and to partner with Caribbean governments to improve citizen security, reduce drug trafficking, strengthen the rule of law, and improve the effectiveness and sustainability of the CBSI. The bill also requires a report evaluating the CBSI and making recommendations to make the program more effective. As noted above, Congress also approved P.L. 114-323 in December 2016, which among its provisions established a new commission to review U.S. drug control policy in the Western Hemisphere, including an evaluation of the CBSI. The House Western Hemisphere Subcommittee held oversight hearings on energy security in May 2015 and June 2016 that examined challenges for the Caribbean. The subcommittee also held a hearing on the Caribbean in July 2016 examining U.S. engagement with the region (see Appendix ). U.S. policymakers have expressed significant concerns about conditions in Central America over the past decade. Countries in the region—particularly the "northern triangle" countries of El Salvador, Guatemala, and Honduras—have long struggled to deal with high levels of crime and violence that analysts have linked to interrelated factors such as widespread social exclusion and weak and corrupt security and justice sector institutions. Security conditions have deteriorated further as transnational criminal organizations have fought to control Central American territory in order to transport illicit narcotics from producers in South America to consumers in the United States. From FY2008-FY2016, Congress appropriated an estimated $1.5 billion of assistance through the Central America Regional Security Initiative (CARSI) to strengthen law enforcement, build institutional capacity, and address underlying socioeconomic challenges in Central America. While USAID's CARSI-funded crime prevention programs have produced statistically significant improvements in the communities where they are located, violence levels remain elevated throughout the northern triangle. Policymakers had begun to reevaluate U.S. efforts in Central America even before the United States experienced a sharp increase in the number of unaccompanied children and other migrants and asylum seekers from the region arriving at the southern border in 2014. The Obama Administration launched a new whole-of-government "U.S. Strategy for Engagement in Central America" that places greater emphasis on fostering prosperity and improving governance while continuing to address security concerns in the region. The governments of El Salvador, Guatemala, and Honduras—with support from the Inter-American Development Bank—are carrying out complementary efforts under their "Plan of the Alliance for Prosperity in the Northern Triangle." Many analysts are skeptical that leaders in the region are committed to far-reaching structural changes, especially in light of recent corruption scandals that have implicated top officials. While all three governments have begun to implement some reforms, serious challenges remain, as demonstrated by escalating levels of violence in El Salvador, assassinations of human rights defenders in Honduras, rising poverty in Guatemala, and increasing numbers of migrants and asylum-seekers from the region arriving at the U.S. border. Key Policy Issues: The 114 th Congress continued to express concerns about conditions in Central America and appropriated funding to support development and security efforts in the region. The Consolidated Appropriations Act, 2016 ( P.L. 114-113 ), provided $750 million to implement the Administration's Central America strategy but placed numerous conditions on the aid. It withheld 75% of assistance for the "central governments of El Salvador, Guatemala, and Honduras" until the Secretary of State could certify that the governments were "taking effective steps" to address 16 concerns, including improving border security, combating corruption, protecting human rights, and resolving commercial disputes. Congress enacted a continuing resolution ( P.L. 114-254 ) in December 2016 that will continue funding most foreign aid programs in FY2017 at the FY2016 level, minus an across-the-board reduction of about 0.2%, until April 28, 2017. Funding provided through the continuing resolution is subject to the same conditions as were enacted in FY2016. The FY2016 NDAA, P.L. 114-92 , expressed the sense of the Congress that "the stability and security of Central American nations have a direct impact on the stability and security of the United States." The measure asserted that the United States should prioritize efforts to address security threats in the region and called on the Department of Defense to increase its efforts to prevent illicit trafficking into the United States, build partner capacity, support inter-agency activities that address instability, and promote respect for human rights in the region. It also authorized $30 million above the FY2016 request for U.S. Southern Command operational support for Central America. The FY2017 NDAA, P.L. 114-328 , requires the Secretaries of Defense and State to submit a joint report on military units that have been assigned to do policing or other law enforcement duties in El Salvador, Guatemala, and Honduras, and detail U.S. government assistance for those units. As noted above, Congress also approved P.L. 114-323 in December 2016, which, among its provisions, established a drug policy commission charged with reviewing U.S. drug control policy in the Western Hemisphere, including an evaluation of CARSI. Several other legislative initiatives related to Central America were introduced in the 114 th Congress. H.R. 439 and H.R. 530 , introduced in January 2015, sought to condition aid to northern triangle countries on those countries' efforts to prevent unauthorized migration to the United States. S. 3106 and H.R. 5850 , introduced in June 2016 and July 2016, aimed to provide a coordinated regional response to violence and humanitarian concerns in the northern triangle. H.R. 5474 , introduced in June 2016, would have suspended security assistance to Honduras until the Secretary of State certified that the Honduran government had met a number of human rights conditions. For additional information, see CRS Report R43702, Unaccompanied Children from Central America: Foreign Policy Considerations , coordinated by [author name scrubbed]; CRS In Focus IF10371, U.S. Strategy for Engagement in Central America: Background and FY2017 Budget Request , by [author name scrubbed] and [author name scrubbed]; CRS Report R41731, Central America Regional Security Initiative: Background and Policy Issues for Congress , by [author name scrubbed] and [author name scrubbed]; CRS Report RL34112, Gangs in Central America , by [author name scrubbed]; CRS In Focus IF10394, Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) , by [author name scrubbed]; CRS Report R43616, El Salvador: Background and U.S. Relations , by [author name scrubbed]; and CRS Report RL34027, Honduras: Background and U.S. Relations , by [author name scrubbed]. Colombia is the third-most-populous country in Latin America, with roughly 48 million inhabitants. A key U.S. ally in the region, Colombia has endured an internal armed conflict for half a century. In July 2016, the Colombian Constitutional Court approved a plebiscite to allow Colombian voters to decide the fate of a peace accord negotiated between the government of President Juan Manuel Santos and the country's largest insurgent group, the Revolutionary Armed Forces of Colombia (FARC). After nearly four years of negotiations and some 50 rounds of talks, which began in Norway in October 2012 and then, as planned, moved to Havana, Cuba, a peace accord was signed on September 26, 2016, in a public ceremony. In a surprise loss, the first accord—known at the Cartagena Agreement—was rejected in the peace plebiscite held a week later on October 2, 2016, by a margin of only 54,000 votes out of 13 million ballots cast. In late November 2016, the Santos government and the FARC signed a second accord, which the government maintained responded to criticisms of the "No" campaign leaders who objected to the first accord. On November 30, 2016, the Colombian Congress approved the second accord, and the fast-track mechanism that would have allowed rapid implementation of the Cartagena Agreement was upheld to apply to the second accord by the Colombian Constitutional Court on December 13, 2016. The leftist FARC have fought the Colombian government for decades with financing derived from extortion, drug trafficking, and other illicit activities. Some observers consider the FARC to have morphed from a leftist rural insurgency to essentially the country's largest drug trafficking organization. Other analysts maintain that favorable conditions existed for both sides to reach a peace settlement rather than to continue hostilities, although the negotiations took far longer than originally anticipated. Critics, however, have raised concerns that the Santos Administration gave away too many concessions to the FARC in the final agreement. The U.S. Congress remains deeply interested in the political future of Colombia, as the country has become one of the United States' closest allies in Latin America. Congress has expressed that interest by its continued investment in Colombia's security and stability. Over the years, the U.S.-Colombian relationship has broadened from counternarcotics to include humanitarian concerns; justice reform and human rights; and economic development, investment, and trade. However, Colombia is and has long been a major source country of cocaine and heroin, and drug trafficking has helped to perpetuate civil conflict by funding both left-wing and right-wing armed groups. Colombia, in close collaboration with the United States, through a broad strategy known as Plan Colombia begun in 2000, made significant progress in reestablishing government control over much of its territory, combatting drug trafficking and terrorist activities, and reducing poverty. Between FY2000 and FY2016, the U.S. Congress appropriated more than $10 billion in assistance to carry out Plan Colombia and its follow-on strategies. Even with the peace accord completed with the FARC, two other illegal armed groups persist: the National Liberation Army (ELN), whose armed combatants are estimated to number fewer than 2,000, and the criminal groups that sprang up following the demobilization of Colombia's right-wing paramilitaries, who officially demobilized a decade ago. Some of these actors have signaled an interest in taking over former FARC territory and criminal activities in a post-accord environment. However, the ELN has been in preparatory peace talks with the Santos Administration for more than a year, and both parties anticipate they may start formal peace talks in 2017. Precise costs of the government-FARC peace accord's implementation remain elusive but may exceed $30 billion over the next decade. With the tightening of U.S. foreign aid budgets and increasing nationalization of Plan Colombia-related programs since 2008, U.S. foreign assistance to Colombia has been on the decline. President Obama proposed a new "post-peace accord" approach to U.S.-Colombian cooperation, called Peace Colombia (sometimes referred to in Spanish as Paz Colombia ) totaling $450 million of support, $391 million of which the Obama Administration requested in its FY2017 congressional budget justification . President Santos has continued the market-oriented, economic policies of prior administrations. During his first term, the U.S. Congress approved the U.S.-Colombia Free Trade Agreement, which went into force in April 2012. The United States is Colombia's top trade partner. Colombia has become an increasingly attractive location for foreign direct investment. After several years of annual growth exceeding 4%, one of the strongest and steadiest expansion rates in the region, Colombia's growth rate declined to 3.1% in 2015 and is projected to slow to slightly below 2% in 2016. The decline is largely attributed to lower earnings from energy exports. Colombia's uneven development, high levels of rural poverty, and concentrated land ownership have contributed to its half century of internal conflict. Key Policy Issues : In December 2016, Congress enacted a continuing resolution ( P.L. 114-254 ) that funded foreign assistance to Colombia at slightly below the FY2016 level ($300 million) through April 28, 2017, after the 115 th Congress takes office. Members of the U.S. Congress may want to assess if Peace Colombia or another type of post-accord program can help Colombia to secure a sustainable peace. According to Secretary of State John Kerry, effectively implementing the peace accord in Colombia would meet regional goals to stabilize the region and offer a return on a prior U.S. investment in Plan Colombia. However, some observers, weighing the global demands for U.S. assistance, could determine that Colombia, as an upper-middle-income country with considerable capacity, may be able to undertake such reconstruction activities on its own. For additional information, see CRS Report R43813, Colombia: Background and U.S. Relations , by [author name scrubbed]; CRS Report R42982, Colombia's Peace Process Through 2016 , by [author name scrubbed]; CRS Report RL34470, The U.S.-Colombia Free Trade Agreement: Background and Issues , by [author name scrubbed]. Cuba remains a one-party communist state with a poor record on human rights. The country's political succession in 2006 from the long-ruling Fidel Castro to his brother Raúl was characterized by a remarkable degree of stability. In 2013, Raúl began his second and final five-year term, which is scheduled to end in February 2018, when he would be 86 years of age. Castro has implemented a number of market-oriented economic policy changes over the past several years. An April 2016 Cuban Communist Party congress endorsed the current gradual pace of Cuban economic reform. Few observers expect the government to ease its tight control over the political system. While the government has released most long-term political prisoners, short-term detentions and harassment have increased significantly over the past several years. Congress has played an active role in shaping policy toward Cuba, including the enactment of legislation strengthening and at times easing various U.S. economic sanctions. U.S. policy over the years has consisted largely of isolating Cuba through economic sanctions, while a second policy component has consisted of support measures for the Cuban people, including U.S. government-sponsored broadcasting and support for human rights and democracy projects. In December 2014, President Obama announced a major shift in U.S. policy toward Cuba, moving away from a sanctions-based policy toward one of engagement and a normalization of relations. The President maintained that the United States would continue to raise concerns about democracy and human rights in Cuba, but he emphasized that the United States could do more through engagement than isolation. The policy change included talks to restore diplomatic relations (relations were reestablished in July 2015); a review of Cuba's designation as a state sponsor of international terrorism (Cuba's designation was rescinded in May 2015); and an increase in travel, commerce, and the flow of information to Cuba. In order to implement this third step, the Treasury and Commerce Departments eased the embargo regulations five times (most recently in October 2016) in such areas as travel, remittances, trade, telecommunications, and financial services. The overall embargo, however, remains in place, and can only be lifted with congressional action or if certain conditions in Cuba are met, including that a democratically elected government is in place. With the goal of advancing the normalization process, President Obama visited Cuba in March 2016, the first visit of a U.S. President to Cuba in almost 90 years. The outlook for U.S. policy toward Cuba under President-elect Trump is uncertain. Statements from the President-elect, including in the aftermath of Fidel Castro's death in late November 2016, suggest that he might reverse some of the policy changes of the Obama Administration. Key Policy Issues: The Obama Administration's shift in Cuba policy spurred strong interest in Congress. Some Members lauded the initiative as in the best interest of the United States and a better way to support change in Cuba, while others criticized the President for not obtaining more concessions from Cuba to advance human rights and protect U.S. interests. In the 114 th Congress, numerous legislative initiatives were introduced on both sides of the policy debate. In 2015, five FY2016 House appropriations bills had Cuba provisions that would have blocked some of the Administration's policy changes and introduced new economic sanctions, and one Senate appropriations bill had provisions that would have eased certain economic sanctions. Ultimately, none of these provisions were included in the FY2016 omnibus appropriations measure, P.L. 114-113 . In 2016, three House FY2017 appropriations measures (Commerce, H.R. 5393 ; Financial Services, H.R. 5485 ; and Homeland Security, H.R. 5634 ) had provisions that would have blocked some of the Cuba policy changes, and one FY2017 Senate appropriations measure (Financial Services, S. 3067 ) would have lifted certain sanctions, including restrictions on travel and financing for agricultural exports. The Senate version of the FY2017 foreign aid appropriations bill, S. 3117 , would have funded additional personnel costs for the U.S. Embassy in Cuba and the Administration's $15 million request for democracy programs, whereas the House version, H.R. 5912 , would have prohibited assistance for expanding the U.S. diplomatic presence in Cuba and provided $30 million for democracy programs. Ultimately, in December 2016, Congress enacted a continuing resolution ( P.L. 114-254 ), without any of the Cuba provisions noted above, which funded foreign aid appropriations through April 28, 2017, at the FY2016 level minus a reduction of about 0.2%. With regard to the U.S. Naval Station at Guantanamo Bay, Cuba, the FY2016 NDAA, P.L. 114-92 , and the FY2016 omnibus appropriations measure, P.L. 114-113 , Division J, had provisions prohibiting FY2016 funding to close the naval station. The FY2016 NDAA also prohibited funding to modify a 1934 treaty in such a way that constructively closes the naval station. These provisions were continued in the FY2017 military construction appropriations measure (Division A of P.L. 114-223 ) and the FY2017 NDAA, P.L. 114-328 . The FY2017 NDAA also prohibits FY2017 Department of Defense funding to invite, assist, or otherwise assure the participation of Cuba in certain joint or multilateral exercises. Numerous other freestanding bills introduced in the 114 th Congress would have lifted or eased sanctions, whereas other bills would have increased restrictions on engagement with Cuba. For additional information, see CRS Report R43926, Cuba: Issues and Actions in the 114th Congress , by [author name scrubbed]; CRS In Focus IF10045, Cuba: U.S. Policy Overview , by [author name scrubbed]; CRS Insight IN10616, Fidel Castro's Death: Implications for Cuba and U.S. Policy , by [author name scrubbed]; CRS Insight IN10466, President Obama's Historic Visit to Cuba , by [author name scrubbed];CRS Report R43888, Cuba Sanctions: Legislative Restrictions Limiting the Normalization of Relations , by [author name scrubbed] and [author name scrubbed]; CRS Report RL31139, Cuba: U.S. Restrictions on Travel and Remittances , by [author name scrubbed]; CRS Report R44119, U.S. Agricultural Trade with Cuba: Current Limitations and Future Prospects , by [author name scrubbed]; CRS Legal Sidebar WSLG1586, House Approves Measure to Prevent Return of GTMO to Cuba without Congress's Say So , by [author name scrubbed]; and CRS Report R44137, Naval Station Guantanamo Bay: History and Legal Issues Regarding Its Lease Agreements , by [author name scrubbed] and [author name scrubbed]. In what many observers see as a remarkable step forward for its democratic development, Guatemala's judicial system investigated government corruption, leading to the resignation and arrest of its president and vice-president in 2015. Guatemala then proceeded lawfully and peacefully to form an interim government and hold elections, and transferred power to a newly elected president, Jimmy Morales, in January 2016. In addition to corruption, some of the greatest challenges President Morales faces include high levels of crime, impunity, and poverty. Guatemala's income inequality is among the most extreme in Latin America. Morales presented his General Government Policy for 2016-2020 in February 2016. The pillars of this plan are zero tolerance for corruption; modernization of the state; food security and nutrition; overall health and quality education; promotion of micro, small, and medium enterprises (MSMEs); tourism and housing construction; and the environment and natural resources. In his first months in office, Morales' administration has been developing tax reform policies. He has also placed experienced professionals in key finance, tax, and economic positions. His Health Minister tendered his resignation in July 2016, however, reportedly saying the government was not resolving the health care crisis, in which hospitals have severe shortages of medicine and other supplies. Some observers have criticized the Morales Administration for failing to transfer allocated funds to certain elements of the government. In 2016, the Guatemalan Finance Ministry did not transfer funds to direct cash transfer programs that support some of Guatemala's poorest people until more than midway through the year. According to Attorney General Thelma Aldana, the lack of funding for her Public Ministry limits her office's ability to do its work. The Public Ministry has been aggressively investigating corruption, human rights, and other cases. Aldana believes that a threat made against was a response by organized crime to her efforts to dismantle corruption networks. In 2015, Aldana and the U.N.-backed International Commission against Impunity in Guatemala (CICIG) uncovered a corruption ring at the national tax agency leading to the resignations and arrests of then-President Otto Perez Molina and his vice president. Since then, authorities have arrested and charged more than 200 officials at all levels for corruption. In March 2016, the Public Ministry successfully prosecuted the first case for sexual violence committed during the civil war. In March 2016, a judge seized and made public previously unknown documents detailing information about military counterinsurgency objectives, operations, and campaigns from 1983 to 1990. Since the Peace Accords were signed in 1996, the Guatemalan army has repeatedly denied that such documents existed. President Morales generated controversy by planning to revive a traditional army parade that has been suspended for almost a decade out of respect for the memory of victims of the 1960-1996 civil war. (A 1998 truth and reconciliation report documented over 54,000 cases of human rights violations, 90% of which it said were committed by the army and amounted to genocide of the indigenous population.) At a scaled-down version of the parade, Morales lauded the military as an exemplary institution. The Public Ministry is currently investigating Edgar Ovalle, one of the president's top advisors and a former military officer, for his role in military operations where massacres occurred during the 1980s. In December 2016, a court barred Ovalle, who is currently a legislator, from leaving the country while the investigation is ongoing. Key Policy Issues : While many see the corruption charges as a crisis, others—including many within the Guatemalan government—also see them as an opportunity to make the government more honest and accountable. Congress has approved aid to strengthen Guatemalan institutions as well as placed conditions on aid based on human rights and other concerns for years, and has supported CICIG. As noted above in the section on "Central America," the FY2016 omnibus appropriations measure ( P.L. 114-113 ) provided up to $750 million to Guatemala, El Salvador, and Honduras to address root causes of migration to the United States. Congress conditioned the release of part of the aid package on those governments taking effective steps to combat corruption, prosecute security forces for human rights violations, and other actions. In December 2016, a bipartisan group of Members of Congress wrote Attorney General Aldana and the Attorneys General of El Salvador and Honduras lauding their work fighting corruption and organized crime and pledging to push for continued assistance to their offices in coming years. For additional information, see CRS Report R43702, Unaccompanied Children from Central America: Foreign Policy Considerations , coordinated by [author name scrubbed]; and CRS In Focus IF10371, U.S. Strategy for Engagement in Central America: Background and FY2017 Budget Request , by [author name scrubbed] and [author name scrubbed]. Haiti has been without an elected president since February 2016, but a newly elected president, Jovenel Moise, is scheduled to take office on February 7, 2017. In 2015, after the Haitian government failed to complete a cycle of elections, including a second round of presidential voting at the end of the year, former President Michel Martelly ended his term without an elected successor to take his place. The legislature named an interim president, Jocelerme Privert, to ensure that second-round presidential elections took place in April 2016 and a new president was installed in May. Privert established a verification commission to investigate opposition party charges of electoral fraud; the commission called for the first round of the presidential election to be re-held. Meanwhile, Privert's term expired on June 14, and the Haitian legislature repeatedly failed to vote on extending his mandate or appointing another provisional president. The Obama Administration said it would continue to recognize Privert until another official is named. The electoral commission scheduled new elections for October 2016; because of Hurricane Matthew, they were postponed until November 20. Haiti re-held presidential elections on November 20, 2016. Preliminary results showed Jovenel Moise of the Bald Head Party (PHTK, former President Michel Martelly's party) winning with almost 56% of the vote. Voter turnout was 21%. The next three candidates filed complaints, but after a formal appeals process, the provisional electoral council (CEP) confirmed Moise's first-round victory, and he is expected to be inaugurated on February 7, 2017. Runoff elections for some parliamentary and local elections will be held on January 29, 2017. January 12, 2016, marked the sixth anniversary of the earthquake that devastated Haiti's capital. Haiti continues to make progress in its overall recovery effort, but enormous challenges remain. Criticism abounds that reconstruction aid and efforts are moving too slowly, contributing to mounting public frustration with international donors and the government. The United Nations Stabilization Mission in Haiti (MINUSTAH) has helped restore order since 2004. The mission has facilitated elections, initiated efforts against gangs and drug trafficking with the Haitian National Police, and responded to natural disasters. MINUSTAH has been criticized because of sexual abuse by some of its forces and scientific findings that its troops apparently introduced cholera to the country. The U.N. says it will not compensate cholera victims, citing diplomatic immunity. MINUSTAH has also been decreasing its number of troops on the island. Consequently, for the first time, the Haitian National Police had primary responsibility for election security in 2015. To enhance citizen security, donors have encouraged Haiti to focus on further strengthening the Haitian National Police. Despite opposition at home and abroad, former President Martelly took steps to recreate an army, which was abolished in 1995 after decades of gross violations of human rights and repeated coups. The Dominican Republic ended its "immigrant regularization" process in June 2015. Since then tens of thousands of Dominican-born people of Haitian descent have relocated to Haiti, some out of fear of or intimidation by Dominican communities or authorities, increasing bilateral tensions. The Dominican Republic extended the period of registration to regularize the migration status of migrants for one year in July 2016. (Also see " Migration Issues ," above.) The main priorities for U.S. policy regarding Haiti are to strengthen fragile democratic processes, continue to improve security, and promote economic development. Other issues include the cost and effectiveness of continued U.S. aid; protecting human rights; combating narcotics, arms, and human trafficking; and alleviating poverty. Congress shares these concerns. The United States contributed $33 million for the electoral cycle that began in 2015, assuming three rounds of elections—a legislative first round, a simultaneous legislative second round and presidential first round, and a presidential second round. The State Department announced in early July 2016 that it would not provide any additional funding for the electoral process but that this did not "signal a reduction in U.S. support for the people or development of Haiti." The Haitian government has said it will find the funds needed to hold the elections. The Obama Administration granted TPS to Haitians living in the United States at the time of the 2010 earthquake, and has extended it on a yearly basis since then. The DHS began to implement the Haitian Family Reunification Parole Program in early 2015 for Haitian relatives of U.S. citizens or permanent residents. Because this program expedites reunification only for those scheduled to receive their entry visas within two years, only a small portion of all Haitians approved for residency will benefit from the program. The Assessing Progress in Haiti Act of 2014 ( P.L. 113-162 ) directs the Secretary of State to coordinate and transmit to Congress a three-year strategy for Haiti that includes specific steps and benchmarks for assistance, and to report to Congress annually through December 31, 2017, on the status of specific aspects of post-earthquake recovery and development efforts in Haiti. The State Department submitted its first two reports in January of 2015 and 2016. Key Policy Issues: In the FY2016 omnibus appropriations measure ( P.L. 114-113 ), Congress focused on the strengthening of Haitian democratic institutions and concerns over corruption and transparency in Haiti. The law prohibits assistance to the central government of Haiti unless the Secretary of State certifies that Haiti "is taking effective steps" to hold free and fair parliamentary elections and seat a new Haitian Parliament; strengthen the rule of law, including by selecting judges in a transparent manner; respect judicial independence; improve governance by implementing reforms to increase transparency and accountability; combat corruption; and increase government revenues and expenditures on public services. The State Department has stated that it does not provide any direct assistance to the Haitian government. For the remainder of the 114 th Congress, congressional attention focused on Haiti's completion of its long-overdue elections cycle, and monitoring political tensions and their possible impact on development and stability. A long-standing interest of Congress has been the promotion of Haiti's economic development. For background information, see CRS In Focus IF10440, Haiti Declares Winner of Presidential Election After Delays , by [author name scrubbed]; CRS In Focus IF10502, Haiti: Cholera, the United Nations, and Hurricane Matthew , by [author name scrubbed] and [author name scrubbed] ; and CRS Report R42559, Haiti Under President Martelly: Current Conditions and Congressional Concerns , by [author name scrubbed]. Congress has maintained interest in Mexico, a top trade partner and energy supplier with which the United States shares a nearly 2,000-mile border and strong cultural, familial, and historical ties. Economically, the United States and Mexico are heavily interdependent, and the U.S. economy could benefit if Mexico is able to regain currency stability, fully implement the reforms its legislature has enacted, and attract greater investment. Similarly, security conditions in Mexico affect U.S. national security, particularly along the U.S.-Mexican border. President Enrique Peña Nieto, former governor of the state of Mexico, is in the fifth year of his six-year term and is ineligible for reelection. During 2013, President Peña Nieto shepherded structural reforms through a fragmented Mexican Congress by forming an agreement among his Institutional Revolutionary Party (PRI), the conservative National Action Party (PAN), and the leftist Party of the Democratic Revolution (PRD). The reforms addressed a range of issues, including education, telecommunications, politics, access to finance, and energy. Some of Peña Nieto's reforms have been implemented, including an energy reform that paved the way for Mexico's recent tender of eight deepwater oil and gas fields. Despite that development, many of the reforms, particularly education reforms opposed by some teachers unions, have stalled. President Peña Nieto's approval rating has remained low since 2014 (24% in November 2016), as his government has faced economic and security challenges, become embroiled in scandals, and failed to solve high-profile human rights cases. Problems in the energy sector, as well as global uncertainty, have contributed to the depreciation of Mexico's currency and led to budget cuts. The June 2016 adoption of a new criminal justice system has been overshadowed by rising homicides that are approaching levels not seen since 2012. President Peña Nieto, his wife, and his former finance minister became embroiled in conflict-of-interest scandals in 2014; in addition, several outgoing PRI governors have been charged with corruption. The government has been unable to resolve high-profile human rights cases, such as the case of 43 students who were forcibly abducted and murdered in Guerrero in September 2014. U.S.-Mexican relations have remained strong despite periodic tensions and the emergence of immigration and trade as divisive issues in the U.S. elections. Both countries have prioritized bolstering economic ties, modernizing the border, and promoting educational exchanges through High-Level Economic Dialogues among Cabinet officials started in 2013. Those issues also figured prominently during the June 2016 North American Leaders Summit hosted by Canadian Prime Minister Justin Trudeau and a July 2016 White House meeting between Presidents Obama and Peña Nieto. Mexico, Canada, and the United States participated in negotiations for the Trans-Pacific Partnership agreement (TPP), a proposed free-trade agreement with nine other Asia-Pacific countries that was signed on February 4, 2016. Bilateral energy cooperation has accelerated, both in hydrocarbons and renewables. Water-sharing has advanced in the Colorado River Basin, but the uneven pace of Mexico's deliveries in the Rio Grande Basin has been a source of ongoing tension. Security cooperation has continued under the framework of the Mérida Initiative, a foreign aid program for which Congress has provided some $2.6 billion since FY2008. The focus of the Mérida Initiative is on justice sector reform and securing Mexico's southern border, an area where Mexico has stepped up efforts to stop migrants attempting to transit through the country on their way to the United States. Bilateral efforts have also focused on combating opium cultivation in Mexico and heroin and fentanyl production and trafficking. Key Policy Issues: The 114 th Congress considered legislation affecting U.S.-Mexican trade and security cooperation. The FY2016 Consolidated Appropriations Act ( P.L. 114-113 ) ended the U.S. crude oil export ban, which could enhance bilateral energy trade. In response to threats by Mexico and Canada to impose retaliatory tariffs for U.S. country-of-origin labeling on meat products, the FY2016 omnibus appropriations measure ended the labeling requirements. Congress continued funding and engaging in oversight of the Mérida Initiative, including in hearings examining the adequacy of bilateral efforts against opium production and heroin trafficking (see Appendix ). P.L. 114-113 provided $161.2 million in FY2016 assistance for Mexico and carried forward reporting FY2015 requirements from P.L. 113-235 related to Mexico's water deliveries in the Rio Grande Valley. President Obama's FY2017 aid request for Mexico, which totaled $133.5 million, included $129 million for the Mérida Initiative. The House Appropriations Committee's version of the FY2017 foreign operations measure, H.R. 5912 , would have provided $157.5 million for Mexico, some $24 million above the request. The Senate Appropriations Committee's version, S. 3117 , would have fully funded the request, with $3 million in Foreign Military Financing subject to withholding requirements. The Senate bill also included reporting requirements related to the adequacy of Mexico's water deliveries in the Rio Grande Valley. As noted above, Congress approved a FY2017 continuing resolution, P.L. 114-254 , in December 2016 that is funding foreign aid to Mexico at the FY2016 level, minus an across-the-board reduction of almost 0.2%, until April 28, 2017. For additional information, see CRS Report R42917, Mexico: Background and U.S. Relations , by [author name scrubbed]; CRS Report R41576, Mexico: Organized Crime and Drug Trafficking Organizations , by [author name scrubbed]; CRS Report R41349, U.S.-Mexican Security Cooperation: The Mérida Initiative and Beyond , by [author name scrubbed] and [author name scrubbed]; CRS In Focus IF10400, Heroin Production in Mexico and U.S. Policy , by [author name scrubbed] and [author name scrubbed]; CRS In Focus IF10215, Mexico's Recent Immigration Enforcement Efforts , by [author name scrubbed]; CRS Report RL32934, U.S.-Mexico Economic Relations: Trends, Issues, and Implications , by [author name scrubbed]; CRS Report RL32934, U.S.-Mexico Economic Relations: Trends, Issues, and Implications , by [author name scrubbed]; CRS Report R43312, U.S.-Mexico Water Sharing: Background and Recent Developments , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]; and CRS Report R43313, Mexico's Oil and Gas Sector: Background, Reform Efforts, and Implications for the United States , coordinated by [author name scrubbed]. Nicaragua began to establish a democratic government in the early 1990s after its civil war ended. Its institutions remained weak, however, and since the late 1990s they have become increasingly politicized. Current President Daniel Ortega was a Sandinista ( Frente Sandinista de Liberación Nacional , FSLN) leader when the FSLN overthrew the Somoza dictatorship in 1979. He was elected president in 1984. An electorate weary of war between the government and U.S.-backed contras denied him reelection in 1990. After three failed attempts, he won reelection in 2006 and again in 2011. Ortega has slowly consolidated Sandinista—and his own—control over national institutions. He won a third consecutive term in the November 6, 2016 presidential elections. The Sandinista-controlled Supreme Court issued rulings that prevented any major opposition force from running against Ortega and the FSLN. Although the constitution prohibits relatives of a sitting president from running for office, the court also ruled that Ortega's wife, Rosario Murillo, could run as his vice president. Many observers say that Murillo has been a de facto co-leader of the country and that this election set her up to succeed her husband. Ortega initially banned international election observers but then allowed limited observation by the Organization of American States and other groups. As in previous elections at all levels in recent years, opposition figures and international analysts strongly questioned the legitimacy of this election. Until recently, the United States and some other countries have responded in critical but measured terms to Ortega becoming more authoritarian. Perhaps the principal reason is that Ortega has been pragmatic in international relations, balancing his antagonistic stance against the United States and parts of Europe with cooperation on issues of mutual importance and pursuing macroeconomic policies that enable his government to maintain working relationships with multilateral financial institutions. Another reason some countries may not want to press Nicaragua on these issues is that Nicaragua is more stable and less violent than most of its Central American neighbors. In addition, there is no clear alternative to Ortega. The opposition is divided and so far has been unable to present a coherent alternative to Ortega's governance plans and programs. Since his election in 2006, Ortega has instituted many social-welfare programs to help the country's poor population, substantially reducing poverty and contributing to his popularity. For many Nicaraguans, populist measures that have improved their standard of living have appeared to outweigh Ortega's authoritarian tendencies. Controversy and conflict have been growing, however, over Ortega's decision to grant a 100-year concession for an inter-oceanic canal through Nicaragua to a private Chinese company. A broad array of Nicaraguan civil society has protested against the canal with concerns over corruption and potential damage to indigenous communities and the environment. In August 2016, the State Department expressed grave concern over the actions of the Nicaraguan government and Supreme Court to limit democratic space in advance of the presidential and legislative elections and called on the government to take steps to ensure fair and transparent elections and allow opposition parties to operate independently. On November 7, 2016, the State Department said that Nicaragua's "flawed presidential and legislative electoral process ... precluded the possibility of a free and fair election on November 6." Key Policy Issues: The United States and Nicaragua cooperate on issues such as free trade and counternarcotic efforts. Currently, Nicaragua benefits from being part of the U.S. Strategy for Engagement in Central America. Tensions rose in June 2016 when Nicaragua expelled three U.S. officials. Other U.S. concerns include violations of human rights, including restriction on citizens' rights to vote, government harassment of civil society groups, arbitrary arrests and killings by security forces, and corruption. The Administration and some Members of Congress have expressed concern about Nicaragua's relationship with Russia, especially recent military purchases. In September 2016, the House approved the Nicaraguan Investment Conditionality Act (NICA) of 2016, H.R. 5708 , to oppose certain loans at international financial institutions for the government of Nicaragua unless it was taking effective steps to hold free, fair, and transparent elections. For additional information, see CRS Report R44560, Nicaragua: In Brief , by [author name scrubbed]. Although historically the United States has had close relations with Venezuela, a major oil supplier, friction in bilateral relations increased under the leftist, populist government of President Hugo Chávez (1999-2013), who died in March 2013 after battling cancer for almost two years. After Chávez's death, Venezuela held presidential elections in April 2013 in which acting President Nicolás Maduro, who had been Chávez's vice president, narrowly defeated Henrique Capriles of the opposition Democratic Unity Roundtable (MUD), with the opposition alleging significant irregularities. In 2014, the Maduro government violently suppressed protests, with at least 43 people killed on both sides of the conflict, and imprisoned a major opposition figure, Leopoldo López, along with two opposition mayors. In December 2015, the MUD initially won a two-thirds supermajority in elections for the National Assembly, a major defeat for Chavismo and the ruling United Socialist Party of Venezuela (PSUV). The Maduro government subsequently thwarted the opposition-controlled legislature's power by preventing three MUD representatives from taking office (denying the opposition a supermajority) and using the Supreme Court to block bills approved by the legislature, including an amnesty law that would have freed political prisoners. For much of 2016, opposition efforts were focused on recalling President Maduro through a national referendum, but the government slowed down the referendum process and suspended it indefinitely in October. In late October, after an appeal by Pope Francis, the government and most of the opposition (with the exception of Leopoldo López's Popular Will party) agreed to talks mediated by the Vatican, along with the former presidents of the Dominican Republic, Spain, and Panama and the head of the Union of South American Nations. Some opposition activists strongly criticized the dialogue as a way for the government to avoid taking any real actions, such as releasing all political prisoners. A round of talks planned for early December was suspended until January 2017, and many observers are pessimistic about the future of the dialogue. Since mid-2014, the rapid decline in the price of oil has hit Venezuela hard, with a contracting economy (projected -8.0% in 2016), high inflation (projected 2016 year-end inflation of 720%), declining international reserves, and increasing poverty—all exacerbated by the Maduro government's economic mismanagement. The economic situation has increased poverty, with increasing shortages of food and medicines and high rates of violent crime. U.S. policymakers and Members of Congress have had concerns for more than a decade about the deterioration of human rights and democratic conditions in Venezuela and the government's lack of cooperation on antidrug and counterterrorism efforts. After a 2014 government-opposition dialogue failed, the Administration imposed visa restrictions and asset-blocking sanctions on Venezuelan officials involved in human rights abuses. The Obama Administration continued to speak out about the democratic setback and poor human rights situation, called repeatedly for the release of political prisoners, expressed deep concern about the humanitarian situation, and strongly supported dialogue. The Administration also supported the efforts Organization of American States Secretary General Luis Almagro to focus attention on Venezuela's democratic setback. Key Policy Issues: Over the past several years, developments in Venezuela and U.S. relations with the country have largely been oversight issues for Congress, but the 113 th Congress enacted legislation—the Venezuela Defense of Human Rights and Civil Society Act of 2014 ( P.L. 113-278 ) in December 2014—to impose targeted sanctions on those responsible for certain human rights abuses. In July 2016, the 114 th Congress enacted legislation ( P.L. 114-194 ) to extend the Venezuela sanctions through December 2019. In September 2016, the House approved H.Res. 851 , which expressed profound concern about the humanitarian situation, urged the release of political prisoners, and called for the Venezuelan government to hold the recall referendum this year. In the Senate, a similar but not identical resolution, S.Res. 537 , was reported by the Senate Foreign Relations Committee in December 2016. For more than a decade, Congress also has appropriated funding for democracy and human rights programs in Venezuela through the annual foreign aid appropriations measure: $4.3 million was provided in each of FY2014 and FY2015 and an estimated $6.5 million in FY2016. The FY2017 request was for $5.5 million. The report to the House version of the foreign aid appropriations bill, H.R. 5912 ( H.Rept. 114-693 ), would have provided $8 million in democracy funding for Venezuela, whereas the report to the Senate version of the bill, S. 3117 ( S.Rept. 114-290 ), would fully fund the Administration's request for $5.5 million, but noted that additional funds would be made available if further programmatic opportunities in Venezuela arose. As previously noted, the 114 th Congress did not complete action on FY2017 appropriations but approved a continuing resolution ( P.L. 114-254 ) in December 2016 providing funding through April 28, 2017, at the FY2016 level, minus an across-the-board reduction of almost 0.2%. Several congressional hearings in the 114 th Congress also focused on the situation in Venezuela (see Appendix ). For further information, see CRS In Focus IF10230, Venezuela: Political Situation and U.S. Policy Overview , by [author name scrubbed]; and CRS Report R43239, Venezuela: Issues for Congress, 2013-2016 , by [author name scrubbed]. Many of the key U.S. interests involving economic, political, and security concerns discussed in this report will likely ensure continued congressional attention to Latin America and the Caribbean in the 115 th Congress, which begins in 2017. Looking ahead, congressional oversight for the new Congress could include attention to the ongoing political, economic, and humanitarian crisis in Venezuela; implementation of the peace accord in Colombia; challenges for Haiti's newly elected government; security and economic development concerns in Central America's northern triangle; and Nicaragua in the aftermath of flawed elections in 2016. The next Congress will need to complete action on full-year FY2017 appropriations legislation; the current continuing resolution ( P.L. 114-254 ) funds foreign aid funding through April 28, 2017. Policy toward the region under the incoming Trump Administration at this juncture is uncertain. However, some changes are possible in relations with Mexico (focusing more on border security), policy toward Cuba (potentially reversing some of the Obama Administration's executive actions), and trade policy toward the region, given that the President-elect announced his intention to withdraw from the proposed Trans-Pacific Partnership trade agreement and to examine the ramifications of withdrawing from NAFTA.
|
U.S. Interests and Policy Geographic proximity has ensured strong linkages between the United States and the Latin American and Caribbean region, based on diverse U.S. interests, including economic, political, and security concerns. U.S. policy toward the region under the Obama Administration focused on four priorities: promoting economic and social opportunity; ensuring citizen security; strengthening effective democratic institutions; and securing a clean energy future. There was substantial continuity in U.S. policy toward the region during the first six years of the Obama Administration, which pursued some of the same basic policy approaches as the Bush Administration. However, the Obama Administration made several significant policy changes, including an emphasis on partnership and shared responsibility. Moreover, President Obama unveiled a new policy approach of engagement with Cuba in 2014. U.S. policy toward the region is conducted in the context of an increasingly independent Latin America, which has diversified its economic and diplomatic ties with countries outside the region. Over the past few years, several Latin American regional organizations have been established that do not include the United States. Nevertheless, the United States remains very much engaged in Latin America bilaterally and multilaterally. Congressional Action and Oversight Congress traditionally has played an active role in policy toward Latin America and the Caribbean in terms of both legislation and oversight. In the first session of the 114th Congress in 2015, the most significant legislative action was enactment of the Consolidated Appropriations Act, 2016 (P.L. 114-113). The law had numerous provisions on foreign aid to the region, including $750 million for ramped-up funding to address Central America's economic, security, and governance challenges. The FY2016 National Defense Authorization Act (NDAA; P.L. 114-92) also had provisions regarding increased support for Central America and prohibitions against funding for the closure of the U.S. Naval Station at Guantanamo Bay, Cuba. Also in 2015, Congress approved an extension of the Generalized System of Preferences through 2017 in the Trade Preferences Extension Act (P.L. 114-27) benefitting some 15 countries in the region. Late in 2015, the House passed H.Res. 536, expressing support for freedom of the press in the region. In the second session, Congress enacted legislation in July 2016 extending targeted sanctions for human rights abuses in Venezuela through 2019 (P.L. 114-194), while in September 2016 the House approved H.Res. 851 on the situation in Venezuela. Also in September, Congress enacted a legislative vehicle (P.L. 114-223) that provided FY2016 supplemental funding to control the spread of the Zika virus in the Americas. As the 114th Congress neared its end in December 2016, Congress completed action on several measures with provisions related to the region. P.L. 114-291 requires the Secretary of State to submit a multiyear strategy for U.S. engagement with the Caribbean. P.L. 114-323, the Department of State Authorities Act, FY2017, established a commission to review U.S. drug control policy in the hemisphere, including an evaluation of counternarcotics assistance programs. P.L. 114-328, the FY2017 NDAA, extends a unified counterdrug and counterterrorism campaign in Colombia for two years; requires a report on U.S. military units that have been assigned to do policing or other law enforcement duties in El Salvador, Guatemala, and Honduras; continues prohibitions on funding for the closure of the U.S. Naval Station at Guantanamo Bay, Cuba; and restricts funding for Cuba's participation in certain joint or multilateral exercises or related security conferences. Congress did not complete action on FY2017 foreign aid appropriations, but it enacted a continuing resolution, P.L. 114-254, in December that funded most foreign aid programs at the FY2016 level, minus an across-the-board reduction of almost 0.2%, through April 28, 2017. The 115th Congress will face completing action on FY2017 foreign aid appropriations. This report, which will not be updated, provides an overview of U.S. policy toward Latin America and the Caribbean during the 114th Congress in 2015 and 2016. It begins with an overview of the political and economic environment affecting U.S. relations and then examines the Obama Administration's policy toward the region. The report then examines congressional interests in the region and legislative action, looking at selected regional and country issues. An Appendix provides links to hearings on the region in the 114th Congress.
|
The post-World War II era has been characterized by a global movement toward liberalizing trade and creating frameworks under which trade disputes can be avoided and resolved. In particular, the trade agreements of the last half-century can be seen as adopting the view that government bodies need a global legal framework to ensure that they effectively conform their countries' policies and laws with their citizens' interests. Legal theorists posit that trade policy failure, in both the global and domestic arenas, as well as inequitable power dynamics among countries engaged in trade negotiations, are the products of a legal architecture that does not sufficiently discipline how governments represent their citizens' interests. In this vein, the international trade law regime has attempted to strengthen its enforcement mechanism over time to ensure that national governments comply with trade law despite shifting domestic pressures. As international trade law has developed, there has been interplay between domestic and global trade law. Initially, international trade agreements focused on tariffs, but, over time, they have broadened to encompass aspects of domestic policymaking and establish fairly stringent dispute settlement mechanisms. This interplay, however, has led to criticism that trade agreements infringe national sovereignty and autonomy by (1) limiting the kinds of policy decisions a country can make and (2) giving international trade dispute settlement bodies too much power to shape and constrain domestic law. This report provides an overview of the legal framework that governs trade-related measures. This framework is composed of both international agreements and domestic laws. The particular agreements and statutes selected for this report are those that are most commonly implicated by U.S. trade interests and policy. This report is not intended to be a comprehensive review of trade law. Often, a single trade issue, such as dumping (the sale of goods in foreign markets at lower prices than in the domestic market), is governed by both international agreements and federal laws. Accordingly, this report first discusses international trade agreements and then turns to domestic law. The United States has international trade obligations under (1) the World Trade Organization (WTO) agreements, which include the General Agreement on Trade and Tariffs (GATT) and other "covered agreements"; (2) its own free trade agreements; and (3) other international agreements with narrower policy goals, such as the conservation of natural resources. The scope of this report, however, is limited to obligations incurred under agreements that seek to liberalize international trade. In the WTO context, trade agreements are categorized as either multilateral (accepted by all WTO Members as a condition of membership) or plurilateral (accepted by only some WTO Members). Other free trade agreements may be classified as bilateral agreements (which bind only two countries) and regional agreements (which bind countries within a discrete region of the world). No matter their classification, most trade agreements have a corresponding body of domestic law. After World War II, developed nations sought to establish an open trade network to facilitate the recovery of the global economy. These negotiations yielded a proposal for an International Trade Organization (ITO), and, as a temporary fix until the ITO Charter could be negotiated, the General Agreement on Trade and Tariffs 1947 (GATT 1947). The expectation was that the GATT 1947 would expire once a more comprehensive trade agreement, the ITO Charter, was developed and ratified. Then the ITO would interpret and administer the ITO Charter. However, the ITO never materialized, and, therefore, despite its provisional nature, the GATT 1947 became a permanent fixture in international trade. Nevertheless, to dispel any concern that an international organization had been established, the GATT 1947 signatories continued to be called "Contracting Parties" rather than "Members." Moreover, the GATT 1947 was not considered a comprehensive trade agreement because it consisted mainly of the commercial policy provisions of the ITO charter. Partly as a response to concerns about the GATT 1947's strength and breadth, Contracting Parties engaged in a series of "rounds" of multilateral trade negotiations over the ensuing decades: the Dillon Round (1960-1962), the Kennedy Round (1964-1967), the Tokyo Round (1973-1979), the Uruguay Round (1986-1994), and the ongoing Doha Development Round. Each round of talks sought to liberalize new markets, lower tariffs, and identify solutions to different kinds of trade barriers. It was not until the Uruguay Round that the Contracting Parties finally reached an agreement on a charter for an international trade organization: the WTO. The agreements completed in the Uruguay Round are detailed in the Marrakesh Agreement. Part of this Agreement is the Agreement Establishing the World Trade Organization (the WTO Agreement). The other texts negotiated during the Uruguay Round are annexed to the WTO Agreement. Annex 1 contains 13 multilateral agreements on trade in goods as well as the General Agreement on Trade in Services and the Agreement on Trade-Related Aspects of Intellectual Property Rights. Annex 2 contains the Dispute Settlement Understanding, which sets out the process by which WTO Members may resolve disputes over the meaning or application of a WTO agreement. Annex 3 contains a Trade Policy Review mechanism, providing for periodic review of a WTO Member's trade laws and policies. Annexes 1 through 3, and the agreements therein, must be accepted by a country as a condition of its membership in the WTO. Accordingly, all of these agreements, along with the other provisions of the Marrakesh Agreement, were approved and implemented in U.S. law through the Uruguay Round Agreements Act (URAA, P.L. 103-465 , 19 U.S.C. §3501 et seq. ), which then-President Bill Clinton signed into law on December 8, 1994. The GATT 1994, which is found in Annex I of the WTO Agreement, consists of (a) the GATT 1947, (b) certain protocols, waivers, and tariff concessions made pursuant to the GATT 1947, and (c) interpretations of particular language and provisions of the GATT 1947. At its most general, the GATT sets the maximum tariffs for particular goods and countries and disciplines certain trade-restricting measures adopted by WTO Members. This report surveys many of the articles of the GATT that are considered fundamental as well as those that are frequently raised in WTO consultations or disputes over a WTO Member's domestic trade measures. The GATT seeks to prohibit WTO Members from discriminating between "like products" on the basis of their origins. More specifically, the GATT bars WTO Members from discriminating between like products because they originated in different WTO Members or because they originated in a WTO Member's territory rather than domestically. The GATT articles that lay out this prohibition, Article I and Article III, are therefore known as the nondiscrimination provisions. Although "like product" is used in both provisions, the GATT does not offer a single precise and absolute definition of the term. Consequently, to determine whether two products are "like," WTO panels and the Appellate Body engage in a case-by-case analysis to discern whether the two products are in a competitive relationship given the products' properties and end uses, consumer preferences, and tariff classification. Article I: Most Favored Nation Treatment Article I of the GATT requires WTO Members to grant immediate and unconditional most-favored-nation (MFN) treatment to the products of other Members. This means that any "advantage" that a WTO Member grants in the context of customs duties or rules regarding importation or exportation to any product imported from one country, whether a WTO Member or not, must also be granted to any "like" product imported from all WTO Members. The term "advantage" in Article I:1 has been given a very broad definition to encompass any more favorable competitive opportunity or commercial status relative to those of like products destined to different WTO Members. It can include, for example, variations in both the procedural and administrative requirements for imports. As a result, variations in the licensing requirements for imports can constitute an advantage under Article I:1. In EC – Bananas III , for example, a WTO panel ruled that the European Union had accorded an origin-discriminatory advantage to the products of some WTO Members by imposing additional licensing requirements on imports from other WTO Members. Notably, a measure may be deemed to accord an advantage even if it is written in origin neutral terms. Similarly, two products may be deemed "like" under Article I:1 even if they are subject to different tariff classifications or, for other reasons, are not exact duplicates. WTO panels and the Appellate Body assess the "likeness" of two products by examining their characteristics, their end-uses, their tariff classification, and consumers' tastes and habits. Where a complaining Member demonstrates that the difference in treatment between imported products is based exclusively on the products' different origins, a WTO panel will presume that there can or will be discrimination between imported products that are "like." Although it is often difficult in other cases to predict whether a given measure would affect "like" products from WTO Members, a measure that affects a broad range of products may be likely to result in discrimination between at least some "like" imports. Once a measure is found to have conferred a trade advantage that affects "like" products, that measure will be deemed inconsistent with Article I:1 if it fails to accord the advantage "unconditionally." WTO panels have adopted different interpretations of the term "unconditionally, " but their decisions suggest that conditions may be attached to an advantage only if they do not discriminate, either on their face or as applied, between "like" products on the basis of their countries of origin or destination. For example, an advantage is not accorded "unconditionally" if some countries have to do or pay something to receive it. Similarly, an advantage is not accorded "unconditionally" if some countries have to take a particular action, such as adopt a specified policy, in order for exports to their territories to be eligible to receive it. Notably, a measure framed in origin neutral terms so as to appear facially consistent with Article I:1 violates the MFN principle if it has a discriminatory impact on imports of like products from some WTO Members relative to others. In Canada – Autos , for example, a WTO panel examined a Canadian measure that exempted car imports from a customs duty if their manufacturers satisfied certain requirements, including establishment in Canada and the use of Canadian materials in production. The panel found that the duty exemption was an "advantage" and that, although the exemption was origin neutral on its face, the structure and characteristics of the global automotive industry meant that the criteria for the exemption created origin-based discrimination among auto imports from WTO Members. The panel buttressed this finding with the measure's legislative history, which suggested that the exemption was part of a scheme intended to rationalize production in the North American automotive market and encourage U.S.-owned car manufacturers to expand their production operations to Canada. In other words, the panel ruled that Canada's import duty exemption was a de facto violation of Article I:1 because it was designed to benefit auto imports from particular sources, namely those in the United States and North America, and had the discriminatory effect it intended. Similarly, in Indonesia – Autos , a WTO panel found that an Indonesian measure exempting certain cars from import duties and sales taxes was also inconsistent with Article I:1. In that case, an import's eligibility for the exemptions depended on facially origin-neutral factors, such as the domestic car company's relationship with the foreign importer, the use of local content, and the use of the imported car parts in the assembly in Indonesia of a domestic car. While these criteria, like those in Canada – Autos , were framed in origin neutral terms, the panel found that in practice only car imports from Korea could satisfy them. Therefore, the panel ruled that the tax advantages, as applied, were accorded in a fashion that discriminated against products from WTO Members on the basis of their origin. Article III: National Treatment Article III articulates the basic principle of "national treatment": Members must treat products from other Members no less favorably than they treat their own "like" domestic products. Accordingly, Article III reflects concern that WTO Members could use internal taxation schemes, regulations, and other domestic measures to protect their domestic industries. As written, Article III forbids Members from using internal taxes, charges, and regulations that affect the "internal sale, offering for sale, purchase, transportation, distribution or use of products," as well as internal quantitative regulations, so as to "afford protection to domestic production." However, Article III prescribes different standards for national treatment depending on whether the particular measure is a tax or regulation. When a measure is an internal tax or charge, Article III:2 forbids its application if it either (1) is in excess of those taxes or charges applied to like domestic products or (2) dissimilarly taxes imports and domestic products so as to afford protection to a domestic product that is directly competitive with, or substitutable for, the imported product. However, when the measure in question is a "law, regulation, or requirement affecting their internal sale, offering for sale, purchase, transportation, distribution, or use," Article III:4 proscribes its application if it treats foreign products less favorably than like domestic products. A wide variety of measures fit the definition of a "law, regulation, or requirement" affecting "internal" transactions, and, as a result, are subject to Article III:4. Examples include local content requirements, advertising bans, and labeling requirements. WTO and GATT panels have also found that, while measures that tax particular products, such as sales taxes, are governed by Article III:2, measures that tax taxpayers for engaging in particular behavior, such as tax credits for specified taxpayer purchases, are assessed under Article III:4. Even border measures—measures that affect importation or exportation—governed by Article XI:1 can be subject to Article III:4. Ultimately, whether a "law, regulation or requirement" is covered by Article III:4 typically depends on whether it might modify the conditions of competition between domestic and imported products in the internal market. Significantly, WTO panels have found that these conditions can be modified not only by measures that regulate the products but also by measures that regulate their manufacturers or producers. In Thailand – Cigarettes , a WTO panel considered the Article III:4 consistency of Thai measures that imposed more reporting, registration, and recordkeeping requirements on resellers of imported cigarettes than were imposed on resellers of domestic cigarettes. Thailand argued, inter alia , that the reason for the difference was to ensure that the sale of domestic products and the sale of imports were both subject to the same regulatory regime and legal liabilities. Thailand alleged that because cigarette importers are not legally responsible for paying the taxes on their cigarettes, resellers of imported cigarettes presented a risk of tax evasion in the absence of measures subjecting the sale of imported cigarettes to reporting, collection, and enforcement mechanisms that mirrored those in place for the sale of domestic cigarettes. Therefore, Thailand contended that the measures merely imposed requirements on resellers of imported cigarettes for which there were already "equivalent" requirements imposed on resellers of domestic cigarettes. However, the WTO panel found that the Thai measures were inconsistent with Article III:4 because they could prejudice cigarette suppliers against importing and selling foreign-made cigarettes by raising the operating costs associated with selling imported cigarettes in the Thai market. The panel cited evidence that administrative burdens can and do affect business decisions and that the Thai measures at issue were enforced through penalties and other sanctions, including the denial of tax credits. Accordingly, the WTO panel and Appellate Body agreed that the Thai measures subjected imported cigarettes to less favorable treatment in violation of Article III:4. Article II: Tariffs The original goal of the GATT was to move countries toward imposing tariffs, rather than non-tariff trade barriers, that could then be reduced over time. Article II of the GATT embodies this goal by requiring each WTO Member to abide by the tariff schedule that it has submitted to the WTO. The goods that are subject to the negotiated tariff rates are called "bound" items. Article II forbids Members from imposing tariffs on goods from other Members that are less favorable than the tariff rates listed in the applicable schedule. Furthermore, Members may not impose any other duty or charge on a product's importation that exceeds the duties that existed at the date the Members entered the WTO. There are, however, exceptions to Article II. Under Article II:2, tariff concessions do not prevent Members from levying internal taxes consistent with Article III:2 (these are often called "border tax adjustments"), antidumping or countervailing duties consistent with the GATT and other relevant agreements, and fees or other charges commensurate with the cost of services rendered. Despite Article II's importance to the GATT, its enforcement can be difficult because WTO Members frequently disagree about which duty applies to a particular good. A country's tariff schedules address categories and sub-categories of products but do not expressly identify and provide a tariff rate for every potential product variation and nuance. Despite these problems, a country's customs agency must rely on the tariff schedules as written to identify the kind of product under consideration and apply a tariff rate. This leads to problems like the one encountered in EC – Chicken Classification , in which Brazil complained that the European Union incorrectly classified fresh chicken packed in salt as fresh chicken cuts rather than salted chicken cuts. At issue was an EU regulation that provided the customs agency with guidance on the distinction between salted and fresh chicken cuts, stating that chicken must be "deeply and homogenously impregnated with salt in all parts" to be subject to the ad valorem duty that was more favorable to foreign imports than the duty that was applied to fresh chicken. Article VIII: Fees and Formalities Article VIII:1 of the GATT requires that all fees and charges imposed in connection with importation or exportation be (1) limited in amount to the approximate cost of services rendered, and (2) not represent an indirect protection to domestic products or a taxation of imports or exports for fiscal purposes. The first prong (limiting the amount to the cost of services rendered) is actually a dual requirement as it requires (a) that a service was rendered, and (b) that the level of the charge does not exceed the approximate cost of that service. Moreover, the term "services rendered" means services rendered to the individual importer in question. One of the early disputes involving Article VIII was US – Customs User Fee , which was heard by a GATT panel in 1987. In that case, the European Union and Canada challenged the GATT-consistency of an ad valorem processing fee charged by the U.S. Customs Service on all commercial merchandise entering the United States. The amount of the fee charged varied depended only on the appraised value of the merchandise, not on the costs incurred by the Customs Service of processing the merchandise. The United States argued that the fee was commensurate with the services rendered because it was commensurate with the sum costs of the Customs Service's commercial operations. The panel disagreed, finding that if the "cost of services rendered" referred to the total cost of the relevant government activities, rather than to the actual cost of the services rendered to the individual importers charged, Article VIII:1 would not provide an objective standard by which the equitable apportionment of these fees could be ascertained. Accordingly, it ruled that it the U.S. processing fee was inconsistent with Article VIII:1 to the extent that it caused fees to be levied in excess of the approximate cost of the services provided to each individual importer. Similarly, in Argentina – Textiles , the panel found that Article VIII:1 forbade Argentina from imposing an ad valorem duty with no fixed fee on textile and footwear imports. In that case, Argentina was calculating an average import price for each tariff line of textiles, apparels, and footwear to determine what the specific minimum duty was for products in that category. Upon the importation of an article within that tariff line, Argentina then applied either the specific minimum duty or an ad valorem duty with no fixed fee depending which duty was higher. While Argentina claimed that it applied the higher ad valorem duty only to recoup the costs of the "statistical services" involved in calculating the average import price for tariff line, the panel ruled that because the ad valorem duty had no fixed maximum fee, it was inherently not limited to the approximate cost of the services rendered and therefore inconsistent with Article VIII:1. In addition, in U.S. – Certain EC Products , a WTO panel ruled that Article VIII barred the United States from increasing bonding requirements on imports from the European Communities in order to secure the collection of future additional import duties that it was going to impose, once authorized by the DSB, for the European Communities' non-compliance with a WTO decision. The United States argued that the increased bonding requirements were a fee for the "early release of merchandise," but the panel found that the United States failed to provide any evidence that the bonding requirements represented any approximate costs of such services. Article IX: Marks of Origin Article IX of the GATT disciplines marks of origin laws, that is, laws setting requirements for the labeling of certain products with their country or region of origin. Under Article IX:1, WTO Members may not accord to the products of other Members "treatment with regard to marking requirements" that is "less favorable than the treatment accorded to like products of any third country." Article IX thus requires most favored nation treatment in marks of origin laws just as Article I requires most-favored nation treatment in the broader context of tariffs, other charges, and all rules and formalities connected to importation and exportation. In addition, while Article IX:2 recognizes that origin marking is important for protecting consumers against fraudulent or misleading labels, it calls on WTO Members to reduce the trade barriers that may result from domestic origin marking requirements. Article IX is not so broad, however, as to govern measures requiring the labeling of process and production methods, even when the measure requires this labeling based on the location where the good was produced or harvested. In US – Tuna/Dolphin I , an unadopted report, a GATT panel rejected Mexico's allegations that provisions of the U.S. Dolphin Protection Consumer Information Act (DPCIA) were inconsistent with Article IX. The challenged provisions created civil penalties for selling tuna products with labels or other indications that the tuna was harvested in a manner not harmful to dolphins if the tuna was caught in particular locations by certain methods. The GATT panel agreed with the United States that these labeling provisions were subject to the nondiscrimination rules set by Article I and Article III:4, not the marks of origin rules set by Article IX. The panel reasoned that because Article IX does not entail a national treatment requirement, but only a most favored nation requirement, it was intended to regulate the marking of origin of imported products, but not the marking of products or their process and production methods generally. Article XI: General Elimination of Quantitative Restrictions Article XI:1 of the GATT bars the institution or maintenance of quantitative restrictions on exports to, and imports from, any WTO Member's territory. Quantitative restrictions limit the amount of a product that may be imported or exported. Unlike internal regulations enforced at the border, quantitative restrictions hinder the opportunity for a product to enter into, rather than simply compete in, the enforcing country's market. Common examples of quantitative restrictions include embargoes, quotas, minimum import or export prices, and certain import or export licensing requirements. Only duties, taxes, and other charges are Article XI:1 consistent methods of restricting imports or exports. By barring WTO Members from placing quantitative prohibitions or restrictions on the importation or exportation of products, Article XI illustrates the strong preference of GATT and Uruguay Round negotiators for tariffs as opposed to non-tariff border restrictions. These negotiators intentionally made tariffs the border protection of choice because they are more transparent and easily satisfied without bringing trade to a halt unlike quantitative restrictions, and, perhaps most importantly, they are capable of definitive reduction over time. Although Article XI:1 is a cornerstone GATT obligation, import and export restrictions are the frequent subject of WTO dispute settlement proceedings. In U.S. – Shrimp , for example, several WTO Members requested that a panel examine a U.S. ban on shrimp imports from nations whose trawling procedures the United States had not certified as sufficiently protecting sea turtles. The panel wrote that the express prohibition on imported shrimp from non-certified countries was inconsistent with Article XI:1, raising doubts about the WTO consistency of similar measures that ban imports or exports that do not meet certain criteria. While an import ban can be readily identified as a quantitative restriction, WTO panels have also characterized "discretionary" or "non-automatic" licensing requirements as prohibited quantitative restrictions. As a result, a system under which the licensing authority has universally granted licenses to applicants who satisfy the prerequisites may still violate Article XI:1 if those prerequisites give the licensing authority unfettered discretion to deny a license. In addition, an early GATT case, Japan – Semi-Conductors , held that a lengthy license approval process also has a limiting effect on exportation in violation of Article XI:1. In that case, the GATT panel held that three-month delays in an agency's export licensing process restrained exports even though the delays did not result from any "mandatory" law, regulation, or requirement. Japan had required exporters to obtain licenses before exporting certain quantities of semi-conductors, and, after several years, lowered the threshold level of semi-conductors that could be shipped without a license. As a result of this change in policy, the number of license applications almost doubled. The licensing agency found itself unprepared for the sudden increase of applications, and, due to the back-up, applications often could not be processed for several months. The panel held that the practices resulting in the three-month delays in licensing had a limiting effect on exportation and were, therefore, de facto quantitative restrictions prohibited by Article XI:1. Despite the strong policy choice behind it, Article XI does provide exceptions to its rule, including (1) export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages facing the exporting Party; (2) quantitative restrictions that are "necessary" for the application of standards or regulations for the classification, grading, or marketing of commodities in international trade; and (3) import restrictions designed to remove a temporary surplus of the like domestic product. Other GATT articles may be implicated by the imposition of quantitative restrictions. Under Article XIII, for example, quantitative restrictions must be applied in accordance with most favored nation treatment. Article XX identifies 10 policy-related exceptions to the provisions of the GATT that may justify a GATT-inconsistent measure. To qualify for an exception, the violative measure must: (1) fall within the scope of one of the 10 exceptions; and (2) be applied in a manner that does not constitute arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on international trade. This second condition is referred to as "the chapeau" of Article XX because it is contained in the introductory clause, or the "hat," of Article XX. The Article XX Exceptions Among the 10 measures excepted from the GATT's provisions are those measures (1) necessary to protect public morals; (2) necessary to protect human, animal, or plant life and health; (3) relating to products of prison labor; (4) imposed for the protection of national treasures of artistic, historic, or archaeological value; or (5) relating to the conservation of exhaustible natural resources which operate in conjunction with restrictions on domestic production or consumption. Article XX operates as an affirmative defense in a WTO dispute settlement proceeding. Consequently, Article XX is raised after a Member's measures are deemed inconsistent with the GATT and is invoked by the defending Member who bears the burden of proving that Article XX exempts the measures concerned from the provisions of the GATT. The defending Member must first show that the measure fits within one of the exceptions covered by Article XX. For Article XX exceptions that require the defending Member to prove that the measure is "necessary" to achieve an identified goal (e.g., to protect human, animal, or plant health), this means that the defending Member must make a prima facie case that (1) the common interests or values protected by the measure are important, (2) the measure materially contributes to the realization of the ends it pursues, and (3) the restrictive impact of the measure on international commerce is outweighed by its contribution to the stated values or interests. The complaining Member may then rebut the defending Member's arguments by showing that there are less restrictive alternatives available. Then the defending Member must show that these alternatives would not be effective or feasible. The Article XX Chapeau If the defending Member is successful in showing that the measure fits into one of the stated Article XX exceptions, it must next show that the measure satisfies the "chapeau." Specifically, the defending Member must establish that, as applied, the measure neither (1) creates arbitrary or unjustifiable discrimination between countries where the same conditions prevail nor (2) constitutes a disguised restriction on international trade. The chapeau is intended to strictly discipline the use of the Article XX exceptions so as to distinguish measures intended to protect legitimate interests from measures intended to circumvent a Member's WTO obligations. Accordingly, the chapeau imposes requirements that are more difficult to satisfy than the requirements of any one of the 10 policy exceptions. Relatively few panel or Appellate Body reports have articulated the standards for determining that a measure is a disguised restriction on international trade. Ostensibly, this analysis involves a heightened analysis of the intent behind the measure's application to discern whether the defending Member's true motive was protectionism. Because the intent behind a measure "may not be easily ascertained," panels may scrutinize the "design, architecture, and revealing structure" for signs of knowing or willful "protective application." A WTO panel may also consider the extent to which the measure's application has a discriminatory effect, such as benefiting a domestic industry to the detriment of a foreign one. Given the rudimentary nature of WTO jurisprudence in this area, it can be difficult to predict whether a given measure would be indefensible under Article XX because its application constituted a disguised restriction on trade. In contrast to the jurisprudence on "disguised restrictions," a host of WTO panels and Appellate Body reports have declared measures inconsistent with the Article XX chapeau because their application constituted arbitrary or unjustifiable discrimination. These decisions express a strong preference for measures applied after international negotiations or pursuant to an international agreement. The seeming corollary of this preference, moreover, is the distaste that panels and the Appellate Body have shown for measures with a unilateral or coercive character. As discussed below, these preferences are expressed both in the Appellate Body's interpretation of the term "discrimination" and its interpretation of the phrase "arbitrary or unjustifiable." According to the Appellate Body, "discrimination," for the purposes of the Article XX chapeau, occurs when a measure is applied without regard for the similarity of—or differences between—the conditions in either the importing and exporting countries or two importing countries. In other words, both the differential treatment of countries in which the same conditions prevail as well as the uniform treatment of countries where different conditions prevail constitute discrimination. Once a measure's application is deemed discriminatory, a WTO panel will assess the nature of the discrimination to determine whether it is "arbitrary or unjustifiable." This analysis depends on whether the discrimination has a "a legitimate cause or rationale in light of the [Article XX] objectives," and often requires an assessment of the actions, if any, that the defending Member took to prevent foreseeable discrimination. For example, in U.S. – Shrimp , the Appellate Body examined the GATT consistency of a U.S. measure prohibiting the importation of shrimp from countries not certified by the United States as maintaining a regulatory program or fishing environment that satisfied the U.S. standards for sea turtle protection. After determining that the shrimp import ban created discrimination because it was "coercive," the Appellate Body assessed whether this discrimination was "arbitrary or unjustifiable." It described its approach to this question as "heavily" influenced by the U.S. failure to engage all shrimp exporting Members in negotiations before enforcing the ban. Indeed, the Appellate Body ultimately found that the discrimination was unjustifiable because (1) the import ban reflected U.S. negotiations with some, but not all, WTO Members that export shrimp; and (2) the United States had not even attempted to use existing international mechanisms to achieve international cooperation. As a result, the Appellate Body wrote, the ban had a "unilateral character" that heightened both its discriminatory nature and its "unjustifiability." In a subsequent decision, U.S. – Shrimp (Article 21.5) , the Appellate Body clarified what it meant by international cooperation. In that case, Malaysia challenged the adequacy of the measures the United States imposed to implement the Appellate Body's decision in U.S. – Shrimp . Specifically, the Department of State had revised its guidelines so that countries could be certified for shrimp imports once they demonstrated either that their shrimp fishing environments did not pose a threat of incidental sea turtle capture or that they had implemented, and were enforcing, a "comparably effective" regulatory program. In determining whether a country's regulatory program was "comparably effective" to U.S. standards, the guidelines stated that the Department of State would "take fully into account any demonstrated differences between the shrimp fishing conditions in the United States and those in other nations." In addition, the United States commenced international negotiations with Malaysia, the complaining Member, as well as other countries. Although these negotiations did not yield an agreement between the United States and Malaysia, the discrimination caused by the U.S. embargo and shrimp import certification procedures was not "arbitrary or unjustifiable" because the United States had undertaken "serious, good faith efforts" to avoid it. Article XXI: National S ecurity Exceptions to the GATT Article XXI lists three very specific occasions when international or domestic security interests trump a Member's obligations under the GATT. In any one of these three situations, a Member's noncompliance with the GATT will not be considered a violation of its provisions. These occasions occur when: (1) the Member's noncompliance is the refusal to disclose information and the Member considers the disclosure contrary to its essential security interests; (2) the Member considers noncompliance necessary to protect its essential security interests relating to fissionable materials, the traffic in arms or other materials for the purpose of supplying a military establishment, or a time of a war or emergency in international relations, or (3) the Member's noncompliance occurs in its pursuit of its obligations under the UN Charter for the maintenance of international peace and security. In general, Article XXI is understood as intending to remove legitimate national security matters from the scope of GATT obligations and to discourage use of the exception for measures with commercially inspired goals. Moreover, some countries, including the United States, have taken the position that the Article is "self-judging," that is, that each WTO Member may determine whether a particular matter is contrary to or necessary for the protection of its essential security interests and that determination cannot be reviewed by WTO panels or the Appellate Body. While this position raises questions about the proper role of dispute settlement proceedings in this area, to date there is no WTO case law on the application of Article XXI. Despite the absence of case law, Article XXI has played a role in the diplomatic discourse that precedes, and in some cases eliminates the need for, a request for consultations. For example, when WTO Members have threatened to request consultations over the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996 ("Helms-Burton Act," P.L. 104-114 , 22 U.S.C. 6021 et seq. ), the United States responded with claims that the measure was justified under Article XXI. The goal behind the LIBERTAD Act was to dissuade other countries from investing in Cuba and to generally undercut the Fidel Castro regime. To achieve this goal, the law codified and strengthened the long-standing embargo against Cuba, making parties liable under U.S. law for trafficking in property expropriated by Cuba from U.S. citizens without compensation and requiring the U.S. State Department to deny visas to officials of companies that had trafficked in such property. The European Union asked for WTO consultations, stating that the LIBERTAD Act would violate both the GATT and the GATS by, inter alia, restraining E.U. companies who export goods to Cuba or trade in goods from Cuba and excluding E.U. citizens from entering the United States. During the ensuing meetings and negotiations between the United States and the European Union, the United States contended that, if the LIBERTAD Act was indeed inconsistent with the WTO agreements, it was justified under Article XXI. Moreover, because, in its view, it is up to the country invoking Article XXI to determine when a particular trade measure is justified by national security concerns, the United States argued that any WTO panel would lack competence to assess the use of Article XXI and, consequently, there could be no WTO proceedings on any dispute resulting out of the consultations on this issue. This dispute never actually came before a panel because the two governments reached a diplomatic solution in the form of a Memorandum of Understanding, and the European Union requested that the panel suspend its work. Article XXIII: The Basis for WTO Dispute Settlement Article XXIII provides the basis for dispute settlement under both the GATT and under the other WTO agreements. Article XXIII entitles any WTO Member who considers that a benefit granted by the GATT is being "nullified or impaired or that the attainment of any objective of the Agreement is being impeded" to have recourse to WTO dispute settlement procedures. Most often, the nullification or impairment of a benefit (or the impeding of the realization of an objective) results from a violation of an obligation prescribed by a WTO agreement, but Article XXIII states that it could also result from a Member's application of a measure that does not conflict with the provisions of a WTO agreement or from "any other situation." However, disputes alleging nullification and impairment of trade benefits from non-violative actions occur much less frequently than disputes alleging violations of WTO agreements. In general, proving nullification or impairment requires showing that the affected imports are subject to and benefiting from a WTO agreement market access concession (e.g., a tariff) and their competitive position is being upset by the challenged measure. However, when the complaining Member demonstrates that the challenged measure violates an obligation prescribed by a WTO agreement, the measure is considered prima facie to constitute a case of nullification or impairment. In other words, there is a presumption that a breach of the rules adversely affects other Members, and, consequently, it shifts the burden to the defending Member to disprove the presumed nullification or impairment. To date, very few Members have tried to rebut this presumption, and it appears that none have succeeded, which has led some to suggest that the presumption may be rebuttable only in theory. Article XXIV: Customs Unions and Free Trade Areas WTO Members' participation in free trade agreements and customs unions is facially inconsistent with the MFN obligation because parties to these arrangements may grant lower tariff rates and more favorable treatment to each other's goods without granting those benefits to the goods of other WTO Members. However, these arrangements are permitted under Article XXIV as vehicles of trade liberalization. Like Articles XX and XXI, Article XXIV operates as a defense to justify an otherwise GATT-inconsistent measure, namely a measure related to the formation of customs unions or free trade areas. Article XXIV justifies these measures only if the formation of the customs union or free trade area in question would be made impossible if the measure concerned was not allowed. It is unclear at this time, however, how a WTO panel or the Appellate Body would determine whether a measure satisfies this standard. Under Article XXIV:8(a), the members of both customs unions and free trade areas are required to eliminate "duties and other restrictive regulations of commerce" with respect to "substantially all" trade between them. The "substantially all" standard offers customs unions and free trade areas some flexibility in the degree to which they liberalize the trade between them. Furthermore, in Argentina – Footwear , the Appellate Body found that Article XXIV:8(a)'s requirement to eliminate all tariffs and commerce-restricting regulations on trade among customs union members did not prohibit Argentina's imposition of safeguard measures on countries who were part of a customs union (MERCOSUR) with Argentina. All multilateral trade agreements negotiated during the Uruguay Round are binding on WTO Members. These are agreements that a country must accept in order to become a WTO Member. As mentioned, these agreements were implemented in U.S. law through the Uruguay Round Agreements Act ("URAA," P.L. 103-465 , 19 U.S.C. §3501), which then-President Bill Clinton signed into law on December 8, 1994. The WTO agreements selected for discussion below are those that are still in effect, impose substantive, rather than purely procedural, requirements on WTO Members, and have been commonly cited in WTO consultations and disputes. As with the overview of the selected provisions of the GATT above, the following section is not a comprehensive list or discussion of all of the agreements that are annexed to the Marrakesh Agreement. Instead, it is intended only as an introduction to the WTO agreements that are frequently mentioned as governing common types of trade measures. Article VI of the GATT condemns dumping, the practice of exporting a product at a price lower than the price charged for that product in the exporter's home market, when it causes or threatens material injury to an established industry in the territory of another Member or materially retards the establishment of a domestic industry. The Agreement on Implementation of Article VI of the GATT 1994 (the Antidumping, or AD, Agreement) provides substantive and procedural requirements for WTO Members to follow in conducting antidumping investigations and imposing antidumping duties, which supplement existing tariffs. No action against the dumping of exports from another Member can be taken except in accordance with the provisions of the GATT, as interpreted by the Antidumping Agreement. Under the Antidumping Agreement, a domestic investigation of dumping by a WTO Member must be triggered by a written application by or on behalf of a domestic industry. An application meets this standard if domestic producers expressing support for the application produce both a greater percentage of "like products" than the domestic industry opposed to the application and no less than 25% of total production of "like products." All WTO Members must inform the Committee on Antidumping Practices when they initiate anti-dumping actions and provide reports on all ongoing investigations. The AD Agreement defines dumping as introducing a product into a foreign country's market at an export price lower than the product's "normal value"—that is, its "comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country." Accordingly, the first step in assessing a dumping margin is calculating the normal value and the export price of the product. Although the normal value is ordinarily the market price in the country of export, Article 2.2 of the AD Agreement permits WTO Members to use a different methodology for calculating the normal value in certain circumstances. In addition, by incorporating an interpretative note to Article VI of the GATT, Article 2.7 of the AD Agreement permits WTO Members to use surrogate country data to make price comparisons about the normal value of products allegedly dumped by a government-controlled, i.e., nonmarket, economy (NME). Once the normal value is determined, the investigating authorities must calculate the dumping margin by comparing the product's export price with its normal value. Article 2.4 of the Antidumping Agreement requires this comparison be fair, made at the same level of trade (i.e., ex-factory, wholesale, or retail), and made with sales that occurred, as nearly as possible, at the same time. If the dumping margin is de minimis , the investigating Member may not impose anti-dumping duties. Many WTO disputes center around the methodology that a WTO Member uses to calculate the dumping margin. In particular, the practice of using "zeroing" to assess a country's dumping margin has been a frequent subject of WTO dispute settlement proceedings and is discussed later in this report. To form the basis for anti-dumping duties, dumping must cause or threaten injury to the domestic industry or materially retard its establishment. The presence of injury is determined by examining the import volume of the dumped product, its effect on the prices in the domestic market for a like product, and the resulting impact on domestic producers of the like product. Several additional factors are relevant when the WTO Member is investigating allegations that the dumping causes a threat of injury, rather than actual injury. For the purposes of these injury and threat determinations, the term "domestic industry" generally refers to the domestic producers as a whole of a like product or the domestic producers of a major proportion of the total domestic production of a like product. Only in exceptional circumstances may a WTO Member use a narrower regional definition. Finally, the AD Agreement requires a WTO Member to determine that the dumping causes the injury to the domestic industry. Article 3.5 of the Agreement contains a non-attribution requirement: investigating authorities must separate and distinguish the injurious effect of other factors from the injuries effects of the dumped imports to ensure that the imposition of an antidumping duty on the imports at issue would, in fact, be justified. Ultimately, WTO Members must limit the amount of any antidumping duty imposed to the amount "adequate to remove the injury to the domestic industry," and the duty must be lifted as soon as it is no longer necessary to counteract the dumping causing the injury. The AD Agreement requires WTO Members to review the need for the continued imposition of any antidumping duty when requested by an interested party. Members must also "terminate" an antidumping duty five years after its imposition unless, after review, the authorities determine that lifting the duty would lead to the continuation or recurrence of dumping and injury. Like the Antidumping Agreement, the Agreement on Subsidies and Countervailing Measures (SCM Agreement) is an agreement meant to expand, clarify, and implement some of the original provisions of the GATT. One of these provisions, Article VI addresses measures taken to offset any subsidy granted to an imported product. The second, Article XVI, requires Members to notify subsidies and be prepared to discuss limiting those subsidies if they cause serious damage to other Members. However, neither Article VI nor Article XVI defines the term "subsidy" or provides clear and comprehensive rules for governments who are either offering, or responding to, subsidies. Consequently, these provisions were deemed vague and inconsistently applied, and support developed for a new, clearer, and more comprehensive agreement on subsidies. Accordingly, the SCM Agreement was developed to discipline Members' use of subsidies and their responses to countering the effects of certain subsidies. Among the advantages that the SCM Agreement provides over the subsidy provisions of Articles VI and XVI of the GATT is a more precise definition of subsidy. The SCM Agreement defines "subsidy" as a financial contribution by a government or public body within a WTO Member's territory that confers a benefit. A financial contribution may take the form of (1) a direct transfer of funds, such as a grant, loan, or loan guarantee; (2) government revenue (i.e., a tax) "otherwise due" but foregone or not collected; (3) governmental provision of goods or services other than general infrastructure; (4) governmental payments to a funding mechanism or the government's entrusting a private body to carry out at least one of the functions described above. In addition, WTO panels and the Appellate Body have interpreted the word "benefit" broadly to include receipt of a financial contribution on terms that are more favorable than those available to the recipient in the marketplace. The SCM Agreement entitles a WTO Member to respond to subsidized imports in two ways. One authorized response is to use the WTO dispute settlement process to seek withdrawal of the subsidy or the removal of its adverse effects. The second authorized response is to launch a domestic investigation and ultimately charge an extra duty, known as a countervailing duty, on subsidized imports that are injuring domestic producers. For a subsidy to be remedied under either procedure, it must be specific in law or fact to an enterprise, industry, or group thereof. Prohibited subsidies, as described below, are considered specific per se . The SCM Agreement divides subsidies into two categories: prohibited and actionable. Prohibited subsidies are contingent upon either export performance or the use of domestic over imported products. If a subsidy is deemed prohibited, the WTO dispute settlement body will recommend that the subsidizing Member withdraw the subsidy without delay and specify a time-period in which the measure should be withdrawn. All other subsidies are actionable, meaning they may be subject to dispute settlement or domestic remedies if they are used in a way that causes adverse effects to the interests of the complaining Member. There are three types of adverse effects: (1) material injury to the domestic industry of the complaining member; (2) nullification or impairment of the Member's WTO benefits (such as tariff concessions on a particular product); and, (3) serious prejudice to the Member's interests. Regardless of whether the subsidies are prohibited or actionable, if the defending Member does not remove a subsidy or its adverse effects within a set compliance period, the WTO dispute settlement body may, upon request, authorize the complaining Member to impose new or additional tariffs, known as countervailing duties, against the subsidizing Member's exports. The goal of these countervailing duties is to effectively restore the benefits that are supposed to accrue to the complaining Member under the WTO agreements. As discussed in the later section on domestic investigations of foreign subsidies, Members may also impose countervailing duties against subsidized imports without first requesting consultations and bringing the dispute before a WTO panel. However, when a Member imposes countervailing duties without first litigating the dispute, it may do so only if it initiates and conducts its investigation of the foreign subsidies in accordance with the provisions of the SCM Agreement. The interpretation of the SCM Agreement was at issue in the "Boeing-Airbus cases" between the United States and the European Union. The United States first requested dispute settlement proceedings in 2004, alleging that several European Union countries provided a variety of actionable and prohibited subsidies to Airbus, including, inter alia , "launch aid," grants and loans for research and development, and the governmental provision of infrastructure goods and services to develop and upgrade Airbus manufacturing sites. The European Union filed a countersuit, alleging that the U.S. provided actionable and prohibited subsidies to Boeing, including, inter alia , state and federal tax incentives, access to NASA and Department of Defense (DOD) facilities and equipment for corporate research and development, and payments by both agencies to Boeing pursuant to contracts for research and development. A safeguard measure is a temporary restriction imposed on imports to allow a domestic industry time to adjust to import surges. These measures can be applied even in the absence of the unfair trade actions required for antidumping or countervailing duties. Possible safeguards include quotas, tariffs, and tariff rate quotas. Under Article 2.2 of the Agreement on Safeguards, however, a safeguard measure must be product, not country, specific. Because safeguard measures disturb the balance of rights and obligations, the Members affected by a safeguard are entitled to appropriate trade compensation. The foundation for both domestic and international safeguard law is Article XIX of the GATT, which permits Members to apply safeguards where two conditions are met: (1) imports are increasing as a result of both unforeseen developments and the effect of obligations incurred by Members under GATT, and (2) imports are increasing in such quantities as to cause or threaten serious injury to domestic producers of like or directly competitive products. Both the U.S. law on safeguard measures, discussed later in this report, and the WTO Agreement on Safeguards are based on Article XIX. The Agreement on Safeguards lays out (1) substantive requirements that must be met in order to apply a safeguard, (2) procedural requirements for the application of a safeguard measure, and (3) characteristics of, and conditions relating to, a safeguard measure. Today, all safeguard measures must comply with both Article XIX of the GATT and the Agreement on Safeguards. Under the Agreement on Safeguards, a Member may apply a safeguard measure only when it determines that the product is being imported in such increased quantities as to cause or threaten serious injury to the domestic industry that produces like or directly competitive products. The Appellate Body has clarified the "increased imports" requirement to mean an increase that is "recent, sudden, sharp, and significant." This means that the legality of a safeguard hinges in part on the rate and amount of the increase in the recent past. Import trends that precede the recent past (e.g., import trends over the previous five years rather than the previous two) are not grounds for imposing a safeguard measure, and, if older data and more recent data show conflicting trends, the most recent data on imports takes precedence in a determination of a safeguard measure's legality. Moreover, WTO panels have narrowly interpreted the causation element: the domestic industry's injury must be caused solely by the import surge and not by any other factor. Rules of origin are national rules that determine the source of imported goods, and, accordingly what restrictions and duties should apply to their importation. Determining a product's country of origin can be difficult given the increasing globalization of manufacturers' supply chains. Preferential rules of origin determine whether a particular good is entitled to enter the importing country on better terms than products from other countries . For example, preferential rules of origin determine whether a product originated in a country that participates in a reciprocal trade agreement with, or benefits from a tariff preference program administered by, the importing country. Nonpreferential rules of origin determine a product's country of origin for all other purposes, including application of most favored nation treatment, quantitative restrictions, imposition of antidumping and countervailing duties, and government procurement requirements. There is no international consensus on how countries should formulate their rules of origin. The United States and many WTO Members apply the "substantial transformation" standard under which the source of a given import is the country in which the last "substantial transformation" occurred. However, other countries may identify a product's country of origin as the country in which (1) a certain percentage of value was added to the good; (2) the activity resulting in a particular change in the product's tariff classification occurred; or (3) a specified production process occurred. By agreeing to the WTO Agreement on Rules of Origin (RO Agreement), WTO Members agreed to a negotiate a uniform set of nonpreferential rules of origin. Once the negotiations (also known as the Harmonization Work Program) are completed, all WTO Members will apply only one set of non-preferential rules of origin for all purposes. However, the negotiations are currently running more than 10 years behind schedule. Until WTO Members reach an agreement that harmonizes their nonpreferential rules of origin, Article 2 of the Agreement, which governs the application of rules of origin during the "transition period," is the major source of guidance on these rules. Among Article 2's lengthy list of directives is both a national treatment and an MFN requirement, a prohibition on the use of rules of origin as a primary means of protecting domestic industries or favoring a particular Member's imports, and a requirement that rules of origin not themselves create restrictive, distorting, or disruptive effects on trade. However, Article 2 has been interpreted rather narrowly, with the WTO panel in U.S. – Textiles Rules of Origin emphasizing that, until harmonization is completed, WTO Members retain considerable discretion in designing and applying their respective nonpreferential rules of origin. Nevertheless, in the name of transparency, Members are required to notify the WTO Committee on Rules of Origin of their respective rules of origin. Members' agricultural support policies can be governed by both the Agreement on Agriculture (AA) and other non-agriculture specific WTO Agreements such as the GATT and the SCM Agreement. The objective of the AA is to ensure that Members undertake "progressive reductions in agricultural support and protection over an agreed period of time." An agricultural support or protection program is governed by the AA if it (1) satisfies the SCM Agreement's definition of a "subsidy"; and (2) supports a product listed in Annex 1 of the AA. Because WTO Members make commitments under the AA, a covered agricultural support program is inconsistent with the AA if it does not conform with the Member's schedule or domestic support reduction commitments. However, as discussed below, the AA prescribes different rules for export subsidies than domestic agricultural support measures. Like the SCM Agreement, the AA defines "export subsidies" as subsidies that are contingent on export performance. Unlike the SCM Agreement, the AA does not prohibit all export subsidies. Instead, Article 3.3 prohibits Members from providing the six types of export subsidies identified in Article 9.1 to: unscheduled agricultural products, and scheduled products in excess of the specified reduction commitment levels. Among the export subsidies listed in Article 9.1 are direct subsidies, payments on the export of an agricultural good, subsidies to reduce the costs of marketing agricultural exports, and subsidies contingent on the product's incorporation in exported products. The AA also prohibits export subsidies and non-commercial transactions that are not identified in Article 9.1 when they circumvent, or threaten circumvention of, the Member's export subsidy commitments. In U.S. – Upland Cotton , Brazil challenged several U.S. policies designed to support a variety of U.S. agricultural industries. Among these policies were the so-called "Step 2 payments" to domestic purchasers and exporters of U.S. cotton. The Commodity Credit Corporation of the U.S. Department of Agriculture provided these commodity certificates and cash payments to exporters of U.S. cotton as compensation for marketing or otherwise enhancing the international competitiveness of U.S. cotton when it was more expensive than foreign-grown cotton. Determining that the phrase "contingent on exports" has the same meaning it is given under the SCM Agreement, the Panel found that the Step 2 payments were export subsidies under the AA because, to receive them, exporters had to prove that they had exported U.S. cotton. Furthermore, because the United States had not scheduled export subsidy commitments for upland cotton, the Step 2 payments were inconsistent with U.S. commitments under the AA. Having found that the Step 2 payments were inconsistent with the U.S. schedule, the Panel in U.S. – Upland Cotton did not need to consider whether the payments circumvented U.S. commitments. In contrast, the WTO Appellate Body in U.S. – FSC determined that U.S. tax benefits for Foreign Sales Corporations (FSCs) circumvented, but did not violate, U.S. export subsidy commitments. In that case, the tax benefits at issue excluded from a U.S. taxpayer's gross income all income that was earned with respect to goods in transactions involving property that: (1) was manufactured, grown, or extracted within the United States; (2) was held primarily for sale, lease, or rental outside the United States; and (3) had a fair market value, no more than 50% of which was attributable to articles manufactured or extracted outside of the United States or direct costs of labor performed outside of the United States. The Appellate Body found that the tax measure was inconsistent with the Agriculture Agreement because it allowed for the provision of an unlimited amount of the subsidy to scheduled agricultural products that already received the maximum level of subsidies specified by the U.S. Schedule. In other words, by implementing the FSC measure, the United States threatened to circumvent, if not actually circumvented, Article 3.3 of the AA. In addition to their export subsidy commitments, WTO Members are required by the AA to make and abide by reduction commitments for their domestic subsidy programs. Accordingly, two types of domestic subsidy programs are consistent with the AA: those that are exempt from the subsidizing Member's domestic support reduction commitments and those that are provided in conformity with (i.e., not in excess of) those commitments. A given subsidy program is exempt from a WTO Member's reduction commitments if it is either: a so-called "green box" program; or provided at levels that do not exceed the relevant de minimis level. To be considered a "green box" program, a domestic agricultural support program must satisfy the applicable criteria in Annex 2. In addition to requiring that domestic agricultural support programs have "no, or at most minimal, trade-distorting effects or effects on production," Annex 2 prescribes different requirements for different kinds of domestic agricultural support programs. These programs include, inter alia , domestic food aid programs, payments for relief from natural disasters, and payments under environmental programs. Measures that are not exempt from the subsidizing Member's domestic support reduction commitments must be included in the Member's calculation of its "Current Total" Aggregate Measurement of Support, or AMS. This is a monetary measurement of the Member's domestic agricultural support programs and it is reported annually to the WTO. The total can then be compared with Member's commitments to ensure that Members are complying with their reduction commitments. For example, the United States is committed to providing no more than $19.1 billion per year in AMS. Therefore, if the United States provides domestic subsidies covered by the AA in excess of its $19.1 billion AMS commitment, the United States may be in violation of the AA. Members frequently adopt measures that regulate a product's characteristics or its production methods to protect the environment or human health, to ensure the quality of products, to prevent deceptive practices, or to achieve some other legitimate objective. However, these measures can create obstacles to international trade. To that end, the WTO Agreement on Technical Barriers to Trade (TBT Agreement) is intended to balance the need to protect Members' regulatory autonomy with the need to prevent unnecessary obstacles to international trade. The TBT Agreement applies to measures that are not governed by the WTO Agreement on Sanitary and Phytosanitary Measures (which focuses primarily on food safety) but that regulate a product's characteristics or process and production method (PPM). A measure meets this definition if it regulates on the basis of either a product's intrinsic qualities, qualities that that are related to the product, or qualities that the product lacks . Characteristics that are related to the product include their identification, presentation, and appearance. In EC – Sardines , for example, Peru challenged an EU regulation prescribing common marketing standards for preserved sardines. The EU regulation required that all fish labeled and marketed as "preserved sardines" belong to one species of fish, Sardina pilchardus , effectively prohibiting all other fish species from being sold as "preserved sardines" in the EU market. Because the regulation conditioned the "naming" of preserved sardines on product characteristics, the WTO Appellate Body held that it prescribed product related characteristics. The measure in EC – Sardines was a positive TBT measure: it specified a characteristic that a product must have in order to carry a particular label. In EC – Asbestos , however, the Appellate Body found that measures framed in the negative can also be TBT measures. In that case, Canada challenged a French decree that criminalized, inter alia , the sale, import, and placing on the domestic market of asbestos fibers and materials, products, or devices containing those fibers. Although the French measure mandated that all products not contain asbestos, it had the same effect, in the Appellate Body's view, as requiring all products to have a shared characteristic because it effectively required all products to be asbestos-free. The TBT Agreement classifies measures that regulate on the basis of a product's characteristics or PPM as technical regulations, standards, and conformity assessment procedures. Technical regulations are documents that prescribe product characteristics or their related processes and production methods with which compliance is mandatory . Technical regulations can include import bans and prohibitions that are related to product characteristics or PPMs. Standards are documents that have been approved by a recognized body and prescribe product characteristics or their related processes and production methods with which compliance is voluntary . Conformity assessment procedures (CAPs) are procedures, such as those related to testing, verification, inspection, or certification, that are used to ensure that the requirements prescribed by a given standard and/or technical regulation are satisfied. The TBT Agreement lays out different commitments for technical regulations, standards, and conformity assessment procedures. However, to date, most of the WTO panel and Appellate Body decisions interpreting the TBT Agreement have focused on the provisions on technical regulations. These provisions are contained in Article 2 of the Agreement. Members must, inter alia : ensure that their technical regulations provide Most Favored Nation (MFN) status to other Members' products; ensure that their technical regulations do not violate the national treatment principle (i.e. Members' technical regulations must not accord imported products less favorable treatment than that accorded to like products of national origin); base their technical regulations on international standards unless international standards would, because of unique country conditions, result in ineffective or inappropriate regulations; give positive consideration to accepting as equivalent technical regulations of other Members that fulfill the objectives of their own domestic regulations; and specify technical regulations based on product requirements in terms of performance rather than design or descriptive characteristics wherever appropriate. The TBT Agreement also bars Members from preparing, adopting, or applying technical regulations that are "more trade-restrictive than necessary to fulfill a legitimate objective, taking account of the risks non-fulfillment [of that objective] would create." The Agreement provides an illustrative non-exhaustive list of "legitimate objectives," which includes: the protection of national security; the prevention of deceptive practices; and the protection of human health or safety, animal or plant life or health, or the environment. WTO panels have suggested that the analysis of whether a technical regulation is, in fact, "more trade-restrictive than necessary" is an inquiry into whether the measure's trade-restrictiveness is required to achieve the Member's chosen level of protection. Accordingly, WTO panels have compared the extent to which a given technical regulation contributes to the achievement of the Member's policy goal with "a potential less trade restrictive alternative measure" to determine whether the latter would similarly fulfill the Member's objective at the chosen level of protection. Notably, a measure that is trade-restrictive and does not contribute to the fulfillment of the Member's objective necessarily violates Article 2.2. Significantly, unlike the GATT and GATS, the TBT Agreement does not provide Members with an affirmative defense for technical regulations that are inconsistent with the Agreement but necessary for national security or the protection of the environment or human and/or plant life or health. The lack of a general or national security exception to the TBT Agreement has contributed to the view that it is a "stricter" agreement than the GATT or GATS. In addition to restraining the preparation and adoption of TBT measures that interfere with international trade, the TBT Agreement encourages WTO Members to participate in the work of international standardizing bodies with the aim of achieving broader consensus on the creation and content of international standards. The Agreement also established processes and mechanisms that enhance the transparency of countries' TBT measures and a forum for Members to resolve concerns relating to TBT measures without resorting to formal dispute settlement procedures. Article 2.9.1, for example, requires Members to publish notice of—and allow time for other Members to comment on—proposed technical regulations that were created in the absence of, or deviate from, an international standard or may significantly affect trade. Additionally, representatives from each WTO Member sit on the Committee on Technical Barriers to Trade (TBT Committee), which affords Members the opportunity to consult and resolve concerns relating to the TBT Agreement or the accomplishment of its objectives. Sanitary and phytosanitary measures (SPS measures) are measures intended to protect human, animal, or plant life or health within a WTO Member's territory from food-safety risks and other risks relating to pests or diseases. Possible examples include bans on imported beef to prevent the spread of mad cow disease or a food-safety regulation requiring all imported chicken meat to be heated to a certain temperature for a specified length of time. While SPS measures can be thought of as a subset of technical barriers to trade, as noted above, a measure can not be covered by both the SPS and the TBT Agreements. Therefore, SPS and TBT measures are mutually exclusive for the purposes of applying WTO obligations. SPS measures covered by the SPS Agreement are those that "may, directly or indirectly, affect international trade." The Agreement defines an SPS measure to include four types of protective or preventative measures: (1) measures to protect animal or plant life or health arising from the entry, establishment, or spread of pests or diseases; (2) measures to protect human or animal life or health from risks arising from additives, contaminants, toxins, or disease-causing organisms in foods, beverages, or feedstuffs; (3) measures to protect human life or health from risks arising from diseases carried by animals, plants, or products, or from the entry, establishment, or spread of pests; and (4) measures to prevent or limit other damage from the entry, establishment, or spread of pests. Articles 2 and 5 of the SPS Agreement set out Members' basic rights and obligations. Article 2.2 requires WTO Members to ensure that any covered SPS measure is (1) applied only to the extent necessary to protect human, animal or plant life or health; (2) based on scientific principles; and (3) not maintained without sufficient scientific evidence, unless it is provisionally adopted and maintained in conformity with Article 5.7. Article 2.3 requires WTO Members to further ensure that their SPS measures neither "arbitrarily or unjustifiably discriminate between Members where identical or similar conditions prevail, including between their own territory and that of other Members" nor are applied "in a manner which would constitute a disguised restriction on international trade." This language prohibiting arbitrary or unjustifiable discrimination and disguised restrictions on trade is also in Article XX of the GATT. Article 5.3 obligates WTO Members "to avoid arbitrary or unjustifiable distinctions" in the levels of sanitary or phytosanitary protection "if such distinctions result in discrimination or a disguised restriction on international trade." Article 5.6 obligates WTO Members to ensure that their sanitary or phytosanitary measures "are not more trade-restrictive than required to achieve their appropriate level of sanitary or phytosanitary protection." Notably, a measure will not be deemed to be more trade restrictive than required unless there is a feasible alternative that would achieve the "appropriate level of sanitary or phytosanitary protection" and be "significantly less restrictive to trade." Like the TBT Agreement, the SPS Agreement requires Members to base their SPS measures on international standards, guidelines, or recommendations where they exist. The three sources of international standards for SPS measures are: the Codex Alimentarius Commission (CODEX), the World Organization for Animal Health (OIE), and the International Plant Protection Convention (FAO). SPS measures that conform to these organizations' international standards or guidelines are deemed necessary and presumed consistent with both the SPS Agreement and the GATT. If there is not a relevant international standard, Members may still apply SPS measures to imports so long as the measures are based on "sufficient scientific evidence." If the scientific evidence is insufficient, Members may provisionally adopt SPS measures on the basis of the available information but must seek additional information for a more objective assessment of the risk and review the SPS measure within a reasonable period of time. Another core provision of the SPS Agreement requires Members to "base" their SPS measures on "an assessment, as appropriate to the circumstances, of the risks to human, animal, or plant life or health, taking into account risk assessment techniques developed by relevant international organizations." In EC – Biotech Products , the WTO panel wrote that a Member satisfies this obligation when (1) an evaluation that meets the SPS Agreement's definition of a "risk assessment" is conducted, and (2) the measure at issue is "based" on that assessment. Notably, the Member imposing the measure at issue need not perform the risk assessment itself so long as a risk assessment that meets the criteria in Annex A of the SPS Agreement was performed. The type of risk assessment required depends on the purpose of the SPS measure at stake. In the case of measures concerned with pests or disease, the term "risk assessment" means an "evaluation of the likelihood entry, establishment, or spread of a pest or disease... according to the sanitary or phytosanitary measures which might be applied, and of the associated potential biological and ecological consequences." In the case of measures concerned with food additives, a risk assessment is defined as an "evaluation of the potential for adverse effects on human or animal health arising from the presence of additives, contaminants, toxins, or disease-causing organisms in food, beverages or feedstuffs." Assuming that a WTO panel finds that an SPS measure was imposed after the requisite risk assessment, it will then determine whether the measure was, in fact, "based" on that assessment. According to the WTO Appellate Body's decision in EC – Hormones , a measure is based on a risk assessment if the results of the risk assessment "reasonably support" the measure at stake. A measure meets this test if (1) it has a scientific basis, even if it reflects "divergent or minority views"; (2) the defending Member's interpretation and application of that evidence is "objective and coherent"; and (3) there is a scientific basis for determining that the results of the risk assessment warrant the imposition of the SPS measure at issue. Although a WTO panel will determine whether a Member conformed with these requirements, the panel may not substitute its own judgment for that of the risk assessor. Notably, however, some measures that meet the SPS Agreement's general definition of an SPS measure may be imposed without a risk assessment. For example, in EC – Biotech Products , a WTO panel found that although the European Union's regulatory regime for the approval and marketing of biotech products was designed to protect the lives and health of humans and plants, the SPS Agreement permitted the EU to temporarily place a moratorium on the approval of applications to market new genetically modified organisms without first conducting the risk assessment described in Article 5.1. The panel stated that SPS measures have both the objective of protecting animal, plant, or human life or health and the "nature" of "requirements and procedures," and the moratorium was a decision to delay final substantive approval decisions—not a requirement or a procedure subject to Article 5. Nevertheless, the panel found that, while the moratorium was exempt from the risk assessment requirement, it was subject to and in violation of other provisions of the SPS Agreement. Finally, in addition to restraining the preparation and adoption of SPS measures that interfere with international trade, the SPS Agreement established processes and mechanisms that enhance the transparency of countries' SPS measures and a forum for Members to resolve concerns relating to SPS measures without resorting to formal dispute settlement. To those ends, the Agreement requires each Member to notify other Members of new or changed SPS regulations when the regulation will significantly affect trade and either no relevant international standard exists or the new regulation differs from the relevant international standard. It also establishes the Committee on Sanitary and Phytosanitary Measures to, inter alia , facilitate ad hoc consultations and negotiations among Members on specific sanitary and phytosanitary issues. The General Agreement on Trade in Services (GATS) is designed to liberalize trade in services. Unlike international trade in goods, which is largely governed by measures imposed at countries' borders, trade in services tends to be governed mostly by internal regulations. Internal regulations might, for example, restrict the number of drugstores allowed within a geographical area, define technical safety requirements for airline companies, or prohibit banks from selling certain financial products. As this list suggests, the GATS disciplines a wide range of domestic measures, but some of its provisions, including those on market access and national treatment, are limited by the scope of each country's commitments, which are defined in the national schedules and subject to progressive reduction. The GATS also contains a number of annexes addressing specific individual service sectors. The GATS does not define the term "service" except to exclude "services supplied in the exercise of governmental authority" from its definition. Instead, the GATS purports to regulate measures affecting the supply of a service in four "modes": (1) from a service supplier in one Member to a consumer in another Member without travel (e.g., an architecture firm mails blueprints to a consumer overseas), (2) in the territory of one Member to a consumer of any other Member (e.g., in the U.S. to a foreign tourist), (3) by a service supplier of one Member with a commercial presence in the territory of any other member (e.g., by a commercial bank with branches in a foreign country), and (4) by a service supplier of one Member travelling temporarily to provide services in another Member (e.g., by a consultant on an overseas business trip). Notably, a service supplier under the GATS includes entities engaged in "the production, distribution, marketing, sale and delivery of a service." Measures "affecting trade in services" include any measure "in respect of," inter alia , "the purchase, payment or use of a service" or "the presence, including commercial presence, of persons of a Member for the supply of a service in the territory of another Member." Because the GATS defines both "service suppliers" and "measures affecting trade in services" broadly, the GATS applies not only to measures directly regulating the supply of a service, but also a wide range of other measures that affect the service sector. Because the GATS permits Members to specify how they will reduce market access barriers to trade in services, whether a particular measure is GATS-inconsistent generally hinges on the scope of the national schedules of commitments of the Member imposing the measure. Unlike the GATT, under which the nondiscrimination provisions apply to goods from all Members, the GATS permits Members to schedule (1) exemptions from the Most Favored Nation (MFN) treatment obligation, and (2) specific service sector commitments to the national treatment obligation. As a result, each Member limits the scope of its obligations not to discriminate between services provided by firms from different Members and between services provided by foreign, rather than domestic, firms. Article XXI of the GATS allows a WTO Member to modify or withdraw any of its scheduled commitments once three years have elapsed from the date the commitment entered into force, subject to certain conditions, including possible compensation to Members affected by the change. The GATS does not compel a government to privatize services industries or outlaw government or private monopolies. However, the GATS is, like the TBT and SPS Agreements discussed above, concerned with increasing transparency. Article III of the GATS requires governments to publish all relevant laws and regulations and to set enquiry points that can provide foreign companies and governments with information about entering and competing in a service sector. This is particularly important because service sectors may be regulated by multiple government entities at both the national and local levels. Consequently, service providers seeking to do business internationally may be stymied by a lack of transparency in how a country licenses its service providers or regulates service delivery. U.S. service providers continue to cite the lack of transparency in the development and implementation of foreign countries' regulations as a primary obstacle to increasing foreign trade in services. If the policy goals behind the GATS are achieved, Members' will presumably have an improved understanding of all other Members' services regulations. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) sets minimum standards for the intellectual property rights that WTO Members must offer their nationals and the enforcement of those rights. Developing countries, however, have delayed compliance periods. The basic tenet of TRIPS is the extension of most-favored-nation status and national treatment to intellectual property rights (IPR). Consequently, any advantage in IPR protection granted to nationals of one WTO Member must be granted to nationals of all other WTO Members, and Members must treat nationals of other WTO Members no less favorably in terms of IPR protection than they treat their own nationals. The term "nationals" in the TRIPS Agreement refers to natural or legal persons that are either domiciled in a particular country or have a real and effective industrial or commercial establishment there. Prior to the TRIPS Agreement, intellectual property rights were primarily regulated at the international level by treaties administered by the World Intellectual Property Organization (WIPO). Most of the obligations of the WIPO treaties are now incorporated by reference into Articles 2.1 and 9.1 of the TRIPS Agreement so that compliance with the WIPO treaties remains the baseline for compliance with the TRIPS Agreement. However, the TRIPS Agreement also builds on WIPO treaties by establishing additional minimum obligations, most notably in the areas of copyright, trademarks, geographical indications, patents, and undisclosed information (i.e., trade secrets). The TRIPS Agreement also has "exception clauses," which permit WTO Members to pass measures that authorize particular forms of IPR "infringement" without running afoul of TRIPS Agreement obligations. In an early dispute over an exception clause, the European Communities alleged that Section 110(5) of the U.S. Copyright Act of 1976 ( P.L. 94-443 , 17 U.S.C.§101 et seq. ) as amended by the Fairness in Music Licensing Act of 1998 ( P.L. 105-298 ) was inconsistent with the TRIPS Agreement because it permitted the playing of radio and television music in certain retail, drinking, and food service establishments without the payment of a royalty fee. The U.S. argued that these exceptions were permissible under the TRIPS Agreement because they were covered by Article 13, which permits WTO Members to create limited exceptions to the exclusive rights of copyright holders. The panel found that Article 13 permits a WTO Member to provide exceptions to the exclusive rights of copyright holders only if (1) those exceptions are clearly defined, (2) when utilized, those exceptions do not create economic competition with the ways that right holders normally extract economic value from copyrights and thereby deprive them of significant or tangible commercial gains, and (3) when utilized, those exceptions do not cause or have the potential to cause an unreasonable loss of income to the copyright owner. Applying this standard, the panel found that one, but not both, of the exceptions contained in Section 110(5) were covered by Article 13. Specifically, the panel stated that the "homestyle" exception, which allows small restaurants and retail outlets to amplify music broadcasts with equipment commonly used in private homes without authorization or payment of a royalty to the copyright holder, met the requirements of Article 13. In reaching this conclusion, it noted that only a small percentage of all eating, drinking, and retail establishments in the U.S. was eligible to use the exception and this small group was further narrowed by the additional requirement that they use "homestyle" equipment (i.e., commonly available stereo systems). In contrast, the "business" exception, which allowed food service, drinking, and small retail establishments to amplify copyrighted music without authorization or payment of a fee, did not meet the requirements of Article 13 because a substantial majority of U.S. eating and drinking establishments and close to half of all U.S. retail establishments could make use of the exception. The WTO Understanding on Rules and Procedures Governing the Settlement of Disputes (Dispute Settlement Understanding or DSU) significantly strengthened the earlier GATT dispute settlement mechanism. The DSU creates a Dispute Settlement Body (DSB) with representatives of all the WTO Members, which administers the WTO dispute settlement system. If a Member wants to challenge another Member's trade practices, it submits a written request for consultation to the DSB identifying the measures at issue and the legal basis for the complaint. A consultation is an opportunity to settle the dispute without a panel being established. It is confidential and will not work prejudice on either Member in any further proceedings. If consultations fail to resolve the dispute within 60 days, or one party refuses to enter them, the complaining party may request a panel. If the DSB establishes a panel, that panel is authorized to receive pleadings and rebuttals, hear oral arguments, and engage in other forms of fact development. The panel then issues an interim report on which the two parties can comment. A final report addressing, if not adopting, the parties' comments follows. A party to the dispute can appeal the legal interpretations or findings in a final report to the Appellate Body. Subject to the "negative consensus rule," the DSB will ultimately adopt the findings of the panel, or, if the panel's decision was appealed, those of the Appellate Body. The negative consensus rule states that these findings should be adopted unless they are rejected by a consensus of Members on the DSB. After adoption, the Member deemed in violation of a WTO obligation will generally be given a reasonable period of time to bring its measures into compliance (usually between eight and 15 months). If the measures are not brought into compliance or the adequacy of compliance is disputed, the parties may negotiate a settlement providing for compensation (i.e., additional trade concessions) to the injured party. If these negotiations fail, the complaining Member may then seek authority from the DSB to retaliate, namely to suspend some of its WTO obligations that benefit the defending Member. The preceding sections of this report discussed the multilateral agreements contained in the Marrakesh Agreement. All countries must accept those agreements as a condition of WTO membership. The WTO "plurilateral agreements," on the other hand, are not prerequisites to WTO membership, and, therefore, only some Members, including the United States, have agreed to them. The two plurilateral agreements discussed below are contained in Annex 4 of the Marrakesh Agreement. Initially there were four plurilateral agreements in Annex 4, but both the International Dairy Agreement and the International Bovine Meat Agreement terminated in 1997. Another plurilateral agreement, the Information Technology Agreement (ITA), was concluded after the Uruguay Round. To date, 41 countries have signed the Agreement on Government Procurement (AGP) and several more (including China) are negotiating accession to it. The AGP seeks to grant foreign suppliers of goods and services increased access to government procurement opportunities. To achieve this goal, the AGP is designed to both reduce laws and regulations that discriminate against foreign products or services and increase the transparency of government procurement procedures. The general obligations of the AGP only apply to government contracts that meet four criteria. First, the AGP does not apply to government contracts below the monetary threshold for the procuring entity. These thresholds are identified in the five annexes contained in Appendix I so that Annex 1 contains the threshold for central government entities, Annex 2 contains the threshold for sub-central government entities, etc. Secondly, the AGP does not apply to procurements by, or necessary for fulfilling a contract with, the government. To determine whether a procurement meets this test, WTO panels may consider whether the government is paying for the good at issue; whether the government will use or benefit from its use; whether the government will possess it; whether the government controls its acquisition process; and whether the procuring entity had a commercial interest in the transaction. In addition, AGP parties have negotiated exceptions for some of their government entities so that their procurements are exempt from the AGP. Third, the AGP only applies to procurements between two parties to the AGP. Consequently, if the U.S. government is procuring a good from a non-party, the United States is not obligated to comply with the provisions of the AGP. Fourth, the object of the procurement must be a covered good or, alternatively, a party not exempted by the party's schedule. While procurements of most goods are covered by the AGP, procurements of most services are not. Nevertheless, the United States provides fairly comprehensive coverage of the service sectors. For covered government procurement contracts, Article III of the AGP provides that each party must provide to the products, services, and suppliers of other parties treatment no less favorable than that which is accorded to (1) domestic products, services, and suppliers, and (2) products, services, and suppliers of any other party that provides the procuring party with reciprocal access to its own procurements of that good or service. Furthermore, each party must ensure that its entities do not treat locally established suppliers less favorably on the basis of foreign affiliation or ownership, and parties may not discriminate against locally established suppliers on the basis of the country of production of the good or service in question. For the purposes of applying these obligations, Article IV mandates that the rules of origin applied in the normal course of trade also apply to transactions covered by the AGP. However, as under the GATT, there are affirmative defenses to violations of the AGP. Article XXII of the AGP authorizes each party to take action, or not disclose information, regarding procurement that "it considers necessary for the protection of its essential security interests relating to the procurement of arms, ammunition or war materials, or to procurement for indispensable for national security or for national defense purposes." The United States identifies several government agencies and types of procurements that it considers are exempt from the AGP by virtue of this national security exception. The second AGP exception authorizes parties to impose or enforce measures affecting procurement that are "necessary to protect public morals, order or safety, human, animal or plant life or health or intellectual property; or relating to the products or services of handicapped persons, of philanthropic institutions or of prison labor," so long as the measures "are not applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on international trade." As for transparency, Article IX requires the Parties' entities to publish an invitation to participate in all cases of intended procurement. Each notice of proposed procurement must state (1) the contact point with the entity from which further information may be obtained; (2) the subject matter of the contract; (3) the time-limits set for the submission of tenders or an application to be invited to tender; and (4) the addresses from which documents relating to the contracts may be requested. Additionally, when it is possible to provide other information (e.g., any economic or technical requirements or any options for further procurement), Article IX requires its inclusion in the notice as well. Article XX and XXI govern the procedures for challenging a breach of the AGP. Article XX requires Parties to provide timely, transparent, and effective procedures that enable suppliers to challenge alleged breaches of the AGP in the context of procurements in which they have, or have had, an interest. Parties must provide suppliers with the opportunity for their challenges to a procurement process or decision to be heard by a court or impartial and independent review body. If a Party, rather than a supplier, wishes to challenge the failure of another Party to carry out its AGP obligations, it can rely on the Dispute Settlement Understanding to initiate consultations. WTO panels have rendered very few decisions in the government procurement area. Nevertheless, one of the most famous dispute settlement proceedings involving the AGP arose out of a Massachusetts law (An Act Regulating State Contracts with Companies Doing Business with or in Burma, 1996 Mass. Acts 239, ch. 130) that barred state entities from procuring goods or services from any person or business organization doing business with Burma. The European Union commenced dispute settlement proceedings against the U.S. on the grounds that the Massachusetts law would prevent certain European companies from bidding on government contracts in Massachusetts, in violation of the AGP. However, the European Union suspended those proceedings when the U.S. Supreme Court held that the law was pre-empted by a federal statute, the Foreign Operations, Export Financing, and Related Programs Appropriations Act of 1997, that imposed sanctions on Burma. The Agreement on Trade in Civil Aircraft ("Aircraft Agreement"), which entered into force on January 1, 1980, predates the formation of the WTO. It remains, however, as one of the two WTO plurilateral agreements that are in force for WTO Members who have accepted it. Thirty countries, including all major aircraft manufacturing and exporting countries, are signatories to this agreement, The Aircraft Agreement seeks to establish an international framework to encourage continued technological development of aeronautics, provide fair and equal competitive opportunities for civil aircraft producers of the signatory nations, and eliminate some of the adverse trade effects resulting from governmental support of civil aircraft development, production, and marketing. Specifically, the Aircraft Agreement requires signatories to eliminate tariffs on civil aircraft, engines, flight simulators, and related parts, and to provide these benefits on a nondiscriminatory basis to other signatories. Article 4 of the Aircraft Agreement forbids signatories from requiring or unduly pressuring airlines and aircraft manufacturers to procure civil aircraft from a particular source that would create discrimination against suppliers from any other signatory. Article 5 forbids quantitative restrictions and other licensing requirements that would restrict imports and exports of civil aircrafts in a manner that is inconsistent with the GATT. Article 6 requires signatories to apply the provisions of the Agreement on Subsidies and Countervailing Measures (SCM Agreement) to their civil aircraft industries, which explains why the Boeing-Airbus disputes dealt largely with the SCM Agreement rather than the Aircraft Agreement. While the Marrakesh Agreement marked the completion of the Uruguay Round, it also committed Members to reopen negotiations on agriculture and services at the beginning of the 21 st century. Accordingly, new negotiations began in early 2000 and were formally expanded into a new WTO Round the following year. The Doha Ministerial Declaration is effectively the charter for the Doha Round of talks. It urges Members to focus on the unique concerns of developing and least-developed countries in the negotiations. Hence, the Doha Round is formally known as the Doha Development Round. The Declaration states that negotiations should be conducted transparently and open to all Members as well as to states and customs territories that are currently in the process of accession. All of the agreements under negotiation must be adopted as one final agreement. Consequently, until the Doha Round of negotiations is concluded, the few agreements that Members have reached cannot be permanently implemented. Concluding negotiations in the Doha Round, however, has proven difficult because of the number of countries involved and the differences between them. A free or reciprocal trade agreement is an agreement involving two or more trading partners under which trade barriers are reduced or eliminated. The United States first entered reciprocal trade agreements with Israel and Canada respectively. Today, the United States has entered into reciprocal trade agreements with 19 countries, including nations in Asia, the Middle East, South and Central America, and Africa. Any free trade agreement is non–self-executing, meaning that these agreements have no legal effect domestically until legislation implementing the agreement is enacted. Because congressional action is necessary to approve a free trade agreement, these agreements and their implementing legislation are called congressional-executive agreements. The following discusses the only two regional free trade agreements to which the United States is a party: the North American Free Trade Agreement (NAFTA) and the Dominican-Republic Central America-United States Free Trade Agreement (DR-CAFTA). It then addresses pending free trade agreements and the negotiations for a third regional free trade agreement: the Trans-Pacific Partnership Agreement. The United States is a party to 15 bilateral free trade agreements, which are listed on the United States Trade Representative's website. This report discusses only a few selected provisions of the following trade agreements. The United States negotiates free trade agreements that, more or less, comport with the U.S. "model FTA." Used as a framework for U.S. trade agreements by the Office of the U.S. Trade Representative (USTR), the model FTA is roughly based on NAFTA and the WTO Agreements but has evolved with congressional involvement and shifting U.S. priorities. Under the current model, the United States pursues trade liberalization in trade in goods through provisions on nondiscrimination, tariff reduction, rules of origin, sanitary and phytosanitary measures, technical barriers to trade, trade remedies, and other obligations that resemble those found in the GATT and WTO agreements on trade in goods. In addition, the model FTA covers trade in services, with specialized provisions on telecommunications and financial services, investment, government procurement, competition policy, intellectual property rights, and dispute settlement. Although provisions on labor rights and environmental protection were not a part of earlier U.S. trade agreements, they are now standard and increasingly enforceable. Most recently, the model FTA has evolved to include electronic commerce obligations. While the texts of the free trade agreements generally establish each country's obligations, the contracting countries reserve exceptions to these obligations in the annexes. Consequently, a full understanding of each country's obligations under a free trade agreement comes from reading both the body and the annexes to each agreement. Congress has played a significant role in the evolution of the model FTA. First and foremost, the Trade Promotion Authority statutes, which authorize the Executive to negotiate and enter into trade agreements with foreign countries, set the U.S. negotiating objectives. In addition, in 2007 Congress and the George W. Bush Administration negotiated the "Bipartisan Trade Deal" or "May 10" understanding. This trade deal required the incorporation of certain provisions into the Peru, South Korea, Panama, and Colombia trade agreements in the areas of labor, environment, intellectual property, foreign investors' rights, and port security. Essentially, the Bipartisan Trade Deal modified the model FTA, and, consequently, countries that had already passed domestic legislation regarding pending free trade agreements with the United States incorporated the changes. Among the most frequently discussed provisions of the Bipartisan Trade Deal are those on labor and the environment. The labor provisions require U.S. free trade agreement partners to adopt, maintain, and enforce five labor standards stated in the 1998 International Labor Organization Declaration: freedom of association, the effective recognition of the right to collective bargaining, the elimination of all forms of forced or compulsory labor, the effective abolition of child labor, and the elimination of discrimination in respect of employment and occupation. Moreover, both the labor and environment provisions subject allegations of the labor and environmental chapters to the same general dispute settlement system used for trade violations. The free trade agreement chapters selected for discussion below, namely investment, intellectual property, and labor, illustrate notable processes and trends in the evolution of the model FTA. Investment has always been a crucial chapter for U.S. free trade agreements, but the language of the model provisions has changed over time to reflect concern that initial NAFTA arbitral tribunals' interpretations of these provisions overly limited government regulatory power. The core investment provisions of NAFTA have, in turn, been renegotiated and redrafted to incorporate the NAFTA parties' understanding of the concepts. In the case of intellectual property rights, the model FTA has increasingly expanded the rights of intellectual property holders beyond those required by the Trade-Related Intellectual Property Rights Agreement and NAFTA. Finally, the model FTA's approach to labor issues has evolved from addressing labor issues outside of the agreement's text to incorporating them into the final agreement and, with the May 10 understanding, subjecting allegations of the labor and environmental chapters to the same general dispute settlement system used for trade violations. The North American Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico entered into force on January 1, 1994. NAFTA contains, inter alia , tariff reduction schedules, provisions intended reduce nontariff barriers to trade, and dispute settlement provisions that are distinct from the WTO's Dispute Settlement Understanding. NAFTA also has side agreements on labor and the environment. In general, investment law is considered distinct from international trade law. Unlike international trade, which entails a series of exchanges of goods for money, foreign investment refers to a long-term relationship between a private investor and a foreign country. The decision to include investment provisions in NAFTA and subsequent U.S. trade agreements reflected concern that, as these relationships progressed, companies operating abroad were susceptible to expropriation and other means of intervention by their host governments. Chapter 11 of NAFTA articulates numerous substantive protections for investors. Key protections include parties' obligations to accord foreign investors national and most-favored-nation treatment; conform with a "Minimum Standard of Treatment"; compensate investors adequately for expropriation of their property; and refrain from imposing certain performance requirements, such as requirements that an investment achieve a given level of domestic content or export a given level of goods or services. Articles 1110 and 1105 of NAFTA are reportedly among the most frequently cited NAFTA investment provisions in legal disputes and public controversies. Paragraph 1 of Article 1110 prohibits NAFTA parties from "directly or indirectly" nationalizing or expropriating an investment of an investor of another party in its territory or taking a measure "tantamount to nationalization or expropriation of such an investment" except: (1) for a public purpose; (2) on a non-discriminatory basis; (3) in accordance with due process of law and Article 1105; and (4) on payment of compensation." Paragraph 1 of Article 1105 articulates the "Minimum Standard of Treatment," requiring each party to accord to investments of investors of another party "treatment in accordance with international law, including fair and equitable treatment and full protection and security." However, whether a given investor is entitled to benefit from these provisions depends, in large part, on whether the investment at issue is covered by Article 1139 of NAFTA. Article 1139 defines "investment" as limited to: an enterprise or interest, equity security, or debt security in such an enterprise; a loan to an enterprise; real estate or other property acquired in the expectation or used for economic benefit or other business purposes; and interests arising from the commitment of capital or other resources to economic activity in the territory of the host party. Intellectual property rights, which are expressly included in the definition of "investment" in subsequent U.S. trade agreements, are excluded from the definition in Article 1139 of NAFTA. If a given investment is covered by Chapter 11's substantive protections, investors of NAFTA parties can enforce those provisions against other NAFTA parties through investor-state arbitration. When an investor from a NAFTA country believes that another Party has breached an obligation and the investor has suffered a loss as a result, the investor has the right to file a claim for arbitration against the allegedly offending nation. The investor does not need to obtain the permission or participation of its own government before filing a claim. However, the investor must wait to file a claim until a six-month "negotiation" period has passed from the date of the events giving rise to the claim and provide the host state with 90 days' written notice of the intent to file a claim. The investor must also discontinue and/or waive its right to initiate legal actions against the challenged measures before other courts or tribunals. Under the Chapter 11 dispute settlement mechanism, the investor decides whether the arbitration will be governed by the Convention on the Settlement of Investment Disputes (ICSID Convention), the ICSID Additional Facility Rules, or the UNCITRAL (United Nations Commission on International Trade Law) rules. Chapter 17 of NAFTA, which addresses intellectual property, was modeled in part on the WTO's Agreement on Trade-Related Aspects of Intellectual Property (TRIPS Agreement), which was negotiated concurrently with NAFTA. NAFTA's provisions on intellectual property can be divided into three categories: provisions articulating the scope and substance of required intellectual property laws; provisions governing domestic enforcement of intellectual property law; and provisions prescribing the mechanisms for party-to-party dispute resolution. Article 1701, which belongs in the first category, requires each party to provide "adequate and effective protection and enforcement of intellectual property rights" to the nationals of another party. At a minimum, this obligation requires that each party give effect to the substantive provisions of four separate international agreements on intellectual property: the Geneva Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication of their Phonograms, the Berne Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, and either the 1978 or the 1991 International Convention for the Protection of New Varieties of Plants. Each party must also ensure its laws provide specified levels of protection for copyrights, sound recordings, encrypted program-carrying satellite signals, trademarks, patents, layout designs of semiconductor integrated circuits, industrial designs, rights in geographical indications, and trade secrets. Finally, each party must accord national treatment with regard to the protection and enforcement of the intellectual property rights of another party's nationals. Articles 1715, 1717, and 1718 of NAFTA fall into the second category. They require that NAFTA parties make civil judicial procedures available to intellectual property right holders; provide criminal procedures and penalties in cases of willful trademark counterfeiting or copyright piracy on a commercial scale; and adopt procedures under which an intellectual property right holders can petition to have infringing goods barred from importation. As under the TRIPS Agreement, disputes arising under Chapter 17 of NAFTA can be settled under the general dispute settlement mechanism. Accordingly, if a NAFTA panel finds that a defending party has acted inconsistently with its NAFTA obligations for the protection or enforcement of intellectual property rights, the complaining party may seek authorization of trade sanctions for noncompliance with the panel's report. Unlike most other trade agreements to which the U.S. is a party, NAFTA does not contain labor provisions but, rather, incorporates a side agreement on labor: the North American Agreement on Labor Cooperation ("NAALC"). Although NAALC articulates several substantive requirements, few of these requirements are enforceable under the formal mechanism for dispute resolution. Furthermore, NAALC does not permit labor unions or other concerned parties to use the NAALC dispute settlement mechanism to resolve a labor-related dispute with a NAFTA party. Under NAALC, each party retains the right to set and apply its own "high" labor standards but is required to enforce labor rights through specified procedures, including citizen access to authorities. Each party must further ensure that enforcement proceedings are "fair, equitable, and transparent" and "comply with due process of law." However, a NAALC arbitral panel may only be established to hear a claim by a NAFTA party that another party has engaged in a "persistent pattern of failure ... to effectively enforce its occupational safety and health, child labor or minimum wage technical labor standards" where that the pattern is "trade-related" and "covered by mutually recognized labor laws." If an arbitral decision is rendered and the offending party fails to comply, the panel may impose a monetary enforcement assessment to be paid into a fund improve or enhance labor law enforcement in the defending party. If the defending party does not pay the assessment, the complaining party may suspend trade benefits equal to the amount of that assessment. NAALC requires each NAFTA party to establish its own National Administrative Office (NAO) to monitor NAFTA-related labor rights issues. In the United States, the NAO is the Office of Trade and Labor Affairs (OTLA) in the U.S. Department of Labor. As the U.S. NAO, OTLA is responsible for, inter alia , investigating citizen complaints about another NAFTA party's labor practices, seeking consultations with another party's NAO on specified matters relating to the agreement, and submitting information to the NAALC Secretariat. Finally, NAALC establishes the Commission for Labor Cooperation to oversee the implementation of the Agreement, develop recommendations for its further elaboration, create technical assistance programs, and facilitate party-to-party consultations. The Commission also manages the fund into which monetary enforcement assessments levied by NAALC arbitral tribunals are paid. In August 2004, the United States signed the CAFTA-DR with Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic; a year later, the President signed the requisite implementing legislation ( P.L. 109-53 , 119 Stat. 462, 19 U.S.C. §4001 et seq. ). It is the first free trade agreement between the United States and a group of smaller developing economies. Like NAFTA, CAFTA-DR contains, inter alia , tariff reduction schedules, provisions intended reduce nontariff barriers to trade, and dispute settlement provisions that are distinct from the WTO's Dispute Settlement Understanding. Unlike NAFTA, CAFTA-DR has chapters, rather than side agreements, dedicated to labor and environmental protection. Like Chapter 11 of NAFTA, Chapter 10 of CAFTA-DR establishes substantive and enforceable protections for investors in CAFTA-DR parties. Again, key protections include parties' obligations to accord foreign investors national and most-favored-nation treatment; conform with a "Minimum Standard of Treatment"; compensate investors adequately for expropriation of their property; and refrain from imposing certain performance requirements, such as requirements that an investment achieve a given level of domestic content or export a given level of goods or services. However, CAFTA-DR clarifies and expands upon the two protections that are the most litigated under NAFTA: the "Minimum Standard of Treatment" and compensable expropriation. As to the former, CAFTA-DR clarifies that the concept of "fair and equitable treatment" does not require treatment in addition to or beyond that which is required by customary international law and includes the obligation to accord "due process" in adjudicatory proceedings. This language reflects U.S. experience with NAFTA's "fair and equitable treatment" provision, which was originally interpreted by a tribunal as requiring fair and equitable treatment in addition to the treatment required under international law. In terms of the expropriation provisions, CAFTA-DR establishes the presumption that a group of regulatory actions designed to protect "legitimate public welfare objectives, such as public health, safety, and the environment" cannot be treated as compensable indirect expropriation. There is no such exception from NAFTA's expropriation provisions, and its inclusion in CAFTA-DR seems to reflect heightened concern for parties' regulatory sovereignty in the environmental and public health spheres. As under NAFTA, investors from, and in the territories of, CAFTA-DR parties may enforce the protections accorded them by Chapter 10 through investor-state arbitration. However, as under NAFTA, whether an investor can pursue investor-state arbitration often depends on whether the dispute concerns a covered investment. Notably, CAFTA-DR provides a broader definition of an "investment" than NAFTA. Unlike NAFTA, which provides a positive list of property and interests that qualify as investment, Article 10.28 of CAFTA-DR states that "investment means every asset than an investor owns or controls, directly or indirectly, that has the characteristics of an investment" and provides an illustrative and non-exhaustive list of possible investments that meet this definition. Intellectual property rights is expressly identified as one type of investment covered by Chapter 10 of CAFTA-DR. Generally, however, the dispute settlement provisions in CAFTA-DR mirror those in NAFTA. CAFTA-DR requires investors to abide by the same six-month "negotiation" period as NAFTA and provide the host state with 90 days' written notice before submitting a claim to arbitration. The disputing investor must discontinue and/or waive its right to initiate legal actions against the challenged measures before other courts or tribunals. As under NAFTA's investment dispute settlement mechanism, the investor in a dispute under Chapter 10 of CAFTA-DR decides whether the arbitration will be governed by the Convention on the Settlement of Investment Disputes (ICSID Convention), the ICSID Additional Facility Rules, or the UNCITRAL (United Nations Commission on International Trade Law) rules. CAFTA-DR does contain two significant departures from dispute settlement under NAFTA's Chapter 11. First, under CAFTA-DR, investors may bring claims not only for breach of one of the substantive investor protections but also for a breach of an "investment authorization" or "investment agreement." In effect, this provision significantly widened the scope of investment disputes that could be settled under CAFTA-DR's Chapter 10 beyond those that could be settled under NAFTA's Chapter 11. Second, unlike the NAFTA parties, CAFTA-DR parties' committed themselves to the creation of an appellate body tasked with reviewing the arbitral tribunals' awards. Specifically, Annex 10-F provides for the establishment of a negotiating group to develop an appellate body or similar mechanism "to provide coherence to the interpretation" of CAFTA-DR's investment provisions. Chapter 15 of CAFTA-DR expands upon the obligations contained in NAFTA's chapter on intellectual property rights. First, it requires each party to join and give effect to more international agreements on intellectual property. Whereas NAFTA requires its parties to ratify or accede to four international agreements on intellectual property, CAFTA-DR requires its parties to ratify or accede to seven international agreements and make "all reasonable efforts" to ratify or accede to another three. Additionally, like NAFTA, CAFTA-DR specifies the level of protection that its parties must accord for different types of intellectual property. However, the list of categories of intellectual property subject to these provisions is slightly different than the list in NAFTA. The list includes: copyrights, encrypted program-carrying satellite signals, trademarks, patents, rights in geographical indications, and Internet domain names. Further, as under NAFTA, each CAFTA-DR party must accord national treatment with regard to the protection and enforcement of the intellectual property rights of another party's nationals. A footnote in the Agreement clarifies that the term "protection" in the context of national treatment for intellectual property rights includes "the availability, acquisition, scope, maintenance, and enforcement of intellectual property rights" as well as matters affecting "the prohibition on circumvention of effective technological measures" that copyright owners use to restrict unauthorized use and "the rights and obligations" concerning information that identifies the copyright owner of a given work and any terms or conditions on its use. CAFTA-DR also, like NAFTA, requires its parties to make judicial or administrative procedures available to adjudicate claims brought by intellectual property right holders for unauthorized use; provide criminal procedures and penalties in cases of willful trademark counterfeiting or copyright piracy on a commercial scale; and adopt procedures under which an intellectual property right holders can petition to have infringing goods barred from importation. However, CAFTA-DR also requires its parties to establish criminal penalties for the willful importation or exportation of counterfeit or pirated goods. It also places limits on the liability of Internet service providers for copyright infringements that take place through systems or networks under their control so long as they do not control, initiate, or direct the infringements. Finally, as under the TRIPS Agreement and NAFTA, disputes arising under Chapter 15 of CAFTA-DR can be settled under the general dispute settlement mechanism. Accordingly, if a CAFTA-DR panel finds that a defending party has acted inconsistently with its CAFTA-DR obligations for the protection or enforcement of intellectual property rights, the complaining party may seek authorization of trade sanctions for noncompliance with the panel's report. Unlike NAFTA, labor provisions were written into CAFTA-DR, rather than incorporated through a side agreement. Like the North American Agreement on Labor Cooperation (NAALC) that accompanied NAFTA, Chapter 16 of CAFTA-DR entitles each party to retain its right to set and apply its own labor standards, but also requires each party to enforce labor rights through specified procedures, including citizen access to authorities. Each party must further ensure that enforcement proceedings are "fair, equitable, and transparent" and "comply with due process of law." Another important similarity between NAALC and Chapter 16 of CAFTA-DR is that although both articulate several substantive requirements, only one of these requirements is enforceable under the agreements' formal mechanisms for dispute resolution. Article 16.6.7 of CAFTA-DR expressly provides that no party may have recourse to dispute settlement for any matter arising under its labor chapter except for alleged violations of Article 16.2.1(a), which prohibits parties from failing to "effectively enforce its labor laws, through a sustained or recurring course of action or inaction, in a manner affecting trade between the parties." There is one significant difference, however, between the dispute settlement process for labor issues under CAFTA-DR and NAALC. Whereas NAFTA parties have the option of suspending trade benefits for a defending party's failure to pay any monetary enforcement assessment levied by an arbitral tribunal in a labor dispute, CAFTA-DR parties do not. CAFTA-DR parties may only request that a dispute settlement panel impose an annual monetary assessment on a defending party for noncompliance with a CAFTA-DR panel's decision in a labor dispute. As under NAALC, assessments are not paid to the complaining party; they are paid into a fund managed by the Agreement's "Free Trade Commission" for labor and environmental initiatives, including efforts to improve or enhance labor or environmental law enforcement. The Free Trade Commission, which supervises the implementation of CAFTA-DR generally, is comprised of cabinet-level representatives of the parties. The first formal complaint under Chapter 16 was lodged by the United States against Guatemala in July 2010. The complaint, following a petition filed by the AFL-CIO with the Department of Labor's Office of Trade and Labor Affairs (OTLA), charges that Guatemala's Ministry of Labor failed to both investigate and take appropriate enforcement action against alleged labor law violations and that Guatemala's courts failed to enforce court orders in cases involving labor law violations. Specifically, the U.S. Trade Representative stated in its request that Guatemala's inaction violated its obligations to enforce laws addressing collective bargaining, freedom of association, and working conditions. In December 2009, the USTR notified Congress of the President's intent to enter into negotiations for a regional, Asia-Pacific trade agreement, known as the Trans Pacific Partnership (TPP) Agreement. At that time, the other countries involved in the TPP negotiations were Australia, Brunei Darussalam, Chile, New Zealand, Peru, Singapore, and Vietnam. Since then, Malaysia formally joined the negotiations. Canada, Japan, and Mexico have also expressed interest in joining. The USTR intends to proceed with the TPP negotiations as though they were covered by the terms of the Bipartisan Trade Promotion Authority Act of 2002 (Trade Act of 2002). The act entitled trade agreements that satisfied certain requirements, including being "entered into" by July 1, 2007, to receive fast track consideration in Congress. Accordingly, although the TPP cannot be entered into before the date required by the Trade Act of 2002, the Administration provided written notice to Congress of its intent to enter the TPP negotiations 90 days before doing so and has consulted with Congress about the negotiations. In November 2011, the TPP countries announced the broad outlines of a possible TPP agreement, and the Obama Administration has stated that completing a TPP text by the end of 2012 is one of its trade priorities. The TPP will include chapters on investment, intellectual property, and labor. It will permit arbitration of investor-state disputes subject to "appropriate safeguards." Australia, one of the countries involved in negotiations, is opposed to the inclusion of investor-state dispute settlement clauses in international agreements, and the U.S. trade agreement with Australia does not authorize investor-state dispute settlement. Although the details of the intellectual property chapter remain unclear, Obama Administration officials have stated that, relative to earlier U.S. trade agreements, the TPP will have uniquely high standards for intellectual property and digital economy. The Administration would like to see the TPP's chapter on intellectual property address restrictions in the free flow of information and electronic commerce that affect international trade. However, U.S. proposals for expanded terms of copyright, authority for right holders to prohibit temporary copies of their work, and a notice-and-takedown system under which Internet service providers would be obligated to remove allegedly infringing content from their sites are reportedly facing resistance from other TPP countries. In terms of labor, the text tabled by the United States reportedly has slightly higher standards than those established by the Bipartisan Trade Deal. As described in the media, the U.S. proposal would detail countries' obligations to uphold and enforce the International Labor Organization commitments identified in the Bipartisan Trade Deal and specify how TPP countries should deal with public-sector complaints about labor violations. For example, the proposal reportedly states that TPP countries should take measures to reduce trade in products made through forced or child labor. In the United States, international trade law is developed and implemented through a joint effort between Congress and the Executive. Consistent with its constitutional authority, the Congress enacts trade laws, which the Executive implements and enforces. However, in the context of international trade agreements, the roles can seem reversed, with the Executive negotiating the agreement and the Congress "implementing" it through legislation. Article 1, section 8 of the United States Constitution gives Congress the authority to (1) "lay and collect taxes, duties, imposts, and excises," (2) "regulate commerce with foreign nations," and (3) "make all laws which shall be necessary and proper" to carry out these specific powers. Whereas Congress was initially only concerned with the conditions under which an import could enter the U.S., it has, over time, used its authority over international trade to regulate virtually all areas of trade policy, including how the Executive negotiates a trade agreement, how a negotiated trade agreement can be implemented, how domestic industries can obtain "remedies" for injury resulting from import competition, and how trade sanctions can be imposed. Article II of the U.S. Constitution gives the President authority, subject to the advice and consent of the Senate, to make treaties and appoint ambassadors. In addition, several clauses in Article II (namely, the clauses relating to the grant of executive power, the appointment of ambassadors, the submission of treaties, and the authority of the Commander in Chief) have been construed as operating together to vest the President with the vast share of the responsibility for conducting foreign relations. Consequently, the President is widely understood as having the authority to both negotiate trade agreements and execute laws affecting foreign commerce (e.g., through customs enforcement, collection of duties, implementation of trading remedy laws, and the administration of export and import polices). The following historical overview of two commonly discussed legal issues in international trade (fast track authority and import competition) illustrates how Congress and the executive branch have exercised their constitutional authorities over aspects of trade policy in response to changing concerns. In the name of job creation, the Tariff Act of 1930 ("Smoot-Hawley Tariff Act," 46 Stat. 590, 19 U.S.C. §1202 et seq. ) established the highest tariffs in U.S. history. However, other countries quickly responded by closing off their markets, offsetting any new jobs resulting from the Tariff Act. In part because of this international response to the Tariff Act, Congress was persuaded that the U.S. needed international agreements that reduced tariffs. Accordingly, Congress passed the Trade Agreements Act of 1934 ("1934 Trade Act," Pub. L. 316, 48 Stat. 943, 19 U.S.C. §1351 et seq. ) as an amendment to the Tariff Act, authorizing the President to adjust tariffs by negotiating reciprocal agreements with foreign countries. Since Congress first granted the President negotiating authority in international trade with the 1934 Trade Act, Congress has periodically renewed, and occasionally expanded, that authority. When Congress has expanded the President's negotiating authority, it has often done so by substantially reducing the possibility that Congress will delay a trade agreement's implementation or demand amendments. This kind of legislation is commonly known as trade promotion, or "fast track," authority (TPA). At its most basic, TPA resembles a guarantee that a trade agreement negotiated by the President will receive expedited congressional consideration. Consequently, the Executive generally favors TPA because it gives U.S. negotiators both flexibility and credibility to negotiate a trade agreement with another country. The modern form of TPA was first codified by the Trade Act of 1974, which developed out of a proposal by President Nixon for authority to negotiate tariff concessions during the Tokyo Round of the GATT. While the precise form of TPA can vary by the law establishing it, TPA statutes typically: (1) authorize the President to enter certain reciprocal international agreements reducing tariff and nontariff barriers; and (2) entitle those agreements to consideration under fast track procedures in Congress if the President has satisfied additional substantive and procedural conditions. In turn, the fast track procedures promote timely committee and floor action of the legislation at issue by entitling the legislation to receive, for example, an up-or-down vote in Congress without amendment and with limited debate. TPA was last granted by the Bipartisan Trade Promotion Act of 2002, which expired at the end of June 2007. Congress has occasionally withheld TPA, and it has also approved and implemented at least one trade agreement that was not considered pursuant to the fast track procedures. Nevertheless, some worry that, in the absence of a statute authorizing TPA, foreign governments will hesitate to engage in substantive trade negotiations with the United States because Congress might demand amendments to a negotiated agreement or delay the agreement's implementation indefinitely. While the Tariff Act of 1930 is most often cited for raising tariffs, it, along with the Trade Act of 1974, is the primary source of modern U.S. trade remedy law. The objective of trade remedy laws is to mitigate the adverse impact of import competition, particularly as a result of certain unfair trade practices, on domestic industries and workers. The three most frequently applied U.S. trade remedy laws are countervailing duty law, antidumping law, and safeguard law. The first two are contained in the Tariff Act of 1930 while safeguard law is contained in the Trade Act of 1974. The first U.S. trade remedy law was a countervailing duty law created largely in response to Germany subsidizing its sugar exports. When Germany increased the subsidy to offset the new U.S. duty, Congress made the countervailing duty more flexible by setting the amount of the duty at the amount of the subsidy granted. Over time, this countervailing duty law was amended and incorporated into Title VII of the Tariff Act of 1930. U.S. antidumping law followed a similar path of development. In the early 20 th century, Congress became concerned with foreign companies selling their products in the U.S. at a price less than that which they charged in their home market. Consequently, Congress enacted the Antidumping Act of 1916 (Pub. L. 64-271, 39 Stat. 798, repealed by Miscellaneous Trade and Technical Corrections Act of 2004, P.L. 108-429 , 118 Stat. 2434). Title II of the 1921 Emergency Tariff Act ("Antidumping Act of 1921," Pub. L. 67-10, 42 Stat. 9) transformed the original antidumping system into the current model, which imposes an offsetting duty on articles exported to the U.S. at a price less than that charged in the home market. This system was then incorporated into Title VII of the Tariff Act of 1930. The third kind of trade remedy law (safeguards) developed in the mid-20 th century in response to the tariff reductions achieved by international agreements. President Truman, as a concession to Congress, agreed to set up a procedural mechanism to allow U.S. industries to apply for relief from U.S. tariff cuts negotiated as part of the GATT. Congress codified this "escape clause" in Section 7 of the Trade Agreements Extension Act of 1951. With the Trade Expansion Act of 1962 (Pub. L. 87-794, 76 Stat. 872), the Kennedy Administration succeeded in tightening the "escape clause" standards because of foreign complaints that its use was undercutting U.S. tariff concessions. However, these standards were loosened again with the Trade Act of 1974. The Office of the United States Trade Representative (USTR) is part of the Executive Office of the President. The USTR is the principal vehicle through which the U.S. conducts trade negotiations and implements U.S. trade policy. It is also responsible for keeping Congress informed of any WTO dispute settlement proceeding involving the United States. Persons or entities desiring an investigation of potential noncompliance with a trade agreement contact the USTR, which handles Section 301 complaints against foreign unfair trade practices. The USTR also oversees the administration of other aspects of U.S. trade law, including the Generalized System of Tariff Preferences (commonly called the GSP), which permits duty-free entry for imports from developing countries, and telecommunications reviews under Section 1377. The USTR is also involved in reviewing recommendations from the International Trade Commission under Sections 201 on safeguards and 337 on intellectual property right infringement. The International Trade Administration (ITA), which is located in the U.S. Department of Commerce, is responsible for making determinations in both countervailing duty and anti-dumping cases. Specifically, the ITA must determine whether there are subsidies in a countervailing duty case and whether the sales are made at less than fair value in anti-dumping cases. The United States International Trade Commission (ITC) is an independent federal agency with broad investigative responsibilities. One of the ITC's primary duties is its investigative role in the administration of U.S. trade remedy laws, which entails investigating the effects of dumped and subsidized imports on domestic industries and conducting safeguard investigations including investigations under the China-specific safeguard contained in Section 3421 of the Trade Act of 1974. The ITC also adjudicates cases involving imports that allegedly infringe intellectual property rights under Section 337 of the Tariff Act of 1930. In addition, the ITC maintains the Harmonized Tariff Schedule, which Customs Services uses to assess the correct tariff on imported goods. U.S. Customs and Border Protection (CBP) is a part of the Department of Homeland Security. Its primary trade functions include (1) enforcing intellectual property rights at the border, thereby preventing the importation of counterfeit, pirated, or patent-infringing goods, (2) assuring that appropriate duties and fees are paid, and (3) securing trade to and from the U.S. from acts of terrorism. In addition, along with the Food and Drug Administration, CBP seeks to protect American people, resources, and economic well-being from foods or plants that are contaminated, diseased, infested, or adulterated. The United States Court of International Trade (CIT) is part of the Judicial Branch. It was created by the Customs Courts Act of 1980 ( P.L. 96-417 , 94 Stat. 1727), which transformed the United States Customs Court into the Court of International Trade and expanded the CIT's jurisdiction. The President, with the advice and consent of the Senate, appoints the nine judges with lifetime tenure to the CIT. The CIT, which is located in New York City, has jurisdiction over cases arising anywhere in the nation, but it may also hold hearings in foreign countries. The court may decide any civil action against or by the United States, its officers, or its agencies arising out of any law pertaining to international trade. All litigation involving the Generalized System of Preferences (GSP) is commenced in the Court of International Trade. Appeals may be taken to the United States Court of Appeals for the Federal Circuit, and, ultimately, to the Supreme Court of the United States. When asked to review the decision of an administrative agency, federal courts apply the " Chevron " standard of review, which is often associated with a high level of deference to the agency's decision. The Court of International Trade is no exception. Consequently, when it is reviewing a decision by the U.S. Department of Commerce or ITC to impose antidumping duties or use zeroing to determine a "dumping margin," the CIT frequently respects the agency's decision. Sections 301 through 310 of the Trade Act of 1974 (commonly referred to as "Section 301") require the USTR to impose trade sanctions on foreign countries that either (1) violate trade agreements, (2) have acts, policies, or practices that are inconsistent with a trade agreement, or (3) have acts, policies, or practices that are unjustifiable and burden U.S. commerce. Section 301 also gives the USTR the option of imposing trade sanctions on foreign countries that maintain acts, policies, or practices that are unreasonable or discriminatory and burden or restrict U.S. commerce. The USTR is the only body authorized to challenge foreign trade practice on behalf of the United States (or United States industries) under this law. Before imposing mandatory sanctions under Section 301, the USTR engages in a two-step process. First, the USTR must determine under Section 304(a)(1) whether a foreign country's acts or policies (1) violate U.S. rights under any trade agreement; (2) are inconsistent with a trade agreement; or (3) are unjustifiable and burden or restrict U.S. commerce. If the USTR determines that the country's acts or policies fall into one of those categories, then the USTR may, subject to any specific direction of the President, (1) suspend or withdraw benefits of U.S. concessions under the trade agreement; (2) impose duties or other restrictions on the foreign country's goods or services; or (3) enter a binding agreement with the foreign country that commits it to eliminating or phasing out the burden or practice in question or to provide the U.S. with compensatory trade benefits. For example, in the fall of 2010 the United Steelworkers filed a petition with the USTR alleging that China employed a wide range of WTO-inconsistent policies that unfairly protected and supported their domestic producers in the green energy sector. The USTR responded by initiating an investigation and subsequently requested consultations with China, alleging that that China provided prohibited subsidies to wind turbine manufacturers. In June 2011, the United States and China reached an agreement, and China terminated the subsidy program at issue. The USTR is not required to act, however, if a WTO panel or dispute settlement ruling finds that U.S. rights have not been violated. The USTR is also not required to act if it finds (1) that the foreign country is taking satisfactory measures to grant U.S. trade agreement rights; (2) that the foreign country is taking satisfactory measures to either eliminate the practice, provide an imminent solution to it, or provide satisfactory compensatory benefits; or (3) that taking the action would cause serious harm to the U.S. national security. Any interested person may file a petition with the USTR requesting that action be taken under Section 301. The USTR must review the petitioner's allegations and publish, in the Federal Register, notice of the determination and a summary of the reasons behind it. The USTR can also initiate investigations to determine whether a matter is actionable. Title VII of the Tariff Act of 1930 governs the process by which the United States decides to impose countervailing duties (CVDs) in response to subsidies by foreign countries that either cause or threaten material injury to U.S. industry. CVDs are additional import duties imposed on the subsidized imports. Title VII creates two different sets of rules: one set governs the imposition of CVDs on goods from countries that are part of the Agreement on Subsidies and Countervailing Duties (SCM Agreement) and the other set governs the imposition of CVDs on countries that are not part of the SCM Agreement. The U.S. International Trade Commission and the U.S. Department of Commerce (through the International Trade Administration) jointly investigate allegations of countervailable subsidies. Their investigations commence when an interested party files a countervailing duty petition with both ITA and the ITC alleging that an industry in the United States is materially injured or threatened by reason of the sale of subsidized imports in the United States at less than their fair value. The petition must be filed "by or on behalf of the industry," meaning that the domestic producers or workers who support the petition must account for at least 25% of the total production of the domestic like product and for more than 50% of the production of the domestic like product produced by that portion of the industry expressing support for the petition. Interested parties may file both antidumping and countervailing duty petitions involving the same imported merchandise. Both the ITA and the ITC are willing to review a petition before it is filed to enable the petitioner to learn about any deficiencies in the petition that might delay or prevent the initiation of an investigation. Once a petition is received, the ITA and the ITC enter the first of two rounds of the investigation. In this first round, the agencies must make preliminary determinations on the existence of both a material injury to domestic industry and of a countervailable subsidy by the foreign country. The ITC's preliminary determination evaluates whether there is a "reasonable indication" of a material injury, that is, whether the domestic industry is materially injured or threatened with material injury or whether its establishment is materially retarded. However, the ITC will not engage in this preliminary analysis if the allegedly subsidizing country is not a member of the WTO and therefore entitled, under the SCM Agreement, to an injury determination. If, on the other hand, the ITC finds that there is no reasonable indication of material injury, the investigation is terminated and the ITA does not continue its own preliminary investigation. The ITA's preliminary determination evaluates whether there is a reasonable basis to believe or suspect that a countervailable subsidy is being provided with respect to the subject merchandise. If the ITA and the ITC reach affirmative determinations, namely that there is a reasonable basis to believe the country being investigated is providing countervailable subsidy that is causing a material injury to the domestic industry, the importers of the targeted merchandise must post bond or provide some other security for the estimated subsidy for all entries of the subject merchandise. In addition, at that point, the investigation enters the second round in which both agencies must make final determinations. The ITA makes its determination first. The ITA must determine whether or not a countervailable subsidy is being provided with respect to the merchandise. Following the ITA's final determination, the ITC determines whether the domestic industry is materially injured or threatened with material injury or whether its establishment in the United States is materially retarded by reason of imports, sales, or likely sales of merchandise that the ITA has deemed subsidized. However, as with the preliminary injury determination, the ITC will not engage in this final analysis if the allegedly subsidizing country is not a member of the WTO. If the two agencies' final determinations conclude that a countervailable subsidy was provided with the effect of causing or threatening material injury to a domestic industry or its establishment, then, upon publishing its finding, the Department of Commerce issues a countervailing duty order. The duty levied in that order must be equal to the estimated amount of the government or other public subsidization. The U.S. Customs and Border Protection is then required to collect cash deposits of CVD duties on the merchandise in question when it enters the United States. The cash deposits represent an estimate of the actual duties owed. The final amount of the duties collected will be either the cash deposit, or, if an administrative review is requested, the duty established by that review. Generally, the final duty is determined by an administrative review. The process by which the United States investigates allegations of dumping—that is, allegations that a foreign manufacturer charges a price for its product that is "less than its fair value" —is similar to the process discussed above for investigating allegations of countervailable subsidies. The procedures for assessing and collecting antidumping (AD) duties are prescribed in Title VII of the Tariff Act of 1930. Any interested party may petition the Department of Commerce to investigate allegations of dumping, and these investigations may also be self-initiated by Commerce. The petitions must be filed "by or on behalf of the industry." Like CVD investigations, AD investigations are jointly administered over the course of two rounds by the Department of Commerce and the ITC. Like countervailable subsidy investigations, the first round of an antidumping investigation requires preliminary determinations by the ITA and the ITC. If the ITC determines that there is a reasonable indication of material injury, the ITA assesses whether there is a reasonable basis to believe or suspect that the merchandise is being sold, or is likely to be sold, at less than its fair value. Predictably, the second round is the round in which the ITA and ITC make their final determinations on these same questions. As under CVD law, if both the ITA and ITC make affirmative determinations on these questions, then the ITA issues an order instructing the U.S. Customs and Border Protection to collect cash deposits of the AD duties on the merchandise in question when it enters the United States. Antidumping duties are based on the "weighted average dumping margin" as determined by the ITA under 19 U.S.C. Section 1677f-1. In determining the size of a dumping margin for a particular product, the Department of Commerce has historically used a practice known as "zeroing" in its administrative reviews. Zeroing entails aggregating the dumping margins for all of the sub-products but assigning the value of zero to a sub-product's dumping margin when its export price exceeds its normal (home market) value. The Department of Commerce's practice of using zeroing to calculate dumping margins generated complaints from other WTO Members. While the Court of International Trade found that Commerce's decision to use "zeroing" to calculate the dumping margin is a reasonable and permissible interpretation of the law, the WTO consistently ruled against the U.S. practice—declaring it a violation of U.S. obligations under the WTO Antidumping Agreement. In February 2012, the United States announced that it had reached agreements with the European Union and Japan to end "zeroing." Pursuant to those agreements, the U.S. Department of Commerce published a final rule in the Federal Register pursuant to which the Department will abandon zeroing in administrative review, new shipper review, and expedited antidumping reviews of AD orders except, perhaps, where it determines that zeroing would be appropriate. Under this new rule, the Department will calculate weighted-average margins of dumping and antidumping duty assessments in a manner that provides offsets for non-dumped comparisons. The Department also adopted a timetable for modifying its practice in five-year "sunset" reviews of AD orders so that it will no longer rely on weighted-average dumping margins that were calculated using methodology deemed WTO-inconsistent. Sections 201 through 204 of the Trade Act of 1974 provide the authority and procedures for the President to take action, including import relief, to facilitate a domestic industry's adjustment to import competition. Successful adjustment to import competition is defined as the domestic industry's ability to successfully compete or its orderly transfer of resources to other productive pursuits. Under Section 201, if the International Trade Commission determines that an article is being imported in such increased quantities as to be a substantial cause, or threat, of serious injury to the domestic industry producing the like or directly competitive article, the President shall take all appropriate action to facilitate the domestic industry's adjustment. Any entity that is representative of an industry may petition the ITC to make this determination. The law lists several factors, including a relative increase in imports and decline in the proportion of the domestic market supplied by domestic producers, that the ITC must consider in making its determination. However, the statute does not cabin the ITC's investigation to those factors. If the ITC makes an affirmative determination, it must recommend the action that would address the serious injury, or threat thereof, to the domestic industry. Specifically, it is authorized to recommend, among other actions: an increase or imposition of a duty, a tariff-rate quota, and a modification or imposition of a quantitative restriction. Upon receiving a report of the ITC's determination and recommendations, the President must determine and take "all appropriate and feasible action" to make a positive adjustment to import competition. The President is required to consider certain factors before determining what action to take. If the President concludes that there is no appropriate and feasible action to take, the President must transmit to Congress a document setting forth the reasons for the decision. In addition to Section 201, Title IV of the Trade Act of 1974 also provides country-specific safeguards under which the President can provide domestic industries with relief from domestic market disruption. In advance of China's accession to the WTO, for example, the United States and China negotiated two temporary China-specific safeguards, which are scheduled to expire in 2013. The first "China safeguard," which is contained in Section 421 of the Trade Act of 1974, entitles the President to temporarily increase duties or other import restrictions to remedy an import surge that threatens—or causes—market disruption of a domestic producer of a similar product. In 2009, the Obama Administration exercised this authority after determining that imports of new pneumatic car tires from China were being imported into the United States in a fashion that caused or threatened to cause market disruption to domestic car tire products. Accordingly, the President proclaimed an additional duty on certain Chinese tires. Although China requested WTO consultations with the United States, both the WTO panel and Appellate Body reports supported the U.S. measures. The second China-specific safeguard, Section 422 of the Trade Act of 1974, is an import monitoring provision. It provides that if any WTO Member other than the United States requests consultations with China under the product-specific safeguard provision, the United States Customs Service must monitor imports of those same products into the United States. To date, the President has not taken action pursuant to Section 422. The Harmonized Tariff Schedule (HTS) was enacted by the Omnibus Trade and Competitiveness Act of 1988. It identifies the "rates of duty" for particular classes and articles of imported and exported goods. The HTS is divided into three columns laying out (1) the rates of duty for products receiving most favored nation treatment, (2) the rates of duty for products that do not receive that treatment, and (3) the rates of duty for special duty-free and other preferential rates that are accorded under free trade agreements and trade preference programs. In addition, there are three different bases for assessing duties: (1) ad valorem rates, which assess duties by the value of the article; (2) specific rates, which assess duties by the weight or quantity of the article; and (3) compound rates, which assess duties by a combination of ad valorem and specific rates. However, Chapters 98 and 99 of the HTS also include special provisions and modifications that permit, in certain circumstances, duty-free or partial duty-free entry of goods that would otherwise be subject to duty. Among the exceptions to the HTS are suspensions or reductions of duties resulting from free trade agreements and other international obligations, from a U.S. tourist's purchases while overseas, and from the application of the Generalized System of Preferences, discussed below. Title V of the Trade Act of 1974, P.L. 93-618 , as amended, governs the U.S. Generalized System of Preferences (GSP). The GSP provides non-reciprocal, duty-free tariff treatment to certain products imported from over one hundred designated developing countries. The GSP originated in dialogues between the developed and the developing world in which the latter successfully pushed for special access to industrial markets. Under the GSP, any United States producer of an article that competes with GSP imports can petition to have a country or particular group of products removed from the program. Similarly, any foreign exporter can petition for product or beneficiary country status in the program. As discussed below, the President has broad authority to withdraw, suspend, or limit the application of duty free entry under the GSP system. For example, in 2012, the United States suspended Argentina's eligibility as a beneficiary of the GSP because of the country's failure to pay investor-state arbitration awards to two U.S. firms. A list of GSP qualified nations and territories is contained in HTS General Note 4. Certain countries and categories of countries are statutorily barred from benefitting from the GSP program. For example, Congress has identified eight countries plus the European Union member states that are ineligible for the GSP. Other countries prohibited from benefiting from the GSP include, inter alia , communist states that meet certain criteria; nations that collude with other countries to withhold supplies or resources from international trade or otherwise raise the price of goods in a way that could seriously disrupt the world economy; countries that have not taken or are not taking steps to afford internationally recognized worker rights to workers; and countries that have aided or abetted an individual or group that has committed an act of international terrorism. Outside of these bars on eligibility, the President has substantial discretion over which countries and products receive beneficiary status. In determining whether a country is eligible, the Administration must evaluate, inter alia , if that country is upholding workers' rights, protecting intellectual property rights, extending equitable and reasonable access to its markets, reducing trade distorting investment practices (such as export performance requirements), and reducing barriers to trade in services. Although the Administration must consider these and other factors in assessing a country's eligibility, the President may determine that a country qualifies for beneficiary status despite having a less desirable record on any one or set of them if the Administration finds GSP duty free entry would be in the national economic interest of the United States. The Administration's review of a country's eligibility under the GSP program is ongoing, which allows for disqualification, reinstatement, and graduation of GSP beneficiary nations. Moreover, the President must graduate a beneficiary country from the GSP program if the Administration determines that the nation has become a "high income" country. Any country designated as a beneficiary nation under the GSP program that is subsequently disqualified or graduated must receive notice and an explanation of the decision. In addition, before the President designates a country as a GSP beneficiary, graduates a country, or terminates a country's GSP beneficiary status, the President must notify Congress. The President issues a list of products from each country that qualify for duty free entry. "Import sensitive" products, however, are statutorily ineligible for the GSP program. These products include most textiles and apparel goods, watches, footwear and other accessories, and certain categories of electronics, steel, and glass products. In addition to the statutory bars on an import's eligibility for duty-free treatment under the GSP program, there are two "competitive need" limitations. The first competitive need limitation bars duty-free entry for a product from a beneficiary country if, during the preceding year, that country exported to the U.S. more than a designated dollar volume of that product. The second bars duty-free entry for a product if, during the preceding year, the beneficiary country exported 50% or more of the total U.S. imports of that particular product. However, the President has authority to waive these limitations in certain circumstances. In addition to the U.S. GSP program, the United States has similar non-reciprocal duty-free entry programs for particular regions. One program is the Caribbean Basin Initiative of 1983 (CBERA), which offers substantial duty free entry to nearly all of the islands in, and many countries bordering, the Caribbean Sea. A second is the Andean Trade Preference Act of 1991, under which the President is authorized to grant duty free treatment to imports of eligible articles from Colombia, Peru, Bolivia, and Ecuador. A third trade preferences program is contained in the African Growth and Opportunity Act (AGOA), which authorizes the President to designate Sub-Saharan African countries as beneficiary countries eligible to receive duty-free treatment for certain articles. Although the United States has imposed trade embargoes since the earliest days of the republic, economic sanctions have become an increasingly prevalent feature of U.S. foreign policy in recent decades. In general, the President imposes these sanctions by issuing an Executive Order under existing statutory authorities. However, Congress also has a history of enacting legislation that purports to impose sanctions directly or instructs the President as to what actions may or must be taken with respect to imposing sanctions on a particular country or entity. Once imposed, sanctions are implemented primarily by the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce. This section briefly discusses two of the most commonly cited sources of the President's statutory authority for country-specific economic sanctions: the Trading with the Enemy Act and the International Emergency Economic Powers Act. However, sanctions, like other trade measures, must be crafted to comply with not only domestic laws but also principles of customary international law and WTO obligations. When the United States imposes unilateral sanctions, it can provoke friction not only with the target country but also with countries that trade with the target country. In turn, these countries may challenge the sanctions through WTO dispute settlement proceedings or other avenues. The Trading with the Enemy Act (TWEA) was intended to authorize country-specific sanctions during times of war. Congress briefly expanded TWEA to authorize sanctions during periods of declared national emergency, but, in 1977, Congress relocated the statutory authority for issuing sanctions in national emergencies from TWEA to the International Emergency Economic Powers Act (IEEPA). Despite these changes, the powers granted by Section 5 of TWEA have remained relatively stable, and TWEA remains, at least in part, the statutory basis for some U.S. sanctions programs. TWEA authorizes the President to take a wide variety of actions with respect to virtually any transaction that is conducted by a person subject to U.S. jurisdiction or that involves property subject to U.S. jurisdiction and in which the foreign country—or a national thereof—has an interest. Specifically, TWEA states that the President may [I]vestigate, regulate, direct and compel, nullify, void, prevent, or prohibit any acquisition, holding, withholding, use, transfer, withdraw, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property, subject to the jurisdiction of the United States. TWEA's prohibitory language is often tracked in the regulations implementing various economic sanctions programs. However, the President has also exercised his affirmative authorities under TWEA by, for example, directing and compelling certain foreign assets to be held in interest-bearing accounts. IEEPA replaced TWEA in 1977 as the source of authority for the President to issue economic sanctions during periods of declared national emergency—as opposed to wartime. Before the President may exercise his IEEPA authorities, he must declare a national emergency with respect to the threat involved. In addition, the President must consult with Congress, whenever possible, before declaring a national emergency and regularly while the national emergency remains in force. The question of whether a threat rises to the level of a national emergency sufficient to trigger IEEPA-based sanctions appears to be nonjusticiable. However, Congress may enact—and is required at a certain point to consider—a joint resolution terminating a Declaration of National Emergency. Although the statutory trigger is different, the powers of IEEPA are very similar to those granted by TWEA. Under IEEPA, the President may "investigate, regulate, prevent, or prohibit" virtually any foreign economic transaction, from import or export of goods and currency to transfer of exchange or credit. The USA Patriot Act further augmented the President's IEEPA authority by vesting him with the additional power to (1) block property during the pendency of an investigation and (2) confiscate and vest property of any foreign country or foreign national that has planned, authorized, aided, or engaged in armed hostilities with or attacks against the United States. IEEPA exempts very few international transactions from the President's control, and it grants the President broad authority to prescribe definitions. For example, the President may define who is a "U.S. person" subject to the prohibitions and restrictions of sanctions issued under IEEPA. Over the past few decades, IEEPA has become the primary source of authority for country-specific sanctions regimes. It was first used by President Carter in response to the Iranian hostage crisis. Similarly, after 9/11, President George W. Bush relied on IEEPA to block property and property interests of foreign persons who committed acts of terrorism against U.S. nationals or the U.S. economy. Among the sanctions programs currently based, at least in part, on the President's IEEPA authority are the U.S. sanctions against Myanmar (Burma), Cote d'Ivoire, Iran, North Korea, Sudan, and Syria.
|
The United States has trade obligations under multilateral trade agreements, including the General Agreement on Tariffs and Trade (GATT) and the other World Trade Organization (WTO) agreements, as well as bilateral and regional trade agreements. A variety of domestic laws implement these agreements, prescribe U.S. trade policy goals, or regulate international trade to achieve specific foreign policy objectives. This report provides an overview of both international and domestic trade law, focusing on a select group of international agreements and statutes that are most commonly implicated by U.S. trade interests and policy. Historically, parties to international trade agreements were obligated to reduce two kinds of trade barriers: tariffs and non-tariff trade barriers. Whereas the former may hinder an imported product's ability to compete in a foreign market by imposing an additional cost on the product's entry into the market, the latter has the potential to bar an import from entering that market altogether by, for example, restricting the number of such imports that can enter the market or imposing prohibitively strict packaging and labeling requirements. Consequently, at their most basic, international trade agreements obligate their parties to convert at least some of their non-tariff trade barriers into tariffs, set a ceiling on the tariff rates for particular products, and then progressively reduce those rates over time. However, over time, U.S. trade agreements have become increasingly complex. The U.S. model free trade agreement now targets not only tariffs and non-tariff barriers, but also domestic policies in areas such as labor, environmental law, and electronic commerce that U.S. policymakers consider unfair trade practices. Trade agreements have also evolved to include elaborate trade dispute settlement mechanisms. As illustrated in this report, the typical international trade agreement today disciplines its parties' use of tariffs and trade barriers, authorizes its parties to use discriminatory trade measures to remedy certain unfair trade practices, and establishes a dispute settlement body. Domestic trade laws, meanwhile, can broadly be classified as laws (1) authorizing trade remedies, including remedies for violations of trade agreements, countervailing duties for subsidized imports, and antidumping duties for imports sold at less than their normal value, (2) setting domestic tariff rates and providing special duty-free or preferential tariff treatment for certain products, and (3) authorizing the imposition of trade sanctions to protect U.S. security or achieve foreign policy goals. In addition to describing these domestic laws, this report summarizes the constitutional authorities of Congress and the executive branch over international trade. Finally, the report identifies many of the federal agencies and entities charged with overseeing the development of new trade agreements and the administration and enforcement of federal trade laws. Among the federal agencies and entities discussed are the United States Trade Representative (USTR), the International Trade Administration (ITA), the International Trade Commission (ITC), the United States Customs and Border Protection (CBP), and the United States Court of International Trade (CIT). This report is not intended as a comprehensive review of trade law. It is an introductory overview of the legal framework governing trade-related measures. The agreements and laws selected for discussion are those most commonly implicated by U.S. trade interests, but there are U.S. trade laws and obligations beyond those reviewed in this report.
|
U.S. officials have continued to express strong support for the Préval government, particularly improvements it has made, with U.N. support, in the security realm. In December 2007, Paul Tuebner, the USAID Mission Director in Haiti praised President Préval for "taking the actions necessary to bring Haiti out of conflict and into development." His comments were similar to those expressed by President Bush during President Préval's first official visit to the United States in May 2007. President Bush praised Préval for his efforts to improve economic conditions and establish the rule of law in Haiti, and Préval responded by saying that his government seeks increased U.S. investment in Haiti. There is also bipartisan support in Congress for the Préval government. On December 9, 2006, the 109 th Congress passed a special trade preferences bill for Haiti. The Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE) Act of 2006 ( H.R. 6142 ) was incorporated into the Tax Relief and Health Care Act of 2006 as Title V ( P.L. 109-432 ). Supporters said the bill could generate 20,000 jobs in Haiti within a few months of its implementation. State Department officials estimate that some 4,500 jobs have thus far been created. Some Haitian officials and business leaders hope that the 110 th Congress will consider expanding the benefits provided by the HOPE Act and extending the duration of those benefits in order to help the country attract new investors and create more jobs. The Bush Administration and Congress are likely to maintain an interest in ensuring that Haiti is able to hold free and fair elections this spring for the 10 seats in the Haitian senate whose terms will expire in May 2008. The U.S. government is providing close to $4 million to support the Senate elections in Haiti. The elections, originally scheduled for the late fall, were postponed after members of the country's electoral commission accused the commission's leadership of embezzling funds. President Préval named a new commission in December 2007, but expressed serious concerns about his country's ability to afford the multiple elections that the current Haitian constitution requires. His December statements followed an October 2007 speech in which he called for constitutional reform. Since that time, Haitian leaders and civil society has been debating the pros and cons of reforming the country's 1987 constitution. In November 2007, the Préval Administration published its Poverty Reduction Strategy, a key requirement to meet the International Monetary Fund's conditions for debt relief through the Heavily Indebted Poor Countries Initiative (HIPC). Haiti still has to meet certain other conditions (a so-called "completion point") before its roughly $1.54 billion in foreign public debt, which is mostly owed to the IMF and the World Bank, is cancelled. Upon reaching that completion point, Haiti will also be eligible for cancellation of its debt to the Inter-American Development Bank (IDB). Until that point is reached, the IDB is providing $50 million in grant funding annually for Haiti. On October 15, 2007, the United Nations Security Council voted to extend the mandate of the U.N. Stabilization Mission in Haiti (MINUSTAH) for another year and directed the Mission to undertake more operations to secure Haiti's borders and maritime boundaries. The number of troops was reduced slightly, while the number of police was increased in order to help the Haitian National Policy maintain control over urban areas. This latest extension occurred after Secretary-General Ban Ki-moon's August 2007 visit to Haiti. During his visit, he praised President Préval's efforts to fight corruption and to reform Haiti's police, judiciary, and prison systems. On May 21, 2007, the Drug Enforcement Administration (DEA) announced the seizure of 1,056 pounds of cocaine and the arrest of three drug smugglers in international waters near the island of Hispaniola. That and other seizures occurred as a result of a series of joint interdiction operations carried out in the spring and summer of 2007 by DEA, Dominican, and Haitian officials. There is increasing concern among some Members of Congress that Haiti and the Dominican Republic are becoming major transhipment points for drugs coming from South America. They would like to see more joint interdiction efforts carried out and counternarcotics assistance provided to Haiti. H.R. 4986 , the National Defense Authorization Act for Fiscal Year 2008, would require an Administration report to Congress on counternarcotics assistance to Haiti. Jean-Bertrand Aristide was first elected President in December 1990, in elections that were widely heralded as the first free and fair elections in Haiti's then-186-year history. A Roman Catholic priest of the radical left, Aristide's fiery sermons contributed to the collapse of the Duvalier dictatorship. The most controversial of 11 presidential candidates, Aristide won a landslide victory with 67.5% of the vote. His inauguration took place in February 1991, on the fifth anniversary of Jean-Claude Duvalier's flight into exile. President Aristide was faced with some of the most serious and persistent social, economic, and political problems in the Western Hemisphere. After eight months in office, Aristide had received mixed reviews. He was credited with curbing crime in the capital, reducing the number of employees in bloated state enterprises, and taking actions to bring the military under civilian control. But some observers questioned his government's commitment to democracy. Opposition leaders and others criticized him for not establishing a cooperative relationship among the democratic elements, failing to consult the legislature in appointments as required by the Constitution, and for manipulating the judicial system in the prosecution of Duvalierists. His record in the area of respect for human rights was also mixed. He was criticized for appearing to condone mob violence, but was also credited with significantly reducing human rights violations while he was in office. Some observers believe that during his eight-month tenure, Aristide contributed to political polarization within Haiti by refusing to condemn violent acts of retribution, and holding out the threat of mob violence against those who disagreed with him. On September 30, 1991, days after a speech in which some contend Aristide threatened the bourgeoisie for not having helped his government enough, Aristide was overthrown by the military. Some maintained that the elite business class financially supported the coup leaders. Most human rights monitors credit Aristide's first administration with being the first Haitian government to address the need to improve respect for human rights, and the needs of the poor majority. They also asserted that progress made during his term was undone by the military regime that followed. Most sources credit Aristide with creating a much greater sense of security in Haiti during his first term than there had been in years. According to the State Department human rights reports for 1991 and 1992, there were no reports of disappearances during Aristide's eight-month term and dozens in the months following the coup. The State Department estimated coup-related deaths at 300-500 at the time, while Amnesty International estimated them to number over 1,500. The leaders of the military coup faced stronger international sanctions than did previous coup leaders in Haiti, mainly because a democratic government had been overthrown. For over three years, the military regime resisted international demands that Aristide be restored to office. U.S. policy consisted of pressuring the de facto Haitian government to restore constitutional democracy to Haiti. Under the Administration of President George H. W. Bush, measures included cutting off assistance to the Haitian government; imposing trade embargoes, as called for by the Organization of American States (OAS) and the United Nations; and supporting OAS and U.N. diplomatic efforts. While some observers believed that the Administration of President William J. Clinton intensified pressure on the Haitian regime and helped advance negotiations to restore democracy to Haiti, others felt it did not apply enough pressure. After the collapse of the Governors Island Accord, which called for the military regime's resignation and Aristide's return to power by October 30, 1993, critics increased pressure on the Clinton Administration to change its policy. The Administration then took a tougher stance toward the military regime, imposing ever-stiffer sanctions, and ultimately ordering a military intervention to remove it. On September 18, 1994, when it learned that a U.S. military intervention had been launched, the military regime signed an agreement with the United States providing for Aristide's return. It also called for the immediate, unopposed entry of U.S. troops, a legislative amnesty for the military, and the resignation of the military leadership. President Aristide returned to Haiti on October 15, 1994, under the protection of some 20,000 U.S. troops. On March 31, 1995, having declared that a "secure and stable environment" had been established, the United States transferred responsibility for the mission to the United Nations. Following his return, President Aristide took steps to break with the pattern in which a military-dominated police force was associated with human rights abuses. Haiti, with U.S. assistance, demobilized the old military, established an interim police force of selected ex-military personnel, and began to train a professional, civilian Haitian National Police (HNP) force. According to various human rights reports, the level of violence, flight of refugees, and alleged assassinations dropped markedly from very high levels during the de facto military regime. Also in 1995, President Aristide took steps to hold democratic elections, with substantial assistance from the United States and the international community. Most first-round parliamentary and municipal elections were held in June 1995. Although the deadly violence which had marred past Haitian elections did not occur, election observers alleged that there were numerous irregularities. Several re-run or runoff elections were held from July to October. Pro-Aristide candidates won a large share of the seats. Presidential elections were held December 17, 1995. The Haitian constitution prevented Aristide from running for a second consecutive term. René Préval, an Aristide supporter, won, with 89% of votes cast, but with a low voter turnout of only 28%, and with many parties boycotting the election. Préval assumed office in February 1996. He launched a program to privatize government enterprise through joint ventures with private capital. Despite public protests against the economic reforms, the Haitian Senate passed privatization and administrative reform laws, allowing the release of millions of dollars in foreign aid through the International Monetary Fund (IMF). Protests against the associated austerity measures continued, however. One of the most vocal critics of the proposed economic austerity program was former President Aristide. In January 1997 he formed a new party, Lavalas Family, as a vehicle for his presidential bid in the year 2000. The Haitian parliamentary elections in 2000 were an attempt to resolve disputed elections from 1997, which had triggered an electoral crisis at the time. Saying that the 1997 elections were marred by fraud, Préval's Prime Minister resigned. Haiti was then without a prime minister for a year and a half, with four failed attempts to name a new one, and no resolution to the 1997 elections controversy. In January 1999, President Préval declared that most of Parliament's term had expired, although elections had not been held to replace them. He then installed members of his cabinet and an electoral council by decree. He continued to rule by decree through the end of his term in February 2001. In July 1999, President René Préval signed a new electoral law that effectively annulled the disputed April 1997 elections and provided for new elections. The United States allotted $16 million over two fiscal years for elections assistance for the 2000 Haitian vote. The aid supported the provisional electoral council, whose tasks included the registration of almost 4 million eligible voters, issuing voter identification cards for the first time, and organizing legislative and municipal elections for some 10,000 posts in May 2000. Every elected position in the country was on the ballot except for president and eight Senate seats. Many observers hoped these elections would mean that, after two years of a deadlocked government and more than a year of President Préval ruling by decree, a new parliament could be installed and international aid released. Instead, the elections brought Haiti into another crisis. Both domestic and international observers noted irregularities in the tabulation of election results for some Senate seats. Nonetheless, the electoral council affirmed those results, which favored former President Aristide's Lavalas party. In September 2000, thousands of protesters shouting anti-Aristide and anti-Lavalas slogans called for the resignation of the Lavalas-controlled legislature. The OAS tried to broker an agreement between Lavalas and the opposition, to no avail. Presidential elections were held on November 26, 2000. Because the Haitian government refused to address the earlier contested election results, the United States and other international donors withheld election assistance and refused to send observers, and opposition parties boycotted them. Although Aristide won the election with a reported 91.5% of the vote, turnout was very low, with estimates ranging from 5% to 20% of eligible voters participating. As President-elect, Aristide wrote a letter to outgoing U.S. President Clinton, promising to make several political, judicial, and economic reforms, including correcting the problems of the May 2000 elections. According to the White House at the time, no new promises were made by the United States. The Administration of George W. Bush, which took office on January 20, 2001, accepted the reforms set forth in the letter as necessary steps for the Aristide government to make. Aristide took office again on February 7, 2001. At his inauguration, the United States was represented by its ambassador. During President Aristide's second term, increases in political violence renewed concerns over security and police effectiveness. In 2001, President Aristide announced a "zero tolerance" policy toward suspected criminals. According to various human rights reports, this announcement was followed by numerous extrajudicial killings by the Haitian National Police and lynchings by mobs. The government's respect for freedom of the press continued to deteriorate. According to the State Department's February 2004 Human Rights Practices Report, "The [Haitian] government's human rights record remained poor, with political and civil officials implicated in serious abuses." Observers also made increasing charges of corruption during Aristide's second term. The interim government (2004-2006) claimed that its investigation into the ousted Aristide Administration uncovered embezzlement of millions of dollars of public funds. The Central Unit for Financial Information reported that millions of dollars in public funds were illegally transferred to private institutions created by Aristide and that an estimated $20 million were transferred to personal foreign accounts belonging to Aristide. The interim government filed a suit in U.S. federal court November 2, 2005, alleging that Aristide and eight co-defendants broke U.S. law by transferring public funds to personal foreign accounts. Aristide's lawyer dismissed the lawsuit as "baseless" and said that it was part of a government misinformation campaign against Aristide. Observers made allegations of corruption and misuse of public funds throughout much of Aristide's second term. Transparency International reported Haiti as one of the most corrupt countries in the world for several years. Efforts to resolve the electoral disputes of 1997 and 2000 frustrated the international community for years. At the third Summit of the Americas in April 2001, hemispheric leaders singled out Haiti as a country whose democratic practices were in trouble and asked the OAS to try again to help negotiate a solution to the crisis. The OAS had been mediating on-again off-again talks between the Aristide government and the opposition alliance Democratic Convergence. In OAS-mediated talks in July 2001, the Aristide government and the opposition agreed to hold new elections for local and most parliamentary seats, but could not agree on a schedule. Tensions and violence in Haiti increased dramatically after Aristide assumed his second term in office. Supporters of both President Aristide's Lavalas Family party and the opposition coalition Convergence reportedly engaged in a cycle of violent revenge. In January 2002, the OAS Permanent Council passed Resolution 806 establishing an OAS Mission in Haiti and calling for the Haitian government to do all it could to ensure a climate of security and confidence necessary to hold free and fair elections. In July 2002, the OAS released a report stating that a December 2001 attack on the National Palace was not an attempted coup, as the Aristide Administration had claimed, and that "[T]he political opposition did not participate in the planning or in the execution of the attack." It also said that the government and Lavalas party officials gave arms to militants who plundered and burned the homes and offices of opposition members after the palace attack. Also in July 2002, the opposition proposed that presidential elections be re-held as well. All the OAS member states recognized Aristide as Haiti's legitimate head of state, however, and the OAS Secretary General said that the November 2000 elections "have never been the subject of an OAS or Summit of the Americas mandate," meaning that only the disputed May 2000 parliamentary elections were within the OAS mandate to negotiate a solution. In September 2002, the OAS passed Resolution 822 that tried to break the political impasse by recognizing the government's "constitutional electoral prerogatives." In other words, it removed the obstacle of having to complete negotiations with the opposition before elections could be held. A consensus resolution, negotiated by member states and voted for by Haiti, stated that legislative and local elections were to be held in 2003, on a date to be set by a new Provisional Electoral Council (CEP). An "autonomous, independent, credible and neutral CEP" was to be established by November 4, 2002. Haiti failed to meet that deadline, in part because the Democratic Convergence refused to name a representative for the council until the government dealt with security issues and made all reparations to opposition forces for damage done by government supporters in December 2001. Aristide named a partial CEP in February 2003. In June 2003, the OAS passed Resolution 1959, regretting that neither the government nor the opposition had fully implemented their obligations under the previous two resolutions, and urging the government to create a safe environment for elections and the opposition to help actively form a CEP. Those steps were not taken, and elections did not take place in 2003. In November 2003, the new U.S. Ambassador to Haiti, James Foley, described the current state of Haiti as "very worrisome from all points of view: poverty, insecurity, economic development, infrastructure, environment, health, etc.," and said that it was essential that Haiti resolve its political impasse so that Haiti and its international donors "can work together to resolve all of these fundamental problems." A U.N.-appointed human rights expert said in November that the human rights situation there had "again deteriorated," criticizing the ongoing impunity of human rights violators; the "persistent dysfunctions in the administration of justice," and the frequently violent suppression of freedom of expression and especially of peaceful demonstrations. Saying he was "very disturbed" at the rising political violence there, then-U.S. Secretary of State Colin Powell backed a proposal by the Roman Catholic Bishops Conference of Haiti to set up a council of advisors to help Aristide govern until new parliamentary elections were held. Aristide supported the initiative, but the opposition, which accused Aristide of corruption and mismanagement, rejected it. In January 2004, the CARICOM secured Aristide's agreement to disarm political gangs, appoint a new prime minister, and form an advisory council. Opposition groups refused to negotiate a settlement or participate in elections unless Aristide resigned. Two-thirds of Haitian legislators' terms expired in January 2004 without elections having been held to replace them. President Aristide began ruling by decree. The conflict escalated when armed rebels seized Haiti's fourth largest city, Gonaives, on February 5, and the armed rebellion spread to other cities. Street battles ensued when police forces tried to regain control, leaving dozens dead. CARICOM continued trying to negotiate a solution to the crisis. Civil opposition groups operating mainly in the capital denied any links to the armed rebellions. After being criticized by some for statements appearing to indicate it might support the elected President's removal, Administration officials said the remarks were not intended to signal support for Aristide's resignation, and that the Bush Administration sought a peaceful solution to the crisis. Colin Powell and other foreign diplomats suggested the possibility of bringing in outside police forces, but only to support the enforcement of a political agreement reached by the Haitian government and the opposition, such as the one proposed by CARICOM. The opposition rejected the agreement. With rebel forces moving toward the capital of Port-au-Prince on February 28, 2004, the Bush Administration increased pressure on Aristide to resign, stating that "His failure to adhere to democratic principles has contributed to the deep polarization and violent unrest that we are witnessing in Haiti today." Aristide resigned the next day and flew into exile. He later said he was kidnapped, a charge the White House strongly denies. Following succession protocol outlined in the Haitian constitution, Supreme Court Chief Justice Boniface Alexandre was sworn in as President on February 29. The United Nations unanimously passed a resolution authorizing an international force, initially comprising U.S. Marines and French and Canadian police and military forces, to help restore order. That force was replaced by U.N. peacekeepers three months later, in June 2004. A tripartite commission, based on an element of the CARICOM proposal, was formed to help run an interim government. CARICOM said it was not prepared to hold discussions with Haiti's new leaders, however, and called for an investigation into Aristide's "relinquishing of the Presidency" by an independent international body such as the United Nations. During a demonstration on March 7, 2004, in which protesters called for the exiled Aristide to stand trial for alleged corruption and human rights violations, six people were reportedly killed by suspected Aristide loyalists. U.S. Marines killed at least six Haitians who they said were trying to attack them. Speaking from exile in the capital of the Central African Republic on March 8, Aristide asserted, "I am the elected president," and appealed for "peaceful resistance" by his supporters to what he called the "occupation" of Haiti. After Jamaica allowed Aristide to travel there for a ten-week visit, Haiti's acting prime minister withdrew its ambassador from Kingston, saying Aristide was "disturbing Haiti's fragile order" by visiting the island only 125 miles away. The Jamaican government said Aristide agreed to their condition that he not use his visit to launch a campaign to be reinstated as president. Aristide went into exile in South Africa on May 31, 2004. The formation of a legitimate transitional government through a constitutional process was made difficult by Aristide's claim that he remained Haiti's democratically elected president and by the lack of a legally constituted legislature to authorize a transitional government. When the office of the President becomes vacant, the Haitian constitution calls for the President of the Haitian Supreme Court to head an interim government. Accordingly, Boniface Alexandre was named interim President on February 29, 2004, although there was no functioning legislature to confirm his appointment, as called for in the constitution. A tripartite commission, based on an element of the CARICOM proposal, helped establish an interim government headed by Prime Minister Gérard LaTortue. The Commission was composed of one representative each of Aristide's Lavalas Family party, the civil opposition, and the international community. LaTortue's cabinet consisted of technocrats without strong party affiliations and did not include either Lavalas or the Democratic Convergence. The new minister of Interior and National Security was Hérard Abraham, former head of the Haitian army during Aristide's first term, in 1991. Abraham had retired about three months before the 1991 coup took place. The constitution also calls for the election of a new President to be held between 45 and 90 days after the vacancy occurs. In April 2004, the interim government reached an agreement with opposition political groups to hold elections in 2005, with a new president to take office on February 7, 2006. Elections were delayed several times and finally took place in February and April 2006. Showing his support for the interim government in Haiti, then-Secretary of State Colin Powell visited Haiti on April 5, 2004, announcing several U.S. initiatives. These included the immediate deployment of a seven-member team to advise the interim government on security issues; a three-year employment generation program to improve municipal infrastructure and provide tens of thousands of jobs; and a team to assess the technical assistance needed by the Haitian Finance Ministry and to assist Haitian authorities "in the recovery of assets that may have been illicitly diverted." The U.S. stated it would provide an additional $9 million to the Organization of American States (OAS) Special Mission for Strengthening Democracy in Haiti, for elections and democracy building activities; and $500,000 for a variety of elections-related activities such as public education programs, public opinion polling, and training for political parties to develop candidates. Powell also said that humanitarian development programs would be expanded. Relations between the U.S. and other Caribbean governments remained strained throughout the interim government's tenure as CARICOM nations withheld recognition of the LaTortue government and maintained that Aristide was still Haiti's legitimate elected leader. In congressional hearings in 2004, the Bush Administration reiterated that U.S. policy in Haiti is to support democracy and the strengthening of democratic institutions. Then-Assistant Secretary of State for Western Hemisphere Affairs Roger Noriega defended the Administration's decision not to send in troops while Aristide was still in Haiti. He said that although Aristide voiced support for the CARICOM agreement, he continued to foment violence through his armed supporters, and that the Administration decided supporting his continued rule was not a sustainable policy and not worth risking U.S. lives for. At the same hearings, several Members of Congress harshly criticized the Administration for its role in Aristide's departure from Haiti, saying that the Bush Administration refused to provide any assistance to stop the escalating violence in Haiti until Aristide resigned. Some voiced concern that the Administration's actions set a dangerous precedent, that the ouster of a democratically elected government by violent thugs would be tolerated if the government was no longer favored by the current U.S. administration. Some Members called for independent investigations into what they referred to as the coup d'état that removed Aristide from office, and the role of the U.S. in his departure. Some observers were also concerned about the effect Aristide's claim, and his call for his supporters to resist the international "occupation," would have on efforts to restore order and stability in Haiti. Concerns were also raised about the civil opposition as represented by the Democratic Platform in Haiti. Some observers questioned the right of the civil opposition to participate in an interim government, given their rejection of political solutions that did not involve Aristide's resignation, including the one proposed by CARICOM and supported by the United States. Others wondered to what extent the opposition had a unified agenda beyond the removal of Aristide from office. Some asked what, if any, relationship the opposition had with the armed rebels who took over much of Haiti prior to Aristide's departure. Both the opposition and the Bush Administration stated that there was no relationship between the armed and unarmed opposition at the time. On July 20, 2004, international donors pledged to provide more than $1 billion over the next two years to help Haiti rebuild its infrastructure, strengthen institutions, and improve basic services. The United States committed to provide $230 million for FY2004-FY2005. The interim government signed an agreement with the U.N. and the OAS on August 23 to hold presidential, parliamentary, and local elections in 2005, with a new president to take office on February 7, 2006. The U.N. established a trust fund for the elections, started with $9 million in U.S. funds, which they hoped would reach $41 million. Members of former President Aristide's Fanmi Lavalas party threatened to boycott the elections in light of their alleged political persecution by the interim government. In the end, elections were held in 2006, and Fanmi Lavalas participated. Many observers expressed concern over the actions of former members of the Haitian military after Aristide's departure. Many former military personnel demanded reinstatement of the Haitian army, which was disbanded by President Aristide in 1995 following a period of multiple military coups and gross violations of human rights carried out under military rule. The U.S. government and human rights organizations have objected to armed rebels being given any formal role in Haitian security forces. The interim government increased concerns in April 2004 when Prime Minister LaTortue called the rebels "freedom fighters," and Haiti's top police official in the northern region met with former paramilitary leader Louis Jodel Chamblain and Guy Philippe to negotiate roles for their fighters in the police force. Chamberlain had been convicted in absentia for killing a Justice Minister and chief financier of former President Aristide; Guy Philippe was accused of leading a coup attempt against President Préval during his first term in office. In June 2004, LaTortue assured U.S. officials that former soldiers would be subject to the same criteria and human rights vetting procedures as other applicants for joining the Haitian National Police. Nonetheless, some observers were concerned, noting that government discussions of disarmament focused more on former Aristide supporters than on armed rebels and former members of the army. In addition, the government presided over a rushed re-trial of Chamblain, in which he was acquitted of the 1993 political assassination he had been convicted of in absentia. Some critics described the LaTortue government as weak and partisan. They noted the interim government's difficulties in organizing elections and voiced concern that ongoing violence and human rights violations created an intimidating atmosphere that inhibited political participation at both the national and local level. Both the State Department and Amnesty International reported human rights abuses against Aristide supporters under the interim government. Hundreds of Aristide supporters were jailed without charge for months, including former Prime Minister Yvon Neptune, who was held for 16 months before being charged. (See "Protection of Human Rights..." section below.) Others note that the interim government enacted some reforms. For example, the interim government prepared a budget for FY2005, the first one to be prepared before a fiscal year began since 1996-1997. With international support, some progress was made toward other objectives outlined at the International Donors Conference on Haiti in July 2004, including 70% voter registration, improvements in fiscal transparency, jobs creation, and broader access to clean water and other services. The U.N. Stabilization Mission in Haiti (MINUSTAH) assumed authority on June 1, 2004, although few of the U.N. troops had arrived by then. The MINUSTAH mandate includes helping to ensure a secure and stable environment, fostering democratic governance, and supporting the promotion and protection of human rights. The Brazilian commander of MINUSTAH said that without a full complement of troops it was difficult to maintain law and order. The mission had initial authorization for a force of about 8,000, made up of 6,700 military troops and 1,622 civilian police. Yet in May 2005, almost a year after the mission was authorized, forces were still below that level, with 6,435 peacekeeping troops and 1,413 civilian police from 41 countries in country. According to the State Department, the United States had a total of four U.S. military advisers and 25 civilian police participating in the U.N. mission. Furthermore, the mandate was established in April 2004, prior to flooding and hurricanes that left thousands of Haitians dead and thousands more homeless. MINUSTAH helped protect and deliver emergency foreign assistance following the natural disasters, stretching its resources even thinner. MINUSTAH urged international donors to accelerate the disbursement of $1 billion in aid pledged for 2004-2006 to support their efforts. Throughout this period, both the Haitian government and MINUSTAH periodically complained that the other was not doing enough to establish security in Haiti. Nonetheless, in October 2004 Haitian police officers and U.N. soldiers made a joint show of force to try to quell a spate of violence, arresting suspected militants and searching for weapons. Security improved, but the situation remained volatile. In late summer 2006, MINUSTAH and the Haitian police began a disarmament program. To encourage the international community to make Haiti a higher priority, the entire 15-member U.N. Security Council traveled to Haiti April 13-16, 2005. Calling "dramatic" poverty "the prime cause of instability in Haiti," the delegation emphasized the need for a long-term development strategy. It also said that holding elections was the most pressing challenge for Haiti and the international community. It noted that the mission had improved security conditions in the preceding months but could do more in areas such as police reform. The Security Council also urged the interim government to implement "without delay" the mission's proposed disarmament, demobilization, and reintegration program. MINUSTAH's mandate was extended until February 15, 2006, and the U.N. Security Council expressed its support for a U.N. presence in Haiti for "as long as necessary." MINUSTAH was also expanded by 800 military personnel and 275 civilian police and restructured to increase its ability to deter violence and provide security for the upcoming elections. MINUSTAH troops cracked down on street gangs in the summer of 2005, and killings and kidnappings subsequently declined, according to MINUSTAH's Chief. Nonetheless, gangs continue to operate in the slums of Port-au-Prince. Then-U.N. Special Envoy to Haiti Juan Gabriel Valdes reported in November 2005 that peacekeepers had "stabilized" the country but cautioned that the elections could still be disrupted by violent groups. There was some violence in the morning of the February 7 elections, but the situation calmed down and the rest of the election process was relatively peaceful, as were the local elections held in December 2006. A group of human rights activists accused U.N. peacekeepers of killing civilians and the U.S. government of arming security forces who abuse human rights in petitions filed before the Inter-American Commission on Human Rights on November 15, 2005. U.N. commanders denied that they targeted civilians. MINUSTAH's mandate must be renewed every six months. In March 2006, the mission's Brazilian commander, Jose Carvalho, said that the mission would remain in Haiti for another two to three years. The death of his predecessor, Lt. General Urano Bacellar—ruled a suicide—prompted calls for the removal of Brazilian forces from Haiti. After debates in both countries about their role in MINUSTAH, Brazil and Chile have said their troops will remain. Although some Haitians call for the removal of foreign troops, President Préval asked the mission to stay, saying prior to his inauguration that "I will not adopt a falsely nationalist position. MINUSTAH should leave as soon as possible, but only when we are ready to assume responsibility for security." The interim government signed an agreement with the U.N. and the OAS on August 23, 2005, to hold elections in fall 2005. The U.N. established a trust fund for the elections, started with $9 million in U.S. funds, which they hoped would reach $41 million. Elections, first scheduled for October 2005, were postponed several times. The presidential and legislative elections were delayed while observers debated whether conditions were conducive to holding free, fair, and safe elections. A member of the Provisional Electoral Council said that elections had to be delayed to allow time for technical preparations such as preparing ballots, distributing voter identification cards, and setting up polling sites. A State Department official described the registration process as the "most comprehensive, transparent, and fraud-free ever conducted" in Haiti's history. Members of former President Aristide's Fanmi Lavalas party threatened to boycott the elections and claimed to face political persecution by the interim government, charges backed by human rights groups and other observers. Hundreds of Lavalas members, including Aristide's former Prime Minister, were arrested and held for many months without charge. In July 2005, the interim government arrested Reverend Gérard Jean-Juste for alleged involvement in the abduction and murder of a Haitian journalist, charges the New York Times called "dubious." Jean-Juste was in Miami when the abduction occurred and denies the allegations. Others claim his arrest was an effort to prevent the popular Lavalas leader from running for President and to weaken his party. Jean-Juste was released on January 29, 2006, to receive treatment in Miami for leukemia. The charges against him have not been dropped. On November 12, the electoral council released a revised slate of presidential candidates, allowing 35 of the 54 who had registered to run. Former President René Préval (1995-2000), was considered the most popular candidate. Although Préval had been a supporter of Aristide, as President he tried to institute economic reforms that were strongly opposed by Aristide. Préval is remembered for building roads, schools, and hospitals during his term. Although he ran as an independent and said almost nothing about his political agenda during the campaign, grassroots members of Lavalas supported him. The Lavalas party, Haiti's largest and best organized, was split. The candidate the party nominated, priest Gérard Jean-Juste, was disqualified by the provisional electoral council (although he had not yet agreed to be the candidate) and was held in prison until just before the elections. The Lavalas leadership supported coalition candidate Marc Bazin, a technocrat who once worked for the World Bank. Critics said Bazin was an opportunist: since losing the 1990 presidential race to Aristide, he was an outspoken critic of Aristide but then ran under the banner of Aristide's party. After Aristide's overthrow in 1991, he served as Prime Minister in the de facto military regime characterized by its high number of human rights violations. There were several other notable figures among the presidential candidates. Leslie Manigat, a historian and political scientist, won questionable elections run by the de facto military regime that followed the collapse of the Duvalier dictatorship, and was President from February to June 1988. Charles Henri Baker, a wealthy businessman, enjoyed some popular support. A leader of the armed rebellion that contributed to Aristide's ouster, Guy Philippe, also ran for President. A former member of the Haitian military and police commissioner, Philippe fled into exile after being accused of involvement in a coup attempt against then-President Préval in 2000. The Bush Administration suspects Philippe of drug trafficking. Another candidate was Head of the interim National Police in 1994, Dany Toussaint. Toussaint, who received FBI training that included human rights courses, once enjoyed U.S. support, but by late 1995 was perceived as using the police as an enforcement branch of the Lavalas party. The U.S. government pressured then-President Préval to drop him as head of the Haitian National Police. The most controversial candidate, Dumarsais Simeus, a wealthy Texas businessman who was born in Haiti to illiterate rice farmers, was removed from the race. The electoral council first barred Simeus from running because he did not meet the constitutional requirements of being a Haitian citizen and residing in the country for five consecutive years before the date of elections. In October, Haiti's supreme court overruled that decision, even though Simeus is a long-time U.S. resident who reportedly holds a U.S. passport. In November, the electoral council ruled that neither Simeus nor another candidate could run for president because they held dual nationality, which disqualifies a candidate under the Haitian constitution. First round presidential and legislative elections were held, after several months of delays, on February 7, 2006. Former President René Préval was declared the winner after a week of increased tension and protests. Unofficial early counts indicated Préval had the more than 50% necessary to win in the first round. When official results showed Préval leading another former President Leslie Manigat by a wide margin, 48.7% to 11.8%, but not enough to avoid a second round, his supporters launched protests. Although some of the 32 other contenders conceded, Manigat reportedly would not. The Provisional Electoral Council, government officials, foreign diplomats, and international observers negotiated an agreement to retabulate the count by distributing thousands of blank ballots (some 4% of the total cast) proportionally among the candidates. This pushed Préval's total to over 51%, and he was declared the winner on February 16. He was inaugurated to a five-year presidential term on May 14. Following the February controversy over the vote count, the director-general of the electoral council, Jacques Bernard, fled Haiti. Opponents ransacked his farm and threatened him, accusing him of trying to deny Préval a first-round win, a charge he denies. Bernard had assumed the post in November 2005 and oversaw the February elections. He returned in early March to oversee the legislative runoff elections. There were other controversial aspects of the elections as well. Of 2.2 million votes cast, about 8% of the ballots were missing, many believed to have been stolen or destroyed; and 8% were nullified because they were illegible. Nonetheless, voter turnout was high, violence was limited, and international observers declared the elections to be fair. Former President Jean-Bertrand Aristide, who had maintained he was still Haiti's president since his departure in February 2004, acknowledged Préval as "my President," but said that he wants to return to Haiti from exile. Préval has been estranged in recent years from Aristide, his former mentor, including distancing himself by forming his own party. But Préval must tread carefully, as much of his support came from Haiti's poor, Aristide's strongest supporters, many of whom now expect Aristide to return. Publicly, Préval has said that Aristide has the constitutional right to return but has also suggested that Aristide might want to consider that he will probably face corruption or other charges if he were to return. Privately, he is said to agree with foreign diplomats that Aristide's return would be destabilizing. The Caribbean Community (CARICOM), which withheld recognition of the interim government, has recognized the Préval government as well. While most of the international attention centered on the presidential race in Haiti, legislative elections also took place on February 7. Only two of the 1,300 legislative candidates won a post in the first round, for two out of the 99 deputy seats in the lower legislative chamber. Runoff legislative elections, for 30 senate and 97 of 99 lower chamber seats, were held on April 21. Although Préval's party, Lespwa ("Hope" in Creole), won the most seats in the legislature, it did not win enough seats to constitute a majority. Reflecting Haitians' emphasis on the role of the president, however, voter turnout for the presidential election was about 60% but only about 30% for the second round vote determining the composition of the legislature. There were charges that election officials and other groups committed fraud in the second round, but international observers said the irregularities were not significant enough to change the outcome. Municipal elections were held on December 3. As President-elect, Préval encouraged citizens to vote in legislative and municipal elections, saying that Haitians have relied too heavily on the president and need to help build other institutions. "I want to remind the Haitian people of the limited power of the president," he said. "If parliament is not strong and cohesive, the president can't respond to all the problems, to all the hopes we see the people expressing." President René Préval has outlined two main missions for his government: to build institutions and to establish conditions for private investment in order to create jobs. He emphasized that these must be done through dialogue among all sectors and creating a secure environment. After winning the presidential election in February 2006, Préval traveled widely to seek international support and assistance. He said that Haiti needs "massive" and long-term assistance. At a February 2006 meeting of donors, the international community reiterated its support of Haiti through the Interim Cooperation Framework (ICF) established at the 2004 Donors Conference, which was extended through 2007. International donors, financial institutions, and organizations met to agree on a "coordinated and rapid engagement" with Haiti's newly elected officials. They welcomed Préval's election and discussed the importance of providing technical and material support to the parliament, permanent electoral council, local government, and other institutions resulting from all of the 2006 elections. International donors stated they would also assist Haiti in developing a long-term Poverty Reduction Plan to succeed the Interim Cooperation Framework. Building on drafts created by the interim government (2004-2006), the Préval Administration produced an Interim Poverty Reduction Strategy for the years 2007-2009 to meet IMF requirements for debt relief. This plan calls for actions to be taken with a macroeconomic framework focusing on three goals: maintaining macroeconomic stability; targeting actions to reduce poverty; and creating conditions conducive to sustainable growth driven by private initiative. Partially in response to criticism that too many priorities were set forth in earlier plans, the Haitian government says this plan focuses on those sectors that can be effectively financed in the first year, considering limitations of time, and human and financial resources. The Interim Poverty Reduction Strategy defines major priorities for 2007-2009 to be infrastructure, energy, education, health and security. Préval has criticized the donor community for not dispersing funds quickly enough, while some international donors have complained that Préval's government keeps changing priorities—first children's needs, then road-building, then security issues. Crime and kidnaping levels remained high in 2006, leading Préval's government and MINUSTAH to focus on improving security. The International Crisis Group and others have identified the country's failing justice system, overcrowded and insecure prisons, and weak and corrupted police force as top areas in need of reform. President Préval has asked the U.N. mission to remain in Haiti, saying "it would be irresponsible for us to ask MINUSTAH to leave prematurely, just as it would be irresponsible on the part of the international community to withdraw MINUSTAH prematurely." Préval has said he will promote another constitutional amendment to formalize the dissolution of the Haitian army, saying the money would be better invested in education and infrastructure. He asked MINUSTAH to step up its efforts to train a more effective Haitian police force and to help secure Haiti's borders and maritime boundaries. A variety of U.S. government reports published in 2007 highlighted other challenges the Haitian government faces in combating narcotics and improving its human rights record. On March 1, 2007, the State Department released its 2007 International Narcotics Control Strategy Report (INCSR), which maintained that Haiti is a major transit country for cocaine from South America because of its weak institutions, pervasive corruption, and dysfunctional police and judicial systems. The U.S. Joint Interagency Task Force South found that the number of drug smuggling flights from Venezuela to Haiti and the Dominican Republic increased by 167% from 2005 to 2006, with one third of those flights landing in Haitian territory. On March 6, 2007, the State Department released its annual human rights report, which stated that although it has made some improvements, the Haitian government's human rights record remained poor in 2006. The Bush Administration has expressed support for Préval. The President called to congratulate him, and top officials, including Secretary of State Condoleezza Rice, have met with him. While in Washington in March 2006, then-President-elect Préval asked for U.S. support for public works projects, said he would cooperate fully with counter-narcotics efforts, and urged the U.S. Congress to approve legislation providing preferential trade treatment to Haiti. Members introduced special trade preference legislation for Haiti on September 21, 2006 [ H.R. 6142 , Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE) Act of 2006], which was approved on December 9, 2006 and incorporated into the Tax Relief and Health Care Act of 2006 as Title V ( P.L. 109-432 ). On May 7, 2007, Préval began his first official presidential visit to the United States. President Bush praised President Préval for his efforts to improve economic conditions establish the rule of law in Haiti and thanked him "for having one of the toughest jobs in the world." Préval responded that "peace has been restored" in Haiti and that the country "is awaiting American investors." To further that end, President Préval announced a new anti-corruption, anti-contraband campaign while speaking at the U.S. Chamber of Commerce. Despite the generally positive reception he received, some U.S. officials expressed concerns to Préval about his government's increasing ties with the Chávez government in Venezuela. The main priorities for U.S. policy regarding Haiti during the second session of the 110 th Congress are to continue to improve security, promote sustainable economic development, and strengthen fragile democratic processes now that an elected government is in place. The Haitian government and the international donor community are implementing an interim assistance strategy that addresses Haiti's many needs simultaneously. The current challenge is to accomplish short-term projects that will boost public and investor confidence, while at the same time pursuing long-term development plans that will improve living conditions for Haiti's vast poor population and construct government institutions capable of providing services and stability. A key policy concern is Haiti's ongoing transition to democracy. Even though the 2006 elections went well, many maintain that the subsequent governing process will not be easy. Haitian political parties are mostly driven by personalities rather than political platforms. Years of international efforts to get a national dialogue going have proven frustrating. Politicians lack a tradition of political compromise or serving as a "loyal opposition." Yet many analysts agree that Haitians must develop a consensus on political development and poverty reduction for Haiti to move beyond the political stalemate it has been stuck in for the past decade. At a July 2004 conference on Haiti, international donors pledged more than $1 billion over the following two years to help Haiti rebuild its infrastructure, strengthen institutions, and improve basic services. A key component of the strategy endorsed by donors at that conference was strengthening political governance and promoting national dialogue. The U.N., through its mission in Haiti, and the OAS took on major roles in supporting the Haitian election process, with financial and technical support from the United States and other bilateral donors. OAS officials in Haiti worked closely with the United Nations and other international organizations during every step of the electoral process. OAS activities in support of the Haitian elections included, but were not limited to, registering 3.5 million voters, setting up polling sites, monitoring the balloting on election day, and certifying the election results. In July 2006, international donors pledged $750 million to bridge Haiti's budget gap and fund economic, social, and democratic reconstruction projects through September 2007. At donor meetings, the international community has reiterated its support of Haiti through the Interim Cooperative Framework established at the 2004 Donors Conference, which is now extended through 2007. International donors, financial institutions, and organizations also stress the importance of providing technical and material support to the parliament, permanent electoral council, local government, and other institutions resulting from all of the 2006 elections. The Bush Administration and Congress are likely to maintain an interest in ensuring that Haiti is able to hold free and fair elections in the spring of 2008 for the 10 seats in the Haitian senate that were supposed to be chosen in November 2007. The U.S. government is providing close to $4 million to support the senate elections in Haiti. The elections were postponed after members of the country's electoral commission accused the commission's leadership of embezzling funds. President Préval named a new commission in December 2007, but expressed serious concerns about his country's ability to afford the multiple elections that the current Haitian constitution requires. From FY1996 to FY1999, the Clinton Administration provided approximately $100 million annually in foreign assistance to Haiti, plus about $868 million in Department of Defense costs for peacekeeping and security operations related to embargo enforcement and the international intervention. Beginning in 2000, in response to the unresolved elections dispute, the Clinton Administration redirected U.S. humanitarian assistance through non-governmental organizations (NGOs), rather than through the Haitian government. The Bush Administration continued this policy. Aid began to decrease at the end of the Clinton Administration, and continued to do so for the first two years of the Bush Administration, with $79 million provided in FY2000, $73 million in FY2001, and $56 million in FY2002. Then, although initial Administration requests submitted were low, aid increased over the next several years. The original request for FY2003 was $47 million; the Administration later increased aid to $72 million, in part because the Bush Administration included Haiti in an initiative launched that year to prevent the transmission of the HIV/AIDS virus from mothers to children. According to USAID, between four and six thousand Haitian children are born with the virus each year. In FY2004 and FY2005, the final aid figures were $132.1 million and $187.6 million, respectively. Humanitarian aid, including health care, nutrition, and education, provided after natural disasters and the political crisis, and the cost of military forces in Haiti after Aristide's departure, led to the increased aid figures. After the collapse of the Aristide government, U.S. aid also focused on job creation, government infrastructure support, improved security through improved administration of justice, and elections support. The Bush Administration notified Congress in May 2005 that it supported adding another 800 military personnel and 275 civilian police to MINUSTAH, as recommended by the U.N. Secretary General. The ceiling had been at 6,700 troops and 1,622 police. The State Department also supported the U.N.'s recommendation that MINUSTAH be restructured to enhance its ability to implement a disarmament program and provide security for the fall elections. The Administration estimated that expansion of the U.N. mission would cost the U.S. an additional $16 million to $18 million in FY2006. The United States provided $225.7 million for Haiti in FY2006, including $47.3 million to combat HIV/AIDS and $20 million in supplemental assistance. In FY2007, U.S. assistance totaled an estimated $214.8 million. The Administration's FY2008 request was for almost $223 million, including $83 million to combat HIV/AIDS and $25.5 million for an integrated conflict mitigation program to target urban crime. The FY2008 Consolidated Appropriations Act ( H.R. 2764 / P.L. 110-161 ) includes the provision of no less than $201.5 million in total economic and military assistance to Haiti. It provides that the Government of Haiti is eligible to purchase defense articles for the Coast Guard, states that International Military Education and Training funds and Foreign Military Financing may only be provided to Haiti through the regular notification procedures, and includes a restriction on certain INCLE funding to Haiti. The joint explanatory statement to the act recommends providing $68.4 million in ESF assistance to Haiti and $5 million in development assistance funds to support USAID's watershed reforestation program in Haiti. Estimated aid allocated to Haiti for all categories in FY2008 will be available when the FY2009 budget request is released in early February. Haiti is also one of 12 countries currently receiving legislative-strengthening assistance from the House Democracy Assistance Commission (HDAC). The HDAC was created in March 2005 to provide technical assistance to legislatures and lawmakers in developing democracies around the world. Congress has monitored aid to Haiti closely, and has established a number of conditions on this assistance over the years. The FY2000 foreign aid act ( P.L. 106-113 ) outlined congressional priorities for assistance to Haiti, including "aggressive action to support the Haitian National Police"; ensuring that elections are free and fair; developing indigenous human rights monitoring capacity; facilitating more privatization of state-owned enterprises; a sustainable agricultural development program; and establishing an economic development fund to encourage U.S. investment in Haiti. The act also required the president to regularly report to Congress on the Haitian government's progress in areas of concern to Congress. The Foreign Operations Appropriations Act for FY2001 ( P.L. 106-429 ) shifted conditions, prohibiting aid to the Haitian government until Haiti held free and fair elections to seat a new parliament and was fully cooperating with U.S. efforts to interdict illicit drug traffic through Haiti. The only condition in FY2002 foreign aid appropriations law ( P.L. 107-115 ) required notification to Congress prior to provision of any aid to Haiti. The FY2003 foreign assistance appropriations act ( P.L. 108-7 ) provided for "not less than $52.5 million" in food assistance program funds to be allocated to Haiti (Section 551), but contained no other conditions on aid to Haiti. The FY2004 foreign aid appropriations ( P.L. 108-199 , Division D) continued to allow Haiti to purchase defense articles and services for the Haitian Coast Guard, prohibited the use of funds to issue a visa to any alien involved in extrajudicial and political killings in Haiti, allocated $5 million to the OAS Special Mission in Haiti and $19 million in Refugee and Entrant Assistance funds to communities with large concentrations of Haitian (and Cuban) refugees of varying ages for healthcare and education. The FY2005 consolidated appropriations act ( P.L. 108-447 , Conference Report H.Rept. 108-792 ) contained several provisions regarding Haiti. The act (1) made International Military Education and Training (IMET) funds and Foreign Military Financing (FMF) available only through regular notification procedures; (2) appropriated $20 million for child survival and health programs, $25 million for development assistance, including agriculture, environment, and basic education programs; $40 million in ESF for judicial reform, police training, and national elections; "sufficient funds" for the OAS to help Haiti hold elections in 2005, and $2 million to Zanmi Lasante for maternal and child health activities; (3) allowed Haiti to purchase defense articles and services for its Coast Guard; (4) noted disappointment on the Haitian government's role in the trial and acquittal of Louis Jodel Chamblain, and the deteriorating security human rights situation; (5) required a report within 90 days on a multi-year assistance strategy; (6) and encouraged the Administration to help Haitian and NGO officials to devise a reforestation strategy and to provide a report on that strategy within 180 days. The earlier Senate version of the bill had made several findings regarding improving security in Haiti, concluding that "the failure to establish a secure and stable environment and to conduct credible and inclusive elections will likely result in Haiti's complete transition from a failed state to a criminal state." A portion of an additional $100 million appropriated by Congress in supplemental disaster assistance for the Caribbean region ( P.L. 108-324 ) was allocated to Haiti as well. The emergency supplemental appropriations act for FY2005 ( P.L. 109-13 ) provided that $20 million in Economic Support Funds "should" be made available to Haiti, $2.5 million of which should be made available for criminal case management, case tracking, and the reduction of pre-trial detention in Haiti. The 2006 foreign operations appropriations act ( P.L. 109-102 ) stipulated that IMET funds and FMF could only be provided to Haiti through the regular notification procedures. Section 549 made $116.215 million available for Haiti: $20 million for Child Survival and Health Programs; $30 million for Development Assistance; $50 million for Economic Support Funds; $15 million for International Narcotics Control and Law Enforcement; $1 million for Foreign Military Financing; and $215,000 for International Military Education and Training. It also continued to allow the government of Haiti to purchase defense articles and services under the Arms Export Control Act for the Coast Guard. Section 549 (c) prohibited any International Narcotics Control and Law Enforcement (INCLE) funds from being used to transfer excess weapons, ammunition, or other lethal property of an agency of the United States government to the government of Haiti for use by the Haitian National Police (HNP) until the Secretary of State certified to the Committees on Appropriations that MINUSTAH had vetted the senior levels of the HNP and has ensured that those credibly alleged to have committed serious crimes, including drug trafficking and human rights violations, had been suspended and that the interim government was cooperating in a reform and restructuring plan for the HNP and the reform of the judicial system as called for in United Nations Security Council Resolution 1608, adopted on June 22, 2005. The 109 th Congress demonstrated bipartisan support for Haitian development following Préval's 2006 election, passing an emergency supplemental bill ( H.R. 4939 , P.L. 109-234 , signed into law June 15, 2006) that provided an additional $20 million for Haiti. The bill included $2.5 million in Child Survival and Health funds and $17.5 million in Economic Support Funds for police and judicial reform programs and job creation programs. On February 14, 2007, the 110 th Congress completed work on the FY2007 Foreign Operations Appropriations bill as part of the FY2007 Continuing Resolution ( H.J.Res. 20 / P.L. 109-289 as amended by P.L. 110-5 ). FY2007 estimated aid for Haiti included in the FY2007 Continuing Resolution totaled roughly $182.3 million. Aid conditions from FY2006 were continued. The FY2008 Consolidated Appropriations Act ( H.R. 2764 / P.L. 110-161 ) again stipulated that IMET funds and FMF could only be provided to Haiti through the regular notification procedures. It includes the same restriction on INCLE funding to Haiti that was included in the FY2006 foreign operations law ( P.L. 109-102 ). Several versions of special trade preference bills for Haiti were introduced over the last several years before one was finally passed at the very end of the 109 th Congress. The 108 th Congress considered but did not pass a trade preference bill for Haiti. The Senate passed the Haiti Economic Recovery Opportunity (HERO) Act of 2004 ( S. 2261 ), which would have given Haiti additional preferential trade treatment if it made certain democratic and economic reforms. Benefits under the Caribbean Basin Trade Partnership Act allowed duty-free access for apparel made in the region from U.S. components. The House Ways and Means Trade subcommittee held a hearing on the issue September 22, 2004. Supporters of trade preferences for Haiti introduced new HERO bills for consideration by both houses in the 109 th Congress, in fall 2005, and sought Administration support. A compromise bill, the Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE) Act of 2006 ( H.R. 6142 ), had more restrictive country of origin rules for apparel components than the HERO bills. It was incorporated into the Tax Relief and Health Care Act of 2006 as Title V ( P.L. 109-432 ). Supporters said the bill could generate 40,000 jobs in Haiti. Some U.S. textile interests opposed the bill because it would provide preferences to some garments with components originating in China and other parts of Asia. New legislation ( H.R. 1001 and S. 222 ) have been introduced in the 110 th Congress that would delay implementation of the HOPE bill. Another U.S. concern has been the protection of human rights and the improvement of security conditions within Haiti. During his first term, in 1995, President Aristide took steps to break with the pattern in which a military-dominated police force was associated with human rights abuses. Haiti, with U.S. assistance, demobilized the old military, established an interim police force of selected ex-military personnel, and began to train a professional, civilian Haitian National Police force. The level of reported violence, flight of refugees, and alleged assassinations dropped markedly from very high levels during the de facto military regime. Following the return to civilian rule in 1994, Haiti made progress in the protection of human rights, but the gains made were fragile and threatened by political tensions and problems with impunity. During President Aristide's second term, increases in political violence renewed concerns over security and police effectiveness. In 2001, President Aristide announced a "zero tolerance" policy toward suspected criminals. According to various human rights reports, this announcement was followed by numerous extrajudicial killings by the Haitian National Police and lynchings by mobs. The government's respect for freedom of the press continued to deteriorate. According to the State Department's February 2004 Human Rights Practices Report, "The [Haitian] government's human rights record remained poor, with political and civil officials implicated in serious abuses." After armed rebellions led to the departure of President Jean-Bertrand Aristide in February 2004, an interim government took over, but security conditions remain tenuous. The destruction of prisons and subsequent escape of prisoners in the turmoil of early 2004 and the government's granting of amnesty to convicted criminals in January 2005 further added to instability. Gangs linked to both former army and pro-Aristide forces remain heavily armed. The Haitian National Police are considered understaffed and under equipped to maintain order and have been charged with human rights abuses. The U.N. Stabilization Mission in Haiti (MINUSTAH) was initially understaffed, as member governments were slow to send the 6,700 troops and 1,622 civilian police that were authorized. Only about four U.S. troops have been stationed in Haiti as part of that international mission. MINUSTAH's ability to carry out its mandate to establish law and order was further hampered by the diversion of its resources to help protect and deliver emergency assistance following natural disasters that left thousands dead or homeless. Several U.N. peacekeepers have been killed. Saying that U.N. peacekeepers had failed to maintain security, Prime Minister LaTortue reportedly asked the Bush Administration in late 2004 to send U.S. troops to Haiti. The Department of Defense did not send troops, but about 250 U.S. military personnel participated in a civic assistance program to help train U.S. military units in construction and medical care services as a show of support for Latortue's government. New concerns over human rights violations were presented by the leaders of the armed rebellion that contributed to Aristide's resignation. Both Louis Jodel Chamblain and Guy Philippe were members of the Haitian military. Chamblain is the alleged leader of death squads responsible for a bloodbath that halted elections in 1987 and for killing thousands of civilians after the 1991 military coup against former President Aristide. The Bush Administration expressed "deep concern" about the rule of law in Haiti following the acquittal in a rapidly held retrial of Chamblain and former police official Jackson Joanis in August 2004 for their roles in the 1993 murder of businessman and Aristide supporter Antoine Izmery. Chamblain had been convicted in absentia. The State Department called on the interim Haitian government "to ensure that trials involving accusations of gross human rights violations and other such crimes be conducted in a credible manner." Philippe, who was also a police commissioner in Cap Haitien, fled into exile after being accused of involvement in a coup attempt against President Préval in 2000. Philippe said he wanted to reconstitute the Haitian army and declared himself its head in March 2004. He then ran for president in the 2006 elections. Both men appeared to have a high degree of popular support. The Haitian army, which had a long history of human rights abuses, was disbanded in 1995. Former soldiers have staged protests demanding the restoration of the army and 10 years of back pay. President-elect Préval has said he will promote a constitutional amendment to finalize the dissolution of the army. Although some Aristide supporters have allegedly committed human rights violations, others were reported to face persecution. Some of Aristide's more militant supporters beheaded police officers and threatened to do the same to civilian officials if Aristide was not restored to office ( New York Times , October 7, 2004). Several Lavalas party officials were arrested; they denied inciting the violence and blamed the government for not stopping the violence. Both the State Department and Amnesty International reported human rights abuses against Aristide supporters under the interim government. Hundreds of Aristide supporters were jailed without charge for months. Former Prime Minister Yvon Neptune was held without being charged for 16 months. CARICOM and others have called for the release of Neptune and others who were being held without charge. While some groups agree that people should not be held without charge, they are urging the government to press formal charges and provide for a fair trial. Neptune was finally charged in September 2005 with masterminding the murder of political opponents in St. Marc. An independent U.N. expert on human rights visited the town and said there was not a massacre but confrontations between pro- and anti-Aristide groups that led to deaths on both sides. A U.N. human rights spokesman said that a judge's decision to indict Neptune and try him without a jury was unconstitutional. The official sent the case to the U.N. High Commissioner for Human Rights in October 2005. Neptune was released in July 2006. Then-U.N. Secretary-General Kofi Annan said in October 2005 that the U.N. "is deeply concerned about the 'pattern of alleged serious misconduct' by Haitian National Police officers, including their alleged involvement in the summary execution of at least nine individuals" at a football game in August. Haiti's Chief of Police, Mario Andresol, announced a policy of "zero tolerance" for police involvement in criminal activities on November 2. Over 20 police officers were arrested for alleged involvement in drug trafficking, kidnapping, and extrajudicial murders. In 2005, kidnapping became a frequent and often deadly occurrence. In May 2005, the State Department ordered nonessential U.S. personnel to leave, warned U.S. citizens against traveling to Haiti, and urged those in Haiti to leave, "due to the volatile security situation." The Peace Corps withdrew its volunteers from Haiti in June. On November 22 the U.S. State Department modified its travel warning, allowing non-emergency personnel and adult dependents to return to Haiti. The travel warning remains in effect for other citizens. The State Department further says that both visitors and residents "must remain vigilant due to the absence of an effective police force in much of Haiti." The warning was modified on January 10, 2007, to warn of "a chronic and growing danger of kidnappings," noting that over 60 U.S. citizens had been kidnapped in 2006. The interim government's human right record remained poor throughout 2005, according to the State Department's Country Report on Human Rights Practices issued March 8, 2006. Some of the major human rights problems were arbitrary killings and disappearances committed by the Haitian National Police; prolonged pretrial detention and legal impunity; use of excessive, sometimes deadly force in controlling demonstrations and making arrests; widespread corruption in all branches of government; abuse of women and children; and internal trafficking of children. The report also noted that the interim government had made some progress in judicial and police reform. Other actors were also reported to have committed arbitrary killings, including former members of the Haitian army, members of former President Aristide's Fanmi Lavalas party, and street gangs "suspected of being paid and armed by supporters of former President Aristide." President Préval has said that because Haiti has "a weak and corrupt police force and a weak judiciary," MINUSTAH is still needed in Haiti. He said his administration's first mission would be to build governmental infrastructure. In late summer 2006, MINUSTAH and the Haitian police began a disarmament program. The State Department's Country Report on Human Rights covering 2006 states that despite some improvements, the Haitian government's human rights record was still poor. In contrast with 2005, government agents did not commit any politically motivated killings, but there were some incidents of HNP committing extrajudicial killings of civilians. Other major human rights problems included occasional arbitrary arrests, prolonged pretrial detentions, overcrowded and unsanitary prisons, an ineffective judiciary, discrimination and violence against women and children, internal child trafficking, and ineffective measures to combat gang-related crime and violence. The United States has had an arms embargo in place against Haiti since military forces ousted President Aristide in 1991. The policy allows exceptions to be considered on a case-by-case basis, however. Haiti remains listed in the International Trafficking in Arms Regulations [22 CFR Part 126.1], which prohibit licenses for exports of defense articles to certain countries. The President may remove a country from the list by issuing new regulations and notifying Congress, though this has not been done regarding Haiti. Since the departure of President Aristide, the Bush Administration has transferred and allowed the sale of arms to the Haitian government, arguing that the police force needs to be equipped to establish order in Haiti, and has partially lifted the arms embargo. Some Members and human rights groups have expressed concern about these transfers and sales of U.S. arms to Haitian security forces, which have a record of committing human rights abuses. The Bush Administration transferred excess U.S. law enforcement weapons to the Haitian National Police (HNP) in August 2004. Some 2,600 handguns and 21 long guns were issued to police academy graduating classes and to HNP field units following firearms and human rights training. In April 2005, the State Department notified Congress that it wanted to permit U.S. companies to sell the interim Haitian government $1.9 million worth of arms, including 3,000 .38-caliber revolvers for the HNP. The Administration and Congress concluded negotiations to address congressional concerns in the letter of notification that allowed the arms sales licensing to proceed. According to State Department officials, it contains provisions for the continued monitoring of the weapons, to address concerns about human rights abuses by the HNP. The arms—including the above-mentioned revolvers, 500 9mm pistols, 500 12-gauge shotguns, 200 Mini-14 rifles, and 100 M4 carbines—had been delivered to Haiti by the end of November 2005 but were held by the U.S. government until weapons registration and police training could occur. The FY2006 foreign operations appropriations act ( P.L. 109-102 ) prohibited any International Narcotics Control and Law Enforcement funds from being used to transfer excess weapons, ammunition, or other lethal property of a U.S. agency to the government of Haiti for use by the Haitian National Police until the Secretary of State certified to the Committees on Appropriations that the United Nations Mission in Haiti (MINUSTAH) and the interim Haitian government had carried out certain reforms for the Haitian National Police and the judicial system as called for in United Nations Security Council Resolution 1608 adopted on June 22, 2005. The bill's conference report also expressed concern about members of the Haitian National Police or other individuals unlawfully using weapons, ammunition, and other lethal materiel that has been provided or sold by the U.S. government and therefore required certain certification, and State Department reports, including information on whether any United States-supplied or provided weapon or ammunition was used during human rights violations, and an assessment of steps taken by the Haitian Transitional Government and MINUSTAH to provide adequate security conditions for free and fair elections and to demobilize, disarm, and reintegrate armed groups. (For details, see " Legislation in the 109 th Congress " below.) On October 11, 2006, the Bush Administration notified Congress it was partially lifting the arms embargo that had been in place against Haiti for 15 years ("Amendment to the International Traffic in Arms Regulations: Partial Lifting of Arms Embargo against Haiti," 22 CFR part 126). Préval argued for easing the ban so that the Haitian government could buy arms and other equipment for the Haitian National Police. In December 2006 the Haitian government began a vetting of police recruits to ensure that those credibly alleged to have committed serious crimes, including drug trafficking and human rights violations, are excluded from the force. A class of 500 was graduated from the police academy, with U.S.-supported training, and were provided with arms from those shipped and held since 2005. Haiti is a "key conduit" for cocaine being transported from South America to the United States, and has experienced a surge in air smuggling of cocaine from Venezuela according to the State Department's March 2007 International Narcotics Control Strategy Report. Several factors make Haiti attractive to narcotics traffickers. Located between South America and the United States, its coasts and border with the Dominican Republic are largely uncontrolled. Haiti's nascent democratic institutions and ineffectual infrastructure have been further weakened by the political impasse that has characterized the country since 1997. Haiti's current legal system is antiquated, and its judicial system dysfunctional, according to the State Department. Haitian authorities charged with controlling drug trafficking are inexperienced, lack sufficient resources, and, because of Haiti's extreme poverty, are considered highly susceptible to corruption. During Aristide's term in office, in 2001, 2002, and 2003, the Bush Administration said Haiti was not certified as having fully cooperated, or had "failed demonstrably" to comply with U.S. drug-control efforts. According to the Bush Administration, the Aristide government took several important actions in 2002 and 2003, including putting into force a bilateral maritime narcotics interdiction agreement with the United States, establishing a financial intelligence unit, and extraditing four well-known traffickers to the United States. The Administration also said, however, that "Haitian drug trafficking organizations continue to operate with relative impunity." According to the State Department's March 2004 report, "Serious allegations persisted that high-level government and police officials [were] involved in drug trafficking." There were numerous allegations that former President Aristide was involved in drug trafficking. During 2001-20003, President Bush determined, however, that it was in the national interest to continue providing aid to Haiti despite its poor counter narcotics performance and granted a waiver so that aid to Haiti could continue. The Administration said that "Haitian poverty and hopelessness" were chief catalysts in Haitian involvement in the drug trade and in illegal migration to the United States. Cutting off aid to Haiti, including programs aimed at attacking those catalysts, "would aggravate an already bad situation." In September 2004 and 2005, President Bush determined that Haiti remained a major drug transit country. In his annual determinations, he found that the interim government took "substantive—if limited—counternarcotics actions...." in 2004, and tried to improve its performance in 2005. The Administration added, however, that it remained "deeply concerned" about the Haitian government's inability to carry out sustained counternarcotics efforts. In the past, President Préval has criticized U.S. anti-drug efforts as inadequate. Nevertheless, he has pledged to be fully cooperative in counter narcotics efforts with the U.S. Drug Enforcement Agency. In September 2006, President Bush again determined that Haiti was a major drug transit country, but said that "the new government now has a clear mandate from the Haitian people to bring crime, violent gangs, and drug trafficking under control." At a regional summit on drug trafficking held in the Dominican Republic in March 2007, Admiral James Stravidis, head of U.S. Southern Command, pledged to provide more U.S. assistance to help shore up the porous Haiti-Dominican Republic border. Since that time, drug shipments from Venezuela have reportedly declined, counter narcotics cooperation between Haiti and the Dominican Republic has increased. In early June 2007, the Haitian government recorded a record drug bust. The main elements of current immigration policy regarding Haitians are migrant interdiction on the high seas and mandatory detentions of undocumented, interdicted Haitians. Since 1981, it has been U.S. policy to have the U.S. Coast Guard stop and search Haitian vessels on the high sea that are suspected of transporting undocumented Haitians. Some of the congressional debate over the years has focused on whether interdicted Haitians are economic migrants, and should therefore be returned to Haiti, or whether they are refugees with a well-founded fear of persecution who should be allowed to stay in the United States while applying for political asylum. Some Members and human rights advocates express concern that Haitians are not given the same treatment as other aliens seeking asylum in the United States. President Bush has said that Haitian "refugees" interdicted at sea will be returned to Haiti. Then-Attorney General John Ashcroft issued a ruling in April 2003 that said that unauthorized Haitian migrants can be detained indefinitely in response to national security concerns. The Administration said the ruling was needed to discourage mass migration from Haiti and to prevent the U.S. Coast Guard and other Department of Homeland Security agencies from being diverted from more important border security priorities. The Attorney General further warned that terrorists may pose as Haitian asylum seekers, a charge disputed by immigrant advocates and some U.S. consular officials. So far there have been no significant population movements, but the United Nations High Commissioner for Refugees has worked with Caribbean states to set up contingency plans in the event of a mass exodus from Haiti. In October 2004, following a series of tropical storms and floods that killed almost 2,000 people and left over 200,000 homeless, the Haitian government formally requested Temporary Protected Status (TPS) for Haitians in the United States. That status would halt the deportation back to Haiti of thousands of undocumented Haitians living in the United States. Immigration advocates cited the precedent of Central Americans being granted TPS following Hurricane Mitch in 1998. A bill ( H.R. 2592 ) that would have made Haitians eligible for TPS was introduced in Congress in May 2005. The Department of Homeland Security made no recommendation, but says it continues to monitor events in Haiti. Another bill seeking TPS for Haitians has been filed in the 110 th Congress, the Haitian Protection Act of 2007 ( H.R. 522 ), that would give an estimated 20,000 Haitians in the United States illegally resident status and work papers for up to 18 months. Between February 2004 and October 2004, Haiti was confronted with a series of crises, including a civil conflict and the impact of several flood disasters and tropical storms that resulted in thousands of deaths and tens of thousands being displaced and injured. Thousands of homes were also damaged or destroyed, along with crop and livestock losses, and flooding devastated communities. In 2005, Hurricane Dennis and Tropical Storm Alpha also caused sea surges, localized flooding, mudslides, and heavy rains in Haiti. Haiti remains the poorest nation in the Western Hemisphere. Each natural disaster was made worse in its cumulative effect not only because of Haiti's extreme poverty but also because of its vulnerability to floods and mudslides as a result of severe environmental degradation. The ongoing political crisis in Haiti and the poor conditions, which include food insecurity and a lack of basic health care and sanitation, are of great concern. The U.S. and international community have responded to these situations as they unfolded with disaster relief and recovery assistance. In 2004, with an ongoing lack of security, assessments of the humanitarian situation remained fluid. Lack of road security, looting, and poor road conditions at times impeded the delivery of aid. With the assistance of MINUSTAH, the conditions have reportedly seen improvement and are now more consistently sustained, though the situation remains precarious. The international effort is meeting with some success in building health networks and providing food assistance, but much more is needed to provide sustained shelter, food security, and adequate health care. Experts are also concerned about the plight of Haitians in the Dominican Republic and whether they are receiving adequate humanitarian assistance and protection. International humanitarian actors continue field operations in Haiti and include MINUSTAH, U.N. agencies, international organizations, non-governmental organizations, and bilateral and multilateral donors. The United Nations Office for the Coordination of Humanitarian Affairs (UNOCHA) is in close contact with the U.N. Resident Coordinator on the ground to facilitate relief efforts. USAID has provided assistance for disaster relief and humanitarian needs. Congress approved $100 million in emergency assistance for Caribbean countries affected by the 2004 natural disasters, including Haiti. The aid was incorporated into the FY2005 Military Construction Appropriations and Emergency Hurricane Supplemental Appropriations Act ( P.L. 108-324 ). Some Members criticized the level of aid as too small considering the amount of damage wrought by the storms. The United States and other bilateral and multilateral donors are providing ongoing humanitarian assistance through the donor strategy plan endorsed at the International Donors Conference on Haiti in July 2004. Originally a two-year plan, it has now been extended through September 2007. Donors are helping the Haitian government develop a long-term Poverty Reduction Strategy. Haiti is caught in a vicious cycle that makes its land unable to sustain the needs of its inhabitants and vulnerable to natural disasters. Haiti is a primarily agricultural economy, yet it has insufficient arable land for its farming sector. Because farmers lack the means to invest in more efficient technology, they employ unsustainable methods, such as cutting down trees for wood fuel, which contributes to deforestation, which leads to soil erosion, which leads to inadequate agricultural production, and continued poverty. Haiti's annual deforestation rate from 1990 to 2000 was 5.7%, as compared to 0.1% in the rest of the Latin American and Caribbean region. As of 2000, only 3.2% of Haiti's total land area remained forested, according to the U.N. Food and Agriculture Organization. The Haitian government and international donors have established the following priorities for protecting and rehabilitating the Haitian environment: promoting sustainable use of natural resources through reduced reliance on wood fuel; planning and carrying out of activities aimed at halting degradation of land and natural resources. Emphasis has also been placed on supporting the development and implementation of disaster management plans. P.L. 110-161 ( H.R. 2764 ). FY2008 Consolidated Appropriations Act. Division J includes the provision of not less than $201.5 million in total economic and military assistance to Haiti. The act provides that the Government of Haiti is eligible to purchase defense articles for the Coast Guard; states that IMF funds and FMF may only be provided to Haiti through the regular notification procedures; and includes a restriction on certain INCLE funding to Haiti. The joint explanatory statement to the act recommends providing $5 million to support USAID's watershed reforestation program in Haiti. Introduced on June 18, 2007 as the State Department, Foreign Operations, and Related Agencies Appropriations Act, H.R. 2764 . The House Appropriations Committee issued its report on the bill, H.Rept. 110-197 , on June 18, and the House passed the bill on June 22. The Senate Appropriations Committee approved its version of the bill on June 28, S.Rept. 110-128 , and the Senate passed it on September 6, approving the same level of total funding as the House bill. On December 17, 2007, H.R. 2764 became the vehicle for the FY2008 Consolidated Appropriations Act, with Division J providing for foreign aid appropriations. The bill was signed into law on December 26, 2007. H.Res. 234 (Waters). Congratulating Wyclef Jean for being named "Roving Ambassador" for Haiti. Introduced March 9, 2007; referred to House Committee on Foreign Affairs. H.Res. 241 (Waters). Urging multilateral financial institutions to cancel completely and immediately Haiti's debts to such institutions. Introduced March 13, 2007; referred to House Committee on Financial Services. H.Res. 909 (Meek). Commemorating the Haitian soldiers that fought for American independence in the "Siege of Savannah" and for Haiti's independence and renunciation of slavery. Introduced December 19, 2007; referred to House Committee on Foreign Affairs. H.R. 351 (Lee). To establish the Independent Commission on the 2004 Coup d'Etat in the Republic of Haiti. Introduced January 9, 2007; referred to Subcommittee on the Western Hemisphere of the House Committee on Foreign Affairs on February 5, 2007. H.R. 454 (Meek). To amend the Haitian Refugee Immigration Fairness Act (HRIFA) of 1998 to benefit individuals who were children when such Act was enacted. Introduced January 12, 2007; referred to Subcommittee on Immigration, Citizenship, Refugees, Border Security, and International Law of the House Judiciary Committee on February 2, 2007. H.R. 522 (Hastings). To designate Haiti under Section 244 of the Immigration and Nationality Act in order to render nationals of Haiti eligible for temporary protected status. Introduced January 17, 2007; referred to Subcommittee on Immigration, Citizenship, Refugees, Border Security, and International Law of the House Judiciary Committee on February 2, 2007. H.R. 750 (Jackson-Lee). Save America Comprehensive Immigration Act of 2007, introduced January 31, 2007; referred to House Committees on Judiciary, Homeland Security, Oversight, and Government Reform. H.R. 1001 (Spratt). Would amend the Haitian Hemispheric Opportunity through Partnership Encouragement Act of 2006 to extend the date for the President to determine if Haiti meets certain requirements, and for other purposes. Introduced, February 12, 2007; referred to the Subcommittee on Trade of the House Ways and Means Committee on February 20, 2007. H.R. 1645 (Gutierrez). Security Through Regularized Immigration and a Vibrant Economy Act of 2007, introduced March 22, 2007; referred to House Judiciary and House Homeland Security Committee. H.R. 2830 (Oberstar). Coast Guard Authorization Act, FY2008, would provide up to ten decommissioned Coast Guard vessels to the government of Haiti. Introduced on June 22, 2007; referred to House Committees on Transportation and Infrastructure, Homeland Security, Energy and Commerce and the Judiciary. On January 15, 2008, the House Committee on Energy and Commerce granted an extension for further consideration ending no later than January 23, 2008. H.R. 4986 (Skelton) National Defense Authorization Act for Fiscal Year 2008. Introduced on January 16, 2008. Passed by the House on January 16, 2008 and by the Senate on January 22, 2008. Replaced H.R. 1585 (Skelton) National Defense Authorization Act for Fiscal Year 2008 that was introduced on March 20, 2007, passed by the House on May 17 and by the Senate on October 1, but vetoed by the President on December 28, 2007. Section 1023 of H.R. 4986 would require a report to Congress on counternarcotics assistance to Haiti. That language was originally added to H.R. 1585 by S.Amdt. 2305 (Dole) approved by unanimous consent on September 17. S. 222 (Graham). Would amend the Haitian Hemispheric Opportunity through Partnership Encouragement Act of 2006 to extend the date for the President to determine if Haiti meets certain requirements, and for other purposes. Introduced January 9, 2007; referred to the Committee on Finance. S. 821 (Smith). SSI Extension for Elderly and Disabled Refugees Act, to amend the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 to provide a two-year extension of supplemental security income through FY2010 for qualified aliens (including some Haitian entrants). Introduced March 8, 2007; referred to Senate Committee on Finance. S. 1348 (Reid). Comprehensive Immigration Reform Act of 2007. Sec. 512 would amend the Haitian Refugee Immigration Fairness Act of 1998 regarding determinations with respect to children, new applications, and motions to reopen. Introduced May 9, 2007; Motion by Senator Reid to reconsider the vote by which cloture on the bill was not invoked entered in Senate, June 7, 2007. P.L. 109-13 ( H.R. 1268 ). Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Tsunami Relief, for the fiscal year ending September 30, 2005. Makes $20 million in Economic Support Funds available for Haiti, of which $2.5 million should be made available for criminal case management, case tracking, and the reduction of pre-trial detention in Haiti, notwithstanding any other provision of law. Introduced March 11, 2005 ( H.Rept. 109-72 ), signed into law May 11, 2005. P.L. 109-53 ( H.R. 3045 / S. 1307 ). Dominican Republic-Central America-United States Free Trade Agreement Implementation Act. Contains a side letter indicating the Administration's intent to work with Congress to allow benefits available under the Caribbean Basin Trade Partnership Act for articles co-produced by Haiti and the Dominican Republic to continue once CAFTA is implemented. Introduced June 23, 2005 ( H.Rept. 109-182 ); passed Senate 54-45 June 30; signed into law August 2, 2005. P.L. 109-95 ( H.R. 1409 / S. 350 ). Amends the Foreign Assistance Act of 1961 to provide assistance for basic care for orphans and other vulnerable children in developing countries. Introduced March 17, 2005. Became public law November 8. P.L. 109-102 ( H.R. 3057 ). Department of State, Foreign Operations, and Related Programs Appropriations Act, 2006. International Military Education and Training funds and Foreign Military Financing may only be provided to Haiti through the regular notification procedures. Section 549 makes available for Haiti (1) $20 million from Child Survival and Health Programs Fund; (2) $30 million from Development Assistance; (3) $50 million from Economic Support Fund; (4) $15 million from International Narcotics Control and Law Enforcement; (5) $1 million from Foreign Military Financing Program; and (6) $215,000 from International Military Education and Training. It also continues to allow the government of Haiti to purchase defense articles and services under the Arms Export Control Act for the Coast Guard. Section 549 (c) prohibits any 'International Narcotics Control and Law Enforcement' funds from being used to transfer excess weapons, ammunition, or other lethal property of an agency of the United States government to the government of Haiti for use by the Haitian National Police until the Secretary of State certifies to the Committees on Appropriations that (1) the United Nations Mission in Haiti (MINUSTAH) has carried out the vetting of the senior levels of the Haitian National Police and has ensured that those credibly alleged to have committed serious crimes, including drug trafficking and human rights violations, have been suspended; and (2) the Transitional Haitian National Government is cooperating in a reform and restructuring plan for the Haitian National Police and the reform of the judicial system as called for in United Nations Security Council Resolution 1608 adopted on June 22, 2005. Introduced June 24, 2005, referred to House and Senate Committees on Appropriations ( H.Rept. 109-152 ; S.Rept. 109-96 ). Became public law November 14, 2005. The conference report expresses concern about members of the Haitian National Police or other individuals unlawfully using weapons, ammunition, and other lethal materiel that has been provided or sold by the United States Government and therefore requires the certification included in Section 549(c). The conferees understand that investigations into extrajudicial killings and other alleged incidents of human rights abuses by the police were currently underway but were severely limited by the lack of investigative capacity within the HNP. The conferees request that not later than 60 days after the date of enactment of this act, the State Department report to the appropriate congressional committees the findings of these investigations, including information on whether any United States-supplied or provided weapon or ammunition was used during those incidents. Directs the Secretary of State to submit a report to the Committees on Appropriations within 30 days of enactment of the act which (1) describes in detail the steps taken by the Haitian Transitional Government and the United Nations Stabilization Mission to provide adequate security to permit free and fair elections with broad based participation by all political parties, and to demobilize, disarm and reintegrate armed groups, and (2) provides an assessment of the effectiveness of such steps. Conference report ( H.Rept. 109-265 ) agreed to in House 358-39, November 4, 2005. P.L. 109-108 ( H.R. 2862 ). Departments of Commerce and Justice, Science, and Related Agencies Appropriations Act, 2006. Provides that an amount not to exceed $20 million shall remain available until expended to make payments in advance for grants, contracts and reimbursable agreements, and other expenses authorized by Section 501(c) of the Refugee Education Assistance Act of 1980, for the care and security in the United States of Haitian (and Cuban) entrants. Introduced June 10, 2005. H.Rept. 109-118 , S.Rept. 109-88 , conference report 109-272. Became public law November 22, 2005. P.L. 109-162 ( H.R. 3402 / S. 1197 ). Violence Against Women and Department of Justice Reauthorization Act of 2005. Amends Violence Against Women Act of 2002, provides for aliens or children of aliens who qualify for relief under the Haitian Refugee Immigration Fairness Act of 1998 to petition for certain protections of battered and trafficked immigrants. Introduced July 22, 2005. H.Rept. 109-233 . Became public law January 5, 2006. P.L. 109-234 ( H.R. 4939 ). Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Hurricane Recovery, 2006. Provides an additional $22.5 million for Haiti. Includes $5 million in Child Survival and Health funds and $17.5 million in Economic Support Funds for police and judicial reform programs and job creation programs. Introduced March 13, 2006, signed into law June 15, 2006. P.L. 109-432 ( H.R. 6111 ). The Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE) Act of 2006 ( H.R. 6142 ) was incorporated into the Tax Relief and Health Care Act of 2006 as Title V. Allows duty-free entry to specified apparel articles 50% of which were made and/or assembled in Haiti, the United States, or a country that is either a beneficiary of a U.S. trade preference program, or party to a U.S. free trade agreement (for the first three years; the percentage would be higher after that). Requires ongoing Haitian compliance with certain conditions, including making progress toward establishing a market-based economy, the rule of law, elimination of trade barriers, economic policies to reduce poverty, a system to combat corruption, and protection of internationally recognized worker rights. It also stipulates that Haiti not engage in activities that undermine U.S. national security or foreign policy interests, or in gross violations of human rights. Introduced, referred to House Committee on Ways and Means September 21, 2006. Signed into law December 20, 2006. The following list includes legislation that was approved and become public law during the 108 th Congress. For the status of other legislation at the end of the 108 th , see the CRS online guide, Haiti: Legislation in the 108 th Congress , by Andy Mendelson at http://www.crs.gov/ products/ browse/ officialsources/ haitileg.shtml . P.L. 108-7 ( H.J.Res. 2 ). Consolidated Appropriations for FY2003. The Commerce, Justice and State appropriations bill makes available, in the "Federal Prison" section, an amount "not to exceed" $20 million of contract confinement funds for the care and security in the U.S. of Haitian (and Cuban) entrants. Under the Foreign Operations appropriations (Division E), Section 551(a) allows the Haitian government to purchase defense articles and services for the Coast Guard. Section 551(b) provides that "not less than" $52.5 million of funds appropriated by Title II and to carry out AID food aid programs should be allocated for Haiti. Signed into law February 20, 2003. P.L. 108-25 ( H.R. 1298 / S. 1009 ). The U.S. Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 2003. Haiti is among 13 countries (Guyana and 12 African countries) that the legislation expressly benefits, with an HIV/AIDS Coordinator in charge of approving all U.S. activities (funding included) aimed at combating AIDS in these countries (Section 102 (a)). Appropriates $3 billion per year through FY2008 for bilateral and multilateral efforts to combat HIV/AIDS, tuberculosis and malaria. Signed into law May 27, 2003. P.L. 108-199 ( H.R. 2673 ). Foreign Operations Appropriations Act for FY2004 ( H.R. 2800 / S. 1426 ), incorporated into consolidated appropriations act. The Commerce, Justice and State appropriations act makes available until expended, in the "Federal Prison System" section, an amount "not to exceed" $20 million of confinement funds for the care and security in the U.S. of Haitian (and Cuban) entrants. Under the Foreign Operations appropriations (Division D), Section 551 allows the Haitian government to purchase defense articles and services for the Coast Guard. Sec. 567(b) makes $34 million available for family planning, maternal, and reproductive health activities in 12 countries, including Haiti. Section 616 prohibits the use of funds to issue a visa to any alien involved in extrajudicial and political killings in Haiti, including exemption and reporting requirements. Allocates $5 million to the OAS Special Mission in Haiti. Allocates $19 million in Refugee and Entrant Assistance funds to communities with large concentrations of Haitian (and Cuban) refugees of varying ages whose cultural differences make assimilation especially difficult, justifying a more intense level and longer duration of federal assistance for health care and education. Conference agreement for omnibus vehicle approved by House December 8, 2003, and by Senate January 22, 2004. Signed into law January 23, 2004. P.L. 108-324 ( H.R. 4837 ). The FY2005 Military Construction Appropriations and Emergency Hurricane Supplemental Appropriations Act includes $100 million in emergency assistance for Caribbean countries affected by the recent natural disasters, including Haiti. According to the supplemental budget requests from the Bush Administration that the bill fulfills, the aid will support the temporary provision of electricity; housing rehabilitation and reconstruction; agriculture sector reconstruction; water and sanitation systems reconstruction; and the rehabilitation of rural infrastructure such as roads, schools, and health facilities. P.L. 108-447 ( H.R. 4818 ). The FY2005 consolidated appropriations act contains several provisions regarding Haiti. The law (1) makes International Military Education and Training funds and Foreign Military Financing available only through regular notification procedures; (2) appropriates $20 million for child survival and health programs, $25 million for development assistance, including agriculture, environment, and basic education programs; $40 million in ESF for judicial reform, police training, and national elections; "sufficient funds" for the OAS to help Haiti hold elections in 2005 and $2 million to Zanmi Lasante for maternal and child health activities; (3) allows Haiti to purchase defense articles and services for its Coast Guard; (4) notes disappointment on the Haitian government's role in the trial and acquittal of Louis Jodel Chamblain and the deteriorating security human rights situation; (5) requires a report within 90 days on a multi-year assistance strategy; (6) and encourages the Administration to help Haitian and NGO officials to devise a reforestation strategy and to provide a report on that strategy within 180 days. The conference report was agreed to in both houses on November 20. Signed into law December 8, 2004. The earlier Senate version had made several findings regarding improving security in Haiti, concluding that "the failure to establish a secure and stable environment and to conduct credible and inclusive elections will likely result in Haiti's complete transition from a failed state to a criminal state."
|
Following the first free and fair elections in Haiti's history, Jean-Bertrand Aristide first became Haitian President in February 1991. He was overthrown by a military coup in September 1991. For over three years, the military regime resisted international demands that Aristide be restored to office. In September 1994, after a U.S. military intervention had been launched, the military regime agreed to Aristide's return, the immediate, unopposed entry of U.S. troops, and the resignation of its leadership. President Aristide returned to Haiti in October 1994 under the protection of some 20,000 U.S. troops, and disbanded the Haitian army. U.S. aid helped train a civilian police force. Subsequently, critics charged Aristide with politicizing that force and engaging in corrupt practices. Elections held under Aristide and his successor, René Préval (1996-2000), including the one in which Aristide was reelected in 2000, were marred by alleged irregularities, low voter turnout, and opposition boycotts. Efforts to negotiate a resolution to the electoral dispute frustrated the international community for years. Tension and violence continued throughout Aristide's second term, culminating in his departure from office in February 2004, after the opposition repeatedly refused to negotiate a political solution and armed groups took control of half the country. An interim government, backed by the Bush Administration, was established with Gérard LaTortue as Prime Minister. The U.N. Stabilization Mission in Haiti (MINUSTAH) has tried to improve security conditions, but Haiti remains unstable. Natural disasters have contributed to instability. After several postponements, presidential elections were held on February 7, 2006, and runoff legislative elections were held on April 21. The electoral council declared René Préval winner after a controversial calculation process. He was inaugurated to a five-year presidential term on May 14, 2006. President Préval has sought to restore stability, build democratic institutions, and establish conditions for private investment in order to create jobs. He enjoys broad support from the international donor community, the Bush Administration, and Congress. On December 9, 2006, the 109th Congress passed a special trade preferences bill for Haiti (the Haitian Hemispheric Opportunity through Partnership Encouragement/HOPE Act of 2006, Title V, P.L. 109-432). Congressional concerns regarding Haiti include fostering democratic development, stability, and security; the cost and effectiveness of U.S. aid; protecting human rights; combating narcotics, arms, and human trafficking; addressing Haitian migration; and alleviating poverty. The FY2008 Consolidated Appropriations Act (H.R. 2764/P.L. 110-161) includes a number of provisions on U.S. aid to Haiti that are described in this report. During its second session, the 110th Congress may consider a variety of legislation that has provisions on Haiti: H.Res. 234, H.Res. 241, H.Res. 909, H.R. 351, H.R. 454, H.R. 522, H.R. 750, H.R. 1001, H.R. 1645, H.R. 2830, H.R. 4986, S. 222, S. 821, and S. 1348. An expansion or extension of current trade benefits provided through the HOPE Act may also be considered. This report will be not be updated.
|
On December 17, 2014, after the end of the 113 th Congress, President Obama announced major developments in U.S.-Cuban relations. First, the Cuban government released Alan Gross, the U.S. Agency for International Development subcontractor imprisoned in Cuba for five years, on humanitarian grounds. Second, in a separate action, the Cuban government released an important U.S. intelligence asset imprisoned for almost two decades in exchange for three Cuban intelligence agents who had been imprisoned in the United States since 1998. Finally, with the release of Gross and the U.S. intelligence asset, President Obama announced a major shift in U.S. policy toward Cuba, moving away from a sanctions-based policy aimed at isolating Cuba to a policy of engagement. The President outlined three major steps to move toward normalization: (1) reestablishment of diplomatic relations with Cuba (relations were severed in 1961); (2) a review of Cuba's designation by the Department of State as a state sponsor of international terrorism (Cuba has been on the list since 1982); and (3) an increase in travel, commerce, and the flow of information to and from Cuba. The President maintained that the United States would continue to speak out on human rights and democracy issues, but stressed that more could be done to support the Cuban people through engagement. (See " President Obama Unveils a New Policy Approach Toward Cuba " below.) On December 16, 2014, President Obama signed into law the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ), which provided FY2015 funding for Cuba democracy projects and Cuba broadcasting. With regard to democracy funding, the law measure stated that Economic Support Funds should be made available for programs in Cuba, but did not specify an amount (the Administration had requested $20 million). The explanatory statement to the measure provides for $27.130 million to be provided for Cuba broadcasting (the Administration had requested $23.130 million), but also indicated that funds may be transferred to the Office of Cuba Broadcasting (OCB) of the Broadcasting Board of Governors from appropriated Economic Support Funds to restore OCB program reductions. (See " U.S. Funding to Support Democracy and Human Rights " and " Radio and TV Marti " below). On December 9, 2014, Cuba released from prison Ladies in White member Sonia Garro Alfonso, her husband Ramón Alejandro Muñoz González, and a neighbor, Eugenio Hernández, who had been held since March 2012. Upon release, the three reportedly were placed under house arrest while awaiting trial. Amnesty International expressed concern that the three will not receive a fair trial in accordance with international standards. (See " Human Rights Conditions " below.) On December 3, 2014, the independent Havana-based Cuban Commission on Human Rights and National Reconciliation reported that there were 8,410 short-term detentions for political reasons in the first 11 months of 2014, far higher than the same period over the past several years. In June 2014, the group also reported that there were 102 political prisoners in the country, not including 12 released on parole who are not allowed to leave the country. (See " Human Rights Conditions " below.) For developments earlier in 2014 and 2013, see Appendix B . Political and economic developments in Cuba and U.S. policy toward the island nation, located just 90 miles from the United States, have been significant congressional concerns for many years. Since the end of the Cold War, Congress has played an active role in shaping U.S. policy toward Cuba, first with the enactment of the Cuban Democracy Act of 1992 ( P.L. 102-484 , Title XVII) and then with the Cuban Liberty and Democratic Solidarity Act of 1996 ( P.L. 104-114 ). Both of these measures strengthened U.S. economic sanctions on Cuba that had first been imposed in the early 1960s, but the measures also provided roadmaps for a normalization of relations dependent upon significant political and economic changes in Cuba. A decade ago, Congress partially modified its sanctions-based policy toward Cuba when it enacted the Trade Sanctions Reform and Export Enhancement Act of 2000 ( P.L. 106-387 , Title IX) allowing for U.S. agricultural exports to Cuba that led to the United States becoming a major source for Cuba's food imports. Over the past decade, much of the debate over U.S. policy in Congress has focused on U.S. sanctions, especially over U.S. restrictions on travel to Cuba. The George W. Bush Administration initially liberalized U.S. family travel to Cuba in 2003, but subsequently tightened restrictions on family and other categories of travel in 2004 because of Cuba's crackdown on political dissidents. In 2009, Congress took legislative action in an appropriations measure ( P.L. 111-8 ) to ease restrictions on family travel and travel for the marketing of agricultural exports, marking the first congressional action easing Cuba sanctions in almost a decade. The Obama Administration took further action in April 2009 by lifting all restrictions on family travel and on cash remittances by family members to their relatives in Cuba and restarting semi-annual migration talks that had been curtailed in 2004. In January 2011, the Administration announced the further easing of restrictions on educational and religious travel to Cuba and on non-family remittances, and it also expanded eligible airports in the United States authorized to serve licensed charter flights to and from Cuba. In December 2014, just after the adjournment of the 113 th Congress, President Obama announced a major shift in U.S. policy toward Cuba, moving away from a sanctions-based policy aimed at isolating Cuba to a policy of engagement and a normalization of relations. As announced, part of the President's initiative is to increase travel, commerce, and the flow of information to Cuba. This report is divided into three major sections analyzing Cuba's political and economic situation, U.S. policy toward Cuba, and selected issues in U.S.-Cuban relations. The first section includes a brief historical political background on Cuba; a discussion on the current political situation under Raúl Castro, including human rights conditions; an examination of economic conditions and policy changes that have occurred to date under Raúl Castro; and Cuba's foreign relations. The second section on U.S. policy provides a broad overview of U.S. policy historically through the George W. Bush Administration and then a discussion of current policy under the Obama Administration. It then provides a brief discussion on the general policy debate regarding the direction of U.S. policy toward Cuba. The third section analyzes many of the key issues in U.S.-Cuban relations that have been at the forefront of the U.S. policy debate on Cuba and have often been the subject of legislative initiatives. While legislative initiatives are noted throughout the report where appropriate, a final section of the report provides a listing of enacted measures and bills and resolutions introduced in the 113 th Congress. An appendix also provides links to selected executive branch reports and web pages on Cuba. Cuba did not become an independent nation until 1902. From its discovery by Columbus in 1492 until the Spanish-American War in 1898, Cuba was a Spanish colony. In the 19 th century, the country became a major sugar producer with slaves from Africa arriving in increasing numbers to work the sugar plantations. The drive for independence from Spain grew stronger in the second half of the 19 th century, but it only came about after the United States entered the conflict when the USS Maine sank in Havana Harbor after an explosion of undetermined origin. In the aftermath of the Spanish-American War, the United States ruled Cuba for four years until Cuba was granted its independence in 1902. Nevertheless, the United States still retained the right to intervene in Cuba to preserve Cuban independence and maintain stability in accordance with the Platt Amendment that became part of the Cuban Constitution of 1901. The United States subsequently intervened militarily three times between 1906 and 1921 to restore order, but in 1934, the Platt Amendment was repealed. Cuba's political system as an independent nation was often dominated by authoritarian figures. Gerardo Machado (1925-1933), who served two terms as President, became increasingly dictatorial until he was ousted by the military. A short-lived reformist government gave way to a series of governments that were dominated behind the scenes by military leader Fulgencio Batista until he was elected President in 1940. Batista was voted out of office in 1944 and was followed by two successive Presidents in a democratic era that ultimately became characterized by corruption and increasing political violence. Batista seized power in a bloodless coup in 1952 and his rule progressed into a brutal dictatorship. This fueled popular unrest and set the stage for Fidel Castro's rise to power. Castro led an unsuccessful attack on military barracks in Santiago, Cuba, on July 26, 1953. He was jailed, but subsequently freed and went into exile in Mexico where he formed the 26 th of July Movement. Castro returned to Cuba in 1956 with the goal of overthrowing the Batista dictatorship. His revolutionary movement was based in the Sierra Maestra and joined with other resistance groups seeking Batista's ouster. Batista ultimately fled the country on January 1, 1959, leading to more than 45 years of rule under Fidel Castro until he stepped down from power provisionally in July 2006 because of poor health. While Castro had promised a return to democratic constitutional rule when he first took power, he instead moved to consolidate his rule, repress dissent, and imprison or execute thousands of opponents. Under the new revolutionary government, Castro's supporters gradually displaced members of less radical groups. Castro moved toward close relations with the Soviet Union while relations with the United States deteriorated rapidly as the Cuban government expropriated U.S. properties (see " Background on U.S.-Cuban Relations " below). In April 1961, Castro declared that the Cuban revolution was socialist, and in December 1961, he proclaimed himself to be a Marxist-Leninist. Over the next 30 years, Cuba was a close ally of the Soviet Union and depended on it for significant assistance until the dissolution of the Soviet Union in 1991. From 1959 until 1976, Castro ruled by decree. In 1976, however, the Cuban government enacted a new Constitution setting forth the Cuban Communist Party (PCC) as the leading force in state and society, with power centered in a Political Bureau headed by Fidel Castro. Cuba's Constitution also outlined national, provincial, and local governmental structures. Since then, legislative authority has been vested in a National Assembly of People's Power that meets twice annually for brief periods. When the Assembly is not in session, a Council of State, elected by the Assembly, acts on its behalf. According to Cuba's Constitution, the president of the Council of State is the country's head of state and government. Executive power in Cuba is vested in a Council of Ministers, also headed by the country's head of state and government, that is, the president of the Council of State. Fidel Castro served as head of state and government through his position as president of the Council of State from 1976 until February 2008. While he had provisionally stepped down from power in July 2006 because of poor health, Fidel still officially retained his position as head of state and government. National Assembly elections were held on January 20, 2008, and Fidel Castro was once again among the candidates elected to the now 614-member legislative body. (As in the past, voters were only offered a single slate of candidates.) On February 24, 2008, the new Assembly was scheduled to select from among its ranks the members of the Council of State and its president. Many observers had speculated that because of his poor health, Fidel would choose not to be reelected as president of the Council of State, which would confirm his official departure from heading the Cuban government. Statements from Castro himself in December 2007 hinted at his potential retirement. That proved true on February 19, 2008, when Fidel announced that he would not accept the position as president of the Council of State, essentially confirming his departure as titular head of the Cuban government. After Fidel stepped down from power, Cuba's political succession from Fidel to Raúl Castro was characterized by considerable stability. After two and one half years of provisionally serving as President, Raúl Castro officially became Cuba's President on February 24, 2008, when Cuba's legislature selected him as president of the 31-member Council of State. While it was not a surprise to observers for Raúl to succeed his brother Fidel officially as head of government, the selection of José Ramón Machado Ventura as the Council of State's first Vice President in February 2008 was a surprise. Born in 1930, Machado was part of the older generation of so-called históricos of the 1959 Cuban revolution along with the Castro brothers (Fidel Castro was born in August 1926, while Raúl Castro was born in June 1931). Described as a hard-line communist party ideologue, Machado reportedly was a close friend and confident of Raúl for many years. The position of first vice president of the Council of State is significant because, according to the Cuban Constitution, the person holding the office is the official successor to the president. While Raúl Castro began implementing some economic reforms in 2008, there has been no change to his government's tight control over the political system and few observers expect there to be, with the government backed up by a strong security apparatus. Under Raúl, who served as defense minister from the beginning of the Cuban revolution until 2008, the Cuban military has played an increasing role in government with several key military officers and confidants of Raúl serving as ministers. The Cuban Communist Party (PCC) held its sixth congress in April 2011. While the party concentrated on making changes to Cuba's economic model, some political changes also occurred. As expected, Fidel was officially replaced by Raúl as first secretary of the PCC, and First Vice President José Ramón Machado became the party's second secretary. The party's Political Bureau or Politburo was reduced from 23 to 15 members, with 3 new members, Marino Murrillo, Minister of Economy Adel Yzquierdo Rodriguez, and the first secretary of the party in Havana, Mercedes Lopez Acea. The party's Central Committee also was reduced from 125 to 115 members, with about 80 of those being new members of the committee. At the April 2011 party congress, Raúl Castro proposed two five-year term limits for top positions in the party and in the government, calling for systematic rejuvenation, a change that was confirmed by a January 2012 national PCC conference. Cuba's revolutionary leadership has been criticized by many observers for remaining in party and government positions far too long, and for not passing leadership opportunities to a younger generation. Some observers had expected leadership changes and more significant reforms at the January 2012 PCC conference. While this did not occur, the PCC approved a resolution by which its Central Committee would be allowed to replace up to 20% of its 115 members within its five-year mandate. On February 3, 2013, Cuba held elections for over 600 members of the National Assembly of People's Power, the national legislature, as well as over 1,600 provincial government representatives, both for five-year terms. Under Cuba's one-party system, the overwhelming majority of those elected are PCC members. Critics maintain that elections in Cuba are a sham and entirely controlled by the PCC. The new National Assembly met on February 24, 2013, to select the next president of the Council of State, Cuba's head of government. As expected, Raúl Castro was selected for a second five year-term as president (until February 2018, when Raúl will be 86 years old), but Castro also indicated that this would be his last term in conformity with the new two-term limit for top officials. Most significantly, First Vice President José Ramón Machado, 82 years old, was replaced by 52-year old Miguel Díaz-Canel Bermúdez, who was serving as one of the Council of State's vice presidents. Díaz-Canel's appointment as the official constitutional successor to President Castro represents a move toward bringing about generational change in Cuba's political system. Díaz-Canel became a member of the Politburo in 2003 and also held top PCC positions in the provinces of Villa Clara and Holguín. He became education minister in 2009 until he was tapped to be a vice president of the Council of State. Díaz-Canel has been described in media reports as an experienced manager with good relations with the military and as someone that worked his way up through the party. In another significant move in February 2013, the National Assembly appointed Esteban Lazo Hernández as the new president of Cuba's National Assembly. Lazo, who is the Cuban government's highest ranking official of Afro-Cuban descent, replaced long-time National Assembly President Ricardo Alarcón, who was not a candidate in this year's National Assembly elections. Lazo has held top party positions in several provinces and has served as a vice president of the Council of State. While generational change already appears to be underway in Cuba's political system, this does not signify an easing of Cuba's tightly controlled regime. In speaking on the 60 th anniversary of the start of the Cuban revolution on July 26, 2013, President Castro asserted that a generational transfer of power had already begun, stating that "there is a slow and orderly transfer of the leadership of the revolution to the new generations." Some observers maintain that while the leadership transition in 2018 (or earlier, given that Raúl Castro's is 82 years old) will likely be smooth, there is a greater likelihood for a growth in factionalism within the system without Castro at the helm. On September 15, 2013, Cuba's Conference of Catholic Bishops issued a pastoral letter maintaining that, just as economic changes were occurring, Cuba's political order also needed to be updated. The bishops maintained that there should be the right of diversity with respect to thought, creativity, and the search for truth, and maintained that out this diversity arises the need for dialogue among diverse social groups. In his March 2012 pastoral visit to Cuba, Pope Benedict VI had urged Cubans "to build a renewed and open society." The Cuban government has a poor record on human rights, with the government sharply restricting freedoms of expression, association, assembly, movement, and other basic rights since the early years of the Cuban revolution. The government has continued to harass members of the Ladies in White ( Damas de Blanco ) human rights group that was formed in 2003 by the female relatives of the so-called "group of 75" dissidents arrested that year in a massive crackdown (for more, see text box below). Two Cuban political prisoners conducting hunger strikes have died in recent years, Orlando Zapata Tamayo in February 2010 and Wilman Villar Mendoza in January 2012. Tamayo died after an 85-day hunger strike that he had initiated to protest inhumane conditions in Cuba's prisons. Villar Mendoza died following a 50-day hunger strike after he was convicted of "contempt" of authority and sentenced to four years in prison. Amnesty International (AI) published a report in March 2012 maintaining that "the Cuban government wages a permanent campaign of harassment and short-term detentions of political opponents to stop them from demanding respect for civil and political rights." The report maintained that the release of dozens of political prisoners in 2011 "did not herald a change in human rights policy." AI asserted that "the vast majority of those released were forced into exile, while in Cuba the authorities were determined to contain the dissidence and government critics with new tactics," including intimidation, harassment, surveillance, and "acts of repudiation," or demonstrations by government supporters targeting government critics. AI has called attention to several prisoners of conscience in Cuba. These currently include Iván Fernández Depestre, convicted of "dangerousness" (a pre-emptive measure defined as the special proclivity of a person to commit crimes) in early August 2013 after participating in a peaceful protest and sentenced to three years in prison; and brothers Alexeis, Django, and Vianco Vargas Martín, members of the Patriotic Union of Cuba (UNPACU), who were detained in late 2012 in Santiago and convicted in June 2014 after a summary trial in which they were charged with "public disorder of a continuous nature." AI believed their arrest and detention was in response to their peaceful exercise of freedom of expression and intended to intimidate other government critics; there three were supposed to be sentenced on July 1, 2014, but the sentencing was postponed. AI also reported on other cases of arbitrary detention by the Cuban government, including the continued detention since March 2012 of Ladies in White member Sonia Garro Alfonso, her husband Ramón Alejandro Muñoz González, and a neighbor, Eugenio Hernández; all three were released from prison on December 9, 2014, and placed under house arrest while awaiting trial. AI expressed concern that the three will not receive a fair trial in accordance with international standards. Beyond AI's more narrow definition of prisoners of conscience, the Cuban government holds a larger number of political prisoners, generally defined as a person imprisoned for his or her political activities. While the Cuban government released numerous political prisoners in recent years, including more than 125 released in 2010-2011 with the help of Cuba's Catholic Church (down from more than 200 estimated at the beginning of 2010) the number of political prisoners has reportedly increased since 2012, according to the Havana-based Cuban Commission on Human Rights and National Reconciliation (CCDHRN). In June 2014, the group estimated that Cuba held at least 102 political prisoners, not including a dozen individuals arrested in Cuba's 2003 crackdown that were released on parole, but are prevented from leaving the country. This is up from an estimated 50 political prisoners in April 2012. In December 2014, Cuba reportedly agreed to release, as requested by the United States, 53 political prisoners as part of the overall deal to restore bilateral relations, but the names of the 53 prisoners have not been released. Short-term detentions for political reasons have increased significantly over the past several years, a reflection of the government's change of tactics in repressing dissent. The CCDHRN reports that there were at least 2,074 such detentions in 2010, 4,123 in 2011, 6,602 in 2012, and 6,424 in 2013. The number spiked in March 2012 surrounding the visit of Pope Benedict XVI to Cuba. It also spiked in December 2013 when there were at least 1,123 short-term detentions for political reasons. From January through November 2014, the number of short-term detentions for political reasons amounted to at least 8,410 detentions, far higher than the same period over the past several years. Internationally known Cuban democracy and human rights activist Oswaldo Payá was killed in a car accident in July 2012 in the eastern province of Granma along with another Cuban human rights activist Harold Cepero. Payá, whose death prompted expressions of sympathy from around the world, is probably best known for his work founding the Varela Project in 1996. Two Europeans accompanying Payá were also in the crash: Jens Aron Modig, president of the Swedish Christian Democrats youth wing, who was a passenger; and Angel Carromero Barrios, a leader of the Spanish Popular Party's youth organization, who was driving. Carromero was convicted in October 2012 of vehicular manslaughter for speeding and sentenced to four years in prison; after diplomatic efforts by Spain, he was released in late December 2012 to serve the rest of his term in Spain. In early March 2013, however, Carromero maintained in an interview with the Washington Post that the car he was driving was struck from behind just before the accident and that he was heavily drugged when he admitted to driving recklessly. Payá's daughter has called for the United Nations to conduct an independent investigation into the crash. Modig maintains that he was asleep at the time of the accident and does not remember any details. In July 2012, the U.S. Senate approved S.Res. 525 (Nelson), calling for an impartial third-party investigation of the crash. The U.S. Department of State issued a statement on March 28, 2013, calling for an independent international investigation into the circumstances leading to the death of Payá and Cepero. Over the past several years, numerous independent Cuban blogs have been established that are often critical of the Cuban government. The Cuban government has responded with its own team of official bloggers to counter and disparage the independent bloggers. Cuban blogger Yoani Sánchez has received considerable international attention since late 2007 for her website, Generación Y, which includes commentary critical of the Cuban government. (Sánchez's website is available at http://generacionyen.wordpress.com/ , and has links to numerous other independent blogs and websites . ) In May 2014, Sánchez launched an independent digital newspaper in Cuba, available on the Internet ( http://www.14ymedio.com/ ), distributed through a variety of methods in Cuba, including CDs, USB flash drives, and DVDs. In the 113 th Congress, H.Res. 121 (Hastings, FL), introduced in March 2013, would honor Sánchez "for her ongoing efforts to challenge political, economic, and social repression by the Castro regime." While the human rights situation in Cuba remains poor, the country has made some advances in recent years. In 2008, Cuba lifted a ban on Cubans staying in hotels that previously had been restricted to foreign tourists in a policy that had been pejoratively referred to as "tourist apartheid." In recent years, as the government has enacted limited economic reforms, it has been much more open to debate on economic issues. The Catholic Church, which played a prominent role in the release of political prisoners in 2010, has been active in broadening the debate on social and economic issues through its publications Palabra Nueva (New World) and Espacio Laical (Space for Laity). In June 2014, the two editors of Espacio Laical , Roberto Veiga and Lenier Gonzalez, resigned from their positions, maintaining that they had been pressured from inside the Church from those who did not want the Church to be involved in politics, but on July 1, 2014, they announced that they would launch a new online forum in the future known as Cuba Posible . In January 2013, Cuba took the significant step of eliminating its long-standing policy of requiring an exit permit and letter of invitation for Cubans to travel abroad (see " Cuba Alters Its Policy Regarding Exit Permits " below). The change has allowed prominent dissidents and human rights activists to travel abroad and return to Cuba. However, those Cubans subject to ongoing legal proceedings, including political prisoners who have been released on parole, have been restricted from traveling abroad. Prominent dissident economist Oscar Espinosa Chepe died in Spain on September 23, 2013, after battling chronic liver disease and cancer. Espinosa had been imprisoned in March 2003 as one of the "group of 75" dissidents, but was released on medical parole in November 2004. The Department of State issued a statement after Espinosa Chepe's death maintaining that "he was a tireless champion for improving economic policy and human rights in Cuba" and that "he remained optimistic that the country he loved would experience economic prosperity and democratic governance." Espinosa Chepe traveled to Madrid in March 2013 for medical treatment. He is survived by Miriam Leiva, a longtime human rights activist and independent journalist who helped found the Ladies in White. In June 2014, the State Department released its 2014 Trafficking in Persons Report. As it has since 2003, Cuba remained on the Tier 3 list of countries whose governments do not comply with the minimum standards for combatting trafficking against Cuba. The report noted, however, that for the first time Cuba released and reported concrete action against sex trafficking, and that the Cuban government maintained that it would be amending its criminal code to ensure conformity with the 2000 United Nations Trafficking in Persons Protocol. Cuba's economy is largely state-controlled, with the government owning most means of production and employing almost 80% of the workforce. Key sectors of the economy that generate foreign exchange include the export of professional services (largely medical personnel to Venezuela); tourism, which has grown significantly since the mid-1990s, with 2.8 million tourists visiting Cuba in 2013 (below a goal of 3 million tourists); nickel mining, with the Canadian mining company Sherritt International involved in a joint investment project; and a biotechnology and pharmaceutical sector that supplies the domestic healthcare system and has fostered a significant export industry. Remittances from relatives living abroad, especially from the United States, have also become an important source of hard currency, and are estimated to be between $1.4 billion and $2 billion annually. The once-dominant sugar industry has declined significantly over the past 20 years; in 1990, Cuba produced 8.4 million tons of sugar while in 2014 it produced just 1.6 million tons. Cuba is highly dependent on Venezuela for its oil needs. In 2000, the two countries signed a preferential oil agreement that provides Cuba with some 100,000 barrels of oil per day, about two-thirds of its consumption. Cuba's goal of becoming a net oil exporter with the development of its offshore deepwater oil reserves was set back significantly in 2012 when three exploratory oil drills were unsuccessful. (For more, see " Cuba's Offshore Oil Development " below.) The setback in Cuba's offshore oil development combined with political and economic difficulties in Venezuela have raised concerns among Cuban officials about the security of the support received from Venezuela. Cuba is increasingly focusing on the need to diversify its trading partners and to seek alternative energy suppliers in the case of a cutback or cutoff of Venezuelan oil. Over the years, Cuba has expressed pride for the nation's accomplishments in health and education. According to the U.N. Development Program's 2014 Human Development Report, Cuba is ranked 44 out of 187 countries worldwide and is characterized as having "very high human development," with life expectancy in Cuba in 2013 at 79.3 years and adult literacy was estimated at almost 100%. The World Bank estimates that Cuba's per capita income level was in the upper middle income range ($4,086-$12,615) in 2012 (latest available), higher than a number of countries in the Americas. In terms of economic growth, Cuba experienced severe economic deterioration from 1989 to 1993, with an estimated decline in gross domestic product ranging from 35% to 50% when the Soviet Union collapsed and Russian financial assistance to Cuba practically ended. Since then, however, there has been considerable improvement. From 1994 to 2000, as Cuba moved forward with some limited market-oriented economic reforms, economic growth averaged 3.7% annually. Economic growth was especially strong in the 2004-2007 period, registering an impressive 11% and 12%, respectively, in 2005 and 2006 (see Figure 2 ). The economy benefitted from the growth of the tourism, nickel, and oil sectors, and support from Venezuela and China in terms of investment commitments and credit lines. However, the economy was hard hit by several hurricanes and storms in 2008 and the global financial in 2009, with the government having to implement austerity measures. As a result, economic growth slowed significantly. Since 2010, however, growth has improved modestly, with 2.4% growth in 2010, 2.8% in 2011, 3% in 2012, and 2.7% in 2013, according to the Economist Intelligence Unit (EIU). The forecast for 2014, however, is for 1.2% growth, downgraded from EIU's original forecast of 2.1% growth because of Cuba's challenges in shifting from a centrally planned to a more decentralized economy. Cuban officials downgraded their own economic growth forecast for 2014 to 1.4% from 2.2%. The EIU projects stronger growth rates averaging 4% in the 2015-2019 period, but notes that the withdrawal of support from Venezuela would jeopardize these forecasts. Some economists maintain that Cuba needs a growth rate of at least 5% to 7% in order to develop the economy and create new jobs—increasing internal savings and attracting foreign investment reportedly are keys to achieving such growth rates. The government of Raúl Castro has implemented a number of economic policy changes, but there has been some disappointment that more far-reaching reforms have not been forthcoming. As noted above, the government employs a majority of the labor force, almost 80%, but it has been allowing more private sector activities. In 2010, the government opened up a wide range of activities for self-employment and small businesses. There are now almost 200 categories of work allowed, and the number of self-employed has risen from some 156,000 at the end of 2010 to some 440,000 today. In 2013, some 125 non-agricultural cooperatives were established and the government announced that 20 state-run restaurants would be converted to cooperatives in a pilot project that could eventually lead to the conversion of hundreds of other state-run restaurants. Analysts contend, however, that the government needs to do more to support the development of the private sector, including an expansion of authorized activities to include more white-collar occupations and state support for credit to support small businesses. A major challenge for the development of the private sector is the lack of money in circulation. Most Cubans do not make enough money to support the development of small businesses; those private sector activities catering to tourists and foreign diplomats have fared better than those serving the Cuban market. The government's decisions in 2013 to crack down on privately run movie and video game salons and on private sales of imported clothes and hardware raised questions about its commitment to the development of the private sector. In late December 2013, Raúl Castro issued a warning against those engaging in economic activities not strictly authorized by the state, maintaining that it creates an environment of impunity. When the Cuban Communist Party held its sixth congress in April 2011, it approved over 300 economic guidelines that, if implemented, include some potentially significant economic reforms. These include the liquidation of state enterprises with financial losses, the creation of special development zones for foreign investment, the gradual development of a tax system as a means to distribute income, and a gradual elimination of the ration system. Some economic analysts, however, maintained that the proposed changes were too limited and late to deal with the severity of Cuba's difficult economic situation. Among Cuba's significant economic challenges are low wages (whereby workers cannot satisfy basic human needs) and the related problem of how to unify Cuba's two official currencies circulating in the country. Most people are paid in Cuban pesos (CUPs) and the minimum monthly wage in Cuba is about 225 pesos (about $9 U.S. dollars), but for increasing amounts of consumer goods, convertible pesos (CUCs) are used. (For personal transactions, the exchange rate for the two currencies is CUP24/CUC1.) Cubans with access to foreign remittances or who work in jobs that give them access to convertible pesos are far better off than those Cubans who do not have such access. In October 2013, the Cuban government announced that it would move toward ending its dual-currency system and move toward monetary unification. In March 2014, the government provided insight about how monetary unification would move forward when it published instructions for when the CUC is removed from circulation; no date was provided, but it was referred to as day zero ( día cero ). There is significant uncertainty about the actual date and the exchange rate system that will replace it. The currency reform is ultimately expected to lead to productivity gains and improve the business climate, but the adjustment will create winners and losers. A significant reform effort under Raúl Castro has focused on the agricultural sector, a vital issue because Cuba reportedly imports some 60% of its food needs. In an effort to boost food production, the government has turned over idle land to farmers and given farmers more control over how to use their land and what supplies to buy. Despite these and other efforts, overall food production has been significantly below targets. In 2012, Cuba's coffee sector was hard hit by Hurricane Sandy in October, and overall agricultural production reportedly underperformed for the year. In November 2013, the Cuban government unveiled a new pilot program for the provinces of Havana, Artemisa, and Mayabeque that will end the government's monopoly on food distribution in an effort to boost production. In March 2014, Cuba approved a new foreign investment law with the goal of attracting needed foreign capital to the country. The law cuts taxes in profits by half to 15% and exempts companies from paying taxes for the first eight years of operation. Employment or labor taxes are also eliminated, although companies still must hire labor through state-run companies, with agreed upon wages. A fast-track procedure for small projects reportedly will streamline the approval process, and the government has agreed to improve the transparency and time of the approval process for larger investments. It remains to be seen, however, to what extent the new law will actually attract investment. Over the past several years, Cuba has closed a number of joint ventures with foreign companies and has arrested several executives of foreign companies reportedly for corrupt practices. According to some observers, investors will want evidence, not just legislation, that the government is prepared to allow foreign investors to make a profit in Cuba. In October 2014, the Cuban government issued a list of some 246 projects in which it was seeking some $8.7 billion in investment in such sectors as energy, tourism, agriculture, and industry. In April 2014, the Cuban government loosened restrictions on hundreds of its largest state-run companies that reportedly will be allowed to keep 50% of their profits after taxes, design their own wage systems, sell excess product on the open market after meeting state quotas, and have more flexibility in production and marketing decisions. A number of Cuba's economists reportedly are pressing for the government to enact more far-reaching reforms and embrace competition for key parts of the economy and state-run enterprises. They criticize the government's continued reliance on central planning and its monopoly in foreign trade. During the Cold War, Cuba had extensive relations with and support from the Soviet Union, with billions of dollars in annual subsidies to sustain the Cuban economy. This subsidy system helped fund an activist foreign policy and support for guerrilla movements and revolutionary governments abroad in Latin America and Africa. With an end to the Cold War, the dissolution of the Soviet Union, and the loss of Soviet financial support, Cuba was forced to abandon its revolutionary activities abroad. As its economy reeled from the loss of Soviet support, Cuba was forced to open up its economy and economic relations with countries worldwide, and it developed significant trade and investment linkages with Canada, Spain, other European countries, and China. Over the past decade, Venezuela—under populist President Hugo Chávez—became a significant source of support for Cuba, providing subsidized oil (some 100,000 barrels per day) and investment. For its part, Cuba has sent thousands of medical personnel to Venezuela. In the aftermath of Chávez's death in early March 2013, the very close Venezuela presidential election in April 2013 won by Nicolás Maduro of the ruling Socialist party, and Venezuela's mounting economic challenges in 2014 because of the rapid decline in oil prices, Cuban officials are concerned about the future of Venezuelan support in the medium to longer term. In 2012, Cuba's leading trading partners in terms of Cuban exports were Venezuela, the Netherlands, Canada, and China (see Figure 3 ), while the leading sources of Cuba's imports were Venezuela, China, Spain, Brazil, and the United States (see Figure 4 ). Relations with Russia, which had diminished significantly in the aftermath of the Cold War, have been strengthened somewhat over the past several years. In 2008, then-Russian President Dmitry Medvedev visited Havana while Raúl Castro visited Russia in 2009 and again in 2012. Current Russian President Vladimir Putin visited Cuba in July 2014 on his way to attend the BRICS summit in Brazil. Just before arriving in Cuba, Putin signed into law an agreement writing off 90% of Cuba's $32 billion Soviet-era debt, with some $3.5 billion to be paid back by Cuba over a 10-year period that would fund Russian investment projects in Cuba. In the aftermath of Putin's trip, there were press reports alleging that Russia would reopen its signals intelligence facility at Lourdes, Cuba, which had closed in 2002, but President Putin denied reports that his government would reopen the facility. While trade relations between Russia and Cuba are not significant, two Russian energy companies have been involved in oil exploration in Cuba, and a third announced its involvement in 2014. Gazprom had been in a partnership with the Malaysian state oil company Petronas that conducted unsuccessful deepwater oil drilling off of Cuba's western coast in 2012. The Russian oil company Zarubezhneft began drilling in Cuba's shallow coastal waters east of Havana in December 2012, but stopped work in April 2013 because of disappointing results (also see " Cuba's Offshore Oil Development " below). During President Putin's July 2014 visit to Cuba, Russian energy companies Rosneft and Zarubezhneft signed an agreement with Cuba's state oil company CubaPetroleo (Cupet) for the development of an offshore exploration block, and Rosneft agreed to cooperate with Cuba in studying ways to optimize existing production at mature fields. Some energy analysts are skeptical about the prospects for the offshore project given the unsuccessful attempts by foreign oil companies drilling wells in Cuba's deepwaters. (Also see " Cuba's Offshore Oil Development " below.) Relations with China have also increased in recent years. During the Cold War, the two countries did not have close relations because of Sino-Soviet tensions, but bilateral relations have grown close in recent years with Chinese trade and investment in Cuba increasing. Chinese President Hu Jintao visited Cuba in 2004 and again in 2008, while Chinese Vice President Xi Jinping visited Cuba in June 2011 and again in July 2014 as President after attending the BRIC summit in Brazil. Raúl Castro had also visited China in 2012 on a four day visit, in which the two countries reportedly signed cooperation agreements focusing on trade and investment issues. During Xi Jinping's 2014 visit, the two countries reportedly signed 29 trade, debt, credit, and other agreements. While in Cuba, the Chinese President said that "China and Cuba being socialist countries, we are closely united by the same missions, ideals, and struggles." The European Union (EU) and Cuba held two rounds of talks in 2014—in April and August—on a framework agreement for cooperation covering political, trade, and development issues, and reports indicate that the two sides have made significant progress. In 1996, the EU adopted a Common Positon on Cuba, stating that the objective of EU relations with Cuba includes encouraging "a process of transition to pluralist democracy and respect for human rights and fundamental freedoms." The position also stipulated that full EU economic cooperation with Cuba would depend upon improvements in human rights and political freedom. With El Salvador's restoration of relations with Cuba in June 2009, all Latin American nations now have official diplomatic relations with Cuba. Cuba has increasingly become more engaged in Latin America beyond the already close relations with Venezuela. Cuba is a member of the Bolivarian Alliance for the Americas, (ALBA), a Venezuelan-led integration and cooperation scheme founded in 2004. In August 2013, Cuba began deploying thousands of doctors to Brazil in a program aimed at providing doctors to rural areas of Brazil, with Cuba earning some $225 million a year for supplying the medical personnel. Brazil also has been a major investor in the development of the port of Mariel west of Havana. Cuba became a full member of the Rio Group of Latin American and Caribbean nations in November 2008, and a member of the succeeding Community of Latin American and Caribbean States (CELAC) that was officially established in December 2011 to boost regional cooperation, but without the participation of the United States or Canada. In January 2013, CELAC held its first summit in Chile, and Raúl Castro assumed the presidency of the organization for one year. Cuba hosted the group's second summit on January 28-29, 2014, in Havana, attended by leaders from across the hemisphere as well as U.N. Secretary General Ban Ki-moon and OAS Secretary General José Miguel Insulza. The U.N. Secretary General reportedly raised human rights issues with Cuban officials, including the subject of Cuba's ratification of U.N. human rights accords and "arbitrary detentions" by the Cuban government. Dozens of dissidents were arrested or detained in the lead-up to the summit. At the summit, Latin American nations approved a joint declaration emphasizing nonintervention and pledging to respect "the inalienable right of every state to choose its political, economic, social and cultural system." Cuba had expressed interest in attending the sixth Summit of the Americas in April 2012 in Cartagena, Colombia, but ultimately was not invited to attend. The United States and Canada expressed opposition to Cuba's participation. Previous summits have been limited to the hemisphere's 34 democratically elected leaders, and the OAS (in which Cuba does not participate) has played a key role in summit implementation and follow-up activities. Several Latin American nations vowed not to attend the next Summit of the Americas to be held in Panama in April 2015 unless Cuba was allowed to participate, and as a result, Panama announced in August 2014 that it would invite Cuba to attend. Cuba's participation was a looming challenge for the Obama Administration, but in December 2014, when President Obama announced a new policy approach toward Cuba, he said that the United States was prepared to have Cuba join the next summit. He emphasized, however, that human rights and democracy would be key summit themes. Cuba was excluded from participation in the OAS in 1962 because of its identification with Marxism-Leninism, but in early June 2009, the OAS overturned the 1962 resolution in a move that could eventually lead to Cuba's reentry into the regional organization in accordance with the practices, purposes, and principles of the OAS. While the Cuban government welcomed the OAS vote to overturn the 1962 resolution, it asserted that it would not return to the OAS. Cuba is an active participant in international forums, including the United Nations and the controversial United Nations Human Rights Council. Since 1991, the U.N. General Assembly has approved a resolution each year criticizing the U.S. economic embargo and urging the United States to lift it. Cuba also has received support over the years from the United Nations Development Programme (UNDP) and the United Nations Educational, Scientific, and Cultural Organization (UNESCO), both of which have offices in Havana. The U.N. has played a significant role in providing relief and recovery from Hurricane Sandy that struck in October 2012. In November 2012, the U.N. system launched a Plan of Action (developed in cooperation with the Cuban government) for $30.6 million to address the urgent needs of the population in the following sectors: shelter and recovery, water sanitation and hygiene, food security, health, and education. Among other international organizations, Cuba was a founding member of the World Trade Organization, but it is not a member of the International Monetary Fund, the World Bank, or the Inter-American Development Bank. Cuba hosted the 14 th summit of the Non-aligned Movement (NAM) in 2006, and held the Secretary Generalship of the NAM until its July 2009 summit in Egypt. On July 10, 2013, Panamanian authorities detained a North Korean freighter known as the Chong Chon Gang , which made stops in Cuba, as it prepared to enter the Panama Canal because of suspicion that the ship was carrying illicit narcotics. The ship, which had stops Cuba at Havana and Puerto Padre (a major sugar export point), was taken to Panama's international container port of Manzanillo in Panama's Colón province. When Panamanian authorities attempted to detain and search the ship, the 35-member North Korean crew tried to prevent them, and the captain attempted to commit suicide. Panama's initial search of the ship found weapons hidden aboard along with sugar. Panama's then-President Ricardo Martinelli made a public radio broadcast to that effect on July 15 and also tweeted a photo of some of the military equipment found. Cuba's Ministry of Foreign Affairs subsequently issued a statement on July 16 acknowledging that the ship was loaded with 10,000 tons of sugar and 240 metric tons of "obsolete defensive weapons" that had been manufactured in the mid-20 th century and were to be "repaired and returned to Cuba" in order to maintain the country's defensive capability. Cuba maintained that the weapons being transported on the ship were "two anti-aircraft missiles complexes Volga and Pechora, nine missiles in parts and spares, two MiG-21 Bis and 15 motors for this type of airplane." Cuba's statement raised questions as to why Cuba would make such an effort to repair what it described as "obsolete defensive equipment." Some press reports indicated that Cuba was attempting to have the missile systems upgraded by North Korea. Jeffrey Lewis from the Monterey Institute for International Studies maintains that the explanation that North Korea was refurbishing Cuba's anti-aircraft missiles was plausible since it clears up a mystery as to how Cuba had been able to introduced new missile launchers in 2006 for two types of missiles. The sugar could have been Cuba's payment—essentially a barter arrangement for the repair/upgrade of the weapons. For some analysts, however, the inclusion of the MiGs in the shipment raises skepticism as to whether the MiGs and engines were going to be returned to Cuba. In 2011, North Korea had attempted to acquire parts of MiG-21 jets from Mongolia, according to a June 2013 report by the U.N. Security Council's Panel of Experts. In late August 2013, the Stockholm International Peace Research Institute (SPRI) issued a report maintaining that key parts of Cuba's military shipment to North Korea "seem intended for Pyongyang's own use in its conventional military defenses, not to be repaired and returned to Cuba." In addition to the materiel that Cuba publicly acknowledged, the SPPRI report maintained that the North Korean "ship also was transporting a variety of small arms and light weapons (SALW) ammunition and conventional artillery ammunition for anti-tank guns and howitzer artillery as well as generators, batteries, and night vision equipment, among other items." Some of this materiel was reported to be in "mint condition" and "clearly were not to be repaired and returned to Cuba." The discovery of the Chong Chon Gang shipment of weapons also raises questions about the potential previous shipment of weapons from Cuba to North Korea and more broadly about the nature of Cuban-North Korean relations. According to press reports, North Korean ships have made several other trips to Cuba since 2009. The Wisconsin Project on Nuclear Arms Control reports that two North Korean vessels, the O Un Chong Nyon Ho and the Mu Du Bong , traveled to Cuba in May 2012 and May 2009 respectively. In particular, the O Un Chong Nyon Ho was reported to have visited the same two Cuban ports as the Chong Chon Gang —Havana and the sugar export center of Puerto Padre. Another North Korean ship, the Po Thong Gang , also reportedly docked at Puerto Padre in April 2012, and at the ports of Havana and Santiago de Cuba in 2011. Relations between Cuba and North Korea traditionally have not been thought to be significant. During the Cold War, North Korea was an ideological partner of Cuba since both countries sided with the Soviet Union, but the relationship was not thought to go beyond political and ideological relations. Former Cuban President Fidel Castro acknowledged that North Korea had provided 100,000 Kalashnikov assault weapons to Cuba in the early 1980s. While North Korea has a history of buying and selling arms around the world, it was not thought to have a significant arms trade relationship with Cuba. Nevertheless, the recent visit of a high-level North Korean military delegation to Cuba in early July 2013, less than 10 days before the detention of the Chong Chon Gang , might provide some insight into the bilateral military relationship between the two countries. The North Korean delegation, led by General Kim Kyok Sik, Chief of the Korean People's Army General Staff, met with Cuban President Raúl Castro, who stressed the historic ties between the two countries and efforts to boost cooperative relations. Panama asked the U.N. Security Council to investigate the shipment and determine whether Cuba violated U.N. sanctions banning weapons transfers to North Korea. In response, the U.N. Panel of Experts for North Korea visited Panama August 13-15, 2013. In late August 2013, Panamanian officials maintain that they were given a preliminary version that reportedly concluded that the Cuban weapons found on the Chong Chon Gang "without doubt" violated U.N. sanctions. In early March 2014, the U.N. Security Council issued the Panel of Experts report, which stated that the panel had concluded in its incident report that both the shipment itself and the transaction between Cuba and North Korea were sanctions violations. The panel found that the "hidden cargo ... amounted to six trailers associated with surface-to-air missile systems and 25 shipping containers loaded with two disassembled MiG-21 aircraft, 15 engines for MiG-21 aircraft, components for surface to air missile systems, ammunition and miscellaneous arms-related material." The panel found that the "extraordinary and extensive efforts to conceal the cargo of arms and related material ... and the contingency instructions ... found onboard the vessel for preparing a false declaration for entering the Panama Canal ... point to a clear and conscious intention to circumvent the resolutions." On July 28, 2014, the U.N. Security Council imposed sanctions on the operator of the Chong Chon Gang , Ocean Maritime Management Company, Ltd, (OMM), which "played a key role in arranging the shipment of the concealed cargo of arms and related material." The company is now subject to an international asset freeze. U.S. Ambassador to the United Nations Samantha Power described the North Korean ship incident as a "cynical, outrageous and illegal attempt by Cuba and North Korea to circumvent United Nations sanctions." In the early 1960s, U.S.-Cuban relations deteriorated sharply when Fidel Castro began to build a repressive communist dictatorship and moved his country toward close relations with the Soviet Union. The often tense and hostile nature of the U.S.-Cuban relationship is illustrated by such events and actions as U.S. covert operations to overthrow the Castro government culminating in the ill-fated April 1961 Bay of Pigs invasion; the October 1962 missile crisis in which the United States confronted the Soviet Union over its attempt to place offensive nuclear missiles in Cuba; Cuban support for guerrilla insurgencies and military support for revolutionary governments in Africa and the Western Hemisphere; the 1980 exodus of around 125,000 Cubans to the United States in the so-called Mariel boatlift; the 1994 exodus of more than 30,000 Cubans who were interdicted and housed at U.S. facilities in Guantanamo and Panama; and the February 1996 shootdown by Cuban fighter jets of two U.S. civilian planes operated by the Cuban American group Brothers to the Rescue, which resulted in the death of four U.S. crew members. Since the early 1960s, U.S. policy toward Cuba has consisted largely of isolating the island nation through comprehensive economic sanctions, including an embargo on trade and financial transactions. President Kennedy proclaimed an embargo on trade between the United States and Cuba in February 1962, citing Section 620(a) of the Foreign Assistance Act of 1961 (FAA), which authorizes the President "to establish and maintain a total embargo upon all trade between the United States and Cuba." At the same time, the Department of the Treasury issued the Cuban Import Regulations to deny the importation into the United States of all goods imported from or through Cuba. The authority for the embargo was later expanded in March 1962 to include the Trading with the Enemy Act (TWEA). In July 1963, the Treasury Department revoked the Cuban Import Regulations and replaced them with the more comprehensive Cuban Assets Control Regulations (CACR)—31 C.F.R. Part 515—under the authority of TWEA and section 620(a) of the FAA. The CACR, which include a prohibition on most financial transactions with Cuba and a freeze of Cuban government assets in the United States, remain the main body of Cuba embargo regulations, and have been amended many times over the years to reflect changes in policy. They are administered by the Treasury Department's Office of Foreign Assets Control (OFAC), and prohibit financial transactions as well as trade transactions with Cuba. The CACR also require that all exports to Cuba be licensed by the Department of Commerce, Bureau of Industry and Security, under the provisions of the Export Administration Act of 1979, as amended. These sanctions were made stronger with the Cuban Democracy Act (CDA) of 1992 ( P.L. 102-484 , Title XVII) and with the Cuban Liberty and Democratic Solidarity Act of 1996 ( P.L. 104-114 ), the latter often referred to as the Helms/Burton legislation. The CDA prohibits U.S. subsidiaries from engaging in trade with Cuba and prohibits entry into the United States for any sea-borne vessel to load or unload freight if it has been involved in trade with Cuba within the previous 180 days. The Cuban Liberty and Democratic Solidarity Act, enacted in the aftermath of Cuba's shooting down of two U.S. civilian planes in February 1996, combines a variety of measures to increase pressure on Cuba and provides for a plan to assist Cuba once it begins the transition to democracy. Most significantly, the law codified the Cuban embargo, including all restrictions under the CACR. This provision is noteworthy because of its long-lasting effect on U.S. policy options toward Cuba. The executive branch is circumscribed in lifting the economic embargo without congressional concurrence until certain democratic conditions are met, although the CACR includes licensing authority that provides the executive branch with administrative flexibility (e.g., travel-related restrictions in the CACR have been eased and tightened on numerous occasions). Another significant sanction in the law is a provision in Title III that holds any person or government that traffics in U.S. property confiscated by the Cuban government liable for monetary damages in U.S. federal court. Acting under provisions of the law, however, Presidents Clinton, Bush, and now Obama have suspended the implementation of Title III at six-month intervals. In addition to sanctions, another component of U.S. policy, a so-called second track, consists of support measures for the Cuban people. This includes U.S. private humanitarian donations, medical exports to Cuba under the terms of the Cuban Democracy Act of 1992, U.S. government support for democracy-building efforts, and U.S.-sponsored radio and television broadcasting to Cuba. In addition, the 106 th Congress approved the Trade Sanctions Reform and Export Enhancement Act of 2000 ( P.L. 106-387 , Title IX) that allows for agricultural exports to Cuba, albeit with restrictions on financing such exports. This led to the United States becoming one of Cuba's largest suppliers of agricultural products. The Clinton Administration made several changes to U.S. policy in the aftermath of Pope John Paul II's 1998 visit to Cuba, which were intended to bolster U.S. support for the Cuban people. These included the resumption of direct flights to Cuba (which had been curtailed after the February 1996 shootdown of two U.S. civilian planes), the resumption of cash remittances by U.S. nationals and residents for the support of close relatives in Cuba (which had been curtailed in August 1994 in response to the migration crisis with Cuba), and the streamlining of procedures for the commercial sale of medicines and medical supplies and equipment to Cuba. In January 1999, President Clinton announced several additional measures to support the Cuban people. These included a broadening of cash remittances to Cuba, so that all U.S. residents (not just those with close relatives in Cuba) could send remittances to Cuba; an expansion of direct passenger charter flights to Cuba from additional U.S. cities other than Miami (direct flights later in the year began from Los Angeles and New York); and an expansion of people-to-people contact by loosening restrictions on travel to Cuba for certain categories of travelers, such as professional researchers and those involved in a wide range of educational, religious, and sports activities. The George W. Bush Administration essentially continued the two-track U.S. policy of isolating Cuba through economic sanctions while supporting the Cuban people through a variety of measures. However, within this policy framework, the Administration emphasized stronger enforcement of economic sanctions and further tightened restrictions on travel, remittances, and humanitarian gift parcels to Cuba. The Administration established an interagency Commission for Assistance to a Free Cuba in late 2003 tasked with identifying means "to help the Cuban people bring about an expeditious end of the dictatorship" and to consider "the requirements for United States assistance to a post-dictatorship Cuba." In issuing its first report in May 2004, the commission made recommendations to tighten restrictions on family visits and other categories of travel and on private humanitarian assistance in the form of remittances and gift parcels. The Administration subsequently issued these tightened restrictions in June 2004, while in February 2005, it tightened restrictions on payment terms for U.S. agricultural exports to Cuba. The commission issued a second and final report in July 2006 that made recommendations to hasten political change in Cuba toward a democratic transition and led to a substantial increase in U.S. funding to support democracy and human rights efforts in Cuba. The Bush Administration continued to emphasize a continuation of the sanctions-based approach toward Cuba pending political change in Cuba. When Raúl Castro officially became head of state in February 2008, then-Secretary of State Condoleezza Rice issued a statement urging "the Cuban government to begin a process of peaceful, democratic change by releasing all political prisoners, respecting human rights, and creating a clear pathway towards free and fair elections." In remarks on Cuba policy in March 2008, President Bush maintained that in order to improve U.S.-Cuban relations, "what needs to change is not the United States; what needs to change is Cuba." The President asserted that Cuba "must release all political prisoners ... have respect for human rights in word and deed, and pave the way for free and fair elections." During its first six years, the Obama Administration continued the dual-track policy approach toward Cuba in place for many years. It largely maintained U.S. economic sanctions and it continued measures to support the Cuban people, such as U.S. government-sponsored radio and television broadcasting and funding for democracy and human rights projects. At the same time, however, the Obama Administration initiated a significant shift in policy toward Cuba beginning in 2009 with its efforts to reach out to the Cuban people through the easing of restrictions on family travel and remittances. New measures were introduced in 2011 to further reach out to the Cuban people through increased purposeful travel and an easing of restrictions on non-family remittances. The Administration also sought to engage Cuba in an effort to improve relations, although Cuba's imprisonment of USAID subcontractor Alan Gross in December 2009 was an impediment to improved relations. Just after the adjournment of the 113 th Congress, however, President Obama announced on December 17, 2014, that Cuba was releasing Alan Gross on humanitarian grounds and unveiled major changes in U.S. policy toward Cuba, including a restoration of diplomatic relations and new efforts toward engagement. The President maintained that the United States would continue to raise concerns about democracy and human rights in Cuba, but stated that "we can do more to support the Cuban people and promote our values through engagement." According to the President: "After all, these 50 years have shown that isolation has not worked. It's time for a new approach." In April 2009, the Obama Administration fulfilled a campaign pledge and announced it would lift all restrictions on family travel and remittances. The Administration went further in January 2011 when it announced new measures to ease travel restrictions and to allow all Americans to send remittances to Cuba. The measures increased purposeful travel to Cuba related to religious, educational, and journalistic activities, including people-to-people travel exchanges; authorized any U.S. person to send remittances to non-family members in Cuba; made it easier for religious institutions to send remittances for religious activities; and allowed all U.S. international airports to apply to provide flights to and from Cuba. In 2012 congressional testimony, Assistant Secretary of State for Western Hemisphere Affairs Roberta Jacobson asserted that "the Obama Administration's priority is to empower Cubans to freely determine their own future." She maintained that "the most effective tool we have for doing that is building connections between the Cuban and American people, in order to give Cubans the support and tools they need to move forward independent of their government." The Assistant Secretary maintained that "the Administration's travel, remittance and people-to-people policies are helping Cubans by providing alternative sources of information, taking advantage of emerging opportunities for self-employment and private property, and strengthening civil society." When the Obama Administration took office in 2009, it initiated a policy to engage with the Cuban government in an effort to improve relations. At the April 2009 Summit of the Americas, President Obama announced that "the United States seeks a new beginning with Cuba." While recognizing that it would take time to "overcome decades of mistrust," the President said "there are critical steps we can take toward a new day." He stated that he was prepared to have his Administration "engage with the Cuban government on a wide range of issues—from drugs, migration, and economic issues, to human rights, free speech, and democratic reform." The President maintained that he was "not interested in talking just for the sake of talking," but said that he believed that U.S.-Cuban relations could move in a new direction. In the aftermath of the Summit, there appeared to be some momentum toward improved relations. In July 2009, Cuba and the United States restarted the semi-annual migration talks that had been suspended by the United States five years earlier. In September 2009, the United States and Cuba held talks in Havana on resuming direct mail service between the two countries that included discussion on issues related to the transportation, quality, and security of mail service. Relations took a turn for the worse in December 2009, however, when Alan Gross, an American subcontractor working on Cuba democracy projects funded by the U.S. Agency for International Development (USAID) was arrested in Havana state for providing Internet communications equipment to Cuba's Jewish community. Gross was convicted in March 2011, and sentenced to 15 years in prison. U.S. officials and Members of Congress repeatedly raised the issue with the Cuban government and asked for his release. In the aftermath of Gross's conviction, the United States and Cuba continued to cooperate on such issues as antidrug efforts and oil spill prevention, preparedness, and response, but improvement of relations in other areas appeared to have been stymied because of the Gross case. Beginning in mid-2013, there was renewed engagement with Cuba on several fronts, including direct mail service talks, resumed migration talks, and a preliminary agreement on air and maritime search and rescue. Talks for direct mail service between the United States on Cuba were held in June 2013 in Washington, DC, and September 2013 in Havana. As noted above, previous talks in 2009 did not lead to a resumption of direct mail service. The State Department reportedly characterized the September talks as "fruitful," and maintained in a statement that "the goal of the talks is for the United States and Cuba to work out the details for a pilot program to directly transport mail between the two countries." After an 18-month hiatus, the Obama Administration resumed semi-annual migration talks in July 2013, while two more rounds were held in January and July 2014. U.S. and Cuban officials issued positive statements after each round (for more details on the talks, see " Migration Issues " below). In September 2013, the United States and Cuba reportedly agreed to a preliminary procedure on air and maritime search and rescue. The U.S. Coast Guard led the U.S. delegation in Havana, and the talks reportedly stressed the importance of such cooperation to save lives of people in danger. The January 2014 migration talks also included discussion of aviation safety and maritime search and rescue protocols. At the July 2014 migration talks, the Cuban delegation said that both governments had agreed earlier in the month to enforce procedures for search and rescue operations in order to saves lives. (See " Migration Issues " below.) In November 2013, President Obama and Secretary of State John Kerry both delivered remarks regarding U.S. policy toward Cuba. At a Democratic Party fundraising event on November 8 in Miami, President Obama maintained that with regard to policy toward Cuba, "we have to be creative ... we have to be thoughtful ... and we have to continue to update our policies." He contended that "the notion that the same polices that we put in place in 1961 would somehow still be as effective as they are today in the age of the Internet and Google and world travel doesn't make sense." In a November 18, 2013, address on U.S.-Latin American relations at the Organization of American States, Secretary of State Kerry reiterated the President's remarks. He also maintained that the United States and Cuba "are finding some cooperation on common interests at this point in time," and that "we also welcome some of the changes that are taking place in Cuba which allow more Cubans to be able to travel freely and work for themselves." At the same time, however, the Secretary cautioned that changes in Cuba "should absolutely not blind us to the authoritarian reality of life for ordinary Cubans." He contended that "in a hemisphere where people can criticize their leaders without fear of arrest or violence, Cubans cannot. And if more does not change soon, it is clear that the 21 st century will continued, unfortunately, to leave the Cuban people behind." Considerable international press focused on the handshake between President Obama and President Castro on December 10, 2013, at the memorial service for Nelson Mandela in South Africa. U.S. officials maintain that the handshake was not planned, but rather, that the focus of President Obama was on Mandela. Some analysts contended that the handshake could portend a sign of thawing relations while others maintained that sometimes a handshake is just a handshake. Critics of the Cuban government, including some Members of Congress, criticized the President for shaking hands with a leader with such a poor human rights record. Human rights violations have remained a fundamental concern regarding Cuba under the Obama Administration. President Obama and the State Department continued to issue statements expressing concern about violations as they occur, including the death of hunger strikers in 2010 and 2012 and targeted repression against dissidents and human rights. U.S. officials lauded the release of dozens of Cuban political prisoners in 2010 and 2011, but maintained that their release did not change the government's poor human rights record as it continued to resort to repeated short-term detentions. In October 2013, Under Secretary of State for Political Affairs Wendy Sherman met with Berta Soler, spokesperson for the Ladies in White, and expressed concern over Cuba's "continued suppression of peaceful activities carried out by Damas de Blanco and other civil society groups." In November 2013, President Obama met Berta Soler and another prominent Cuban dissident, Guillermo Fariñas, at an event in Miami, Florida, and Secretary of State Kerry, as noted above, addressed the OAS and reiterated concerns about human rights and freedom of expression in Cuba. In December 2013, the State Department issued a statement deploring "the Cuban government's harsh tactics to impede Cuban civil society's peaceful recognition of Human Rights Day." The State Department's statements on the human rights situation in Cuba in 2014 included: In February 2014, the State Department issued a statement expressing deep concern about the "recent increase in arbitrary detentions, physical violence, and other abusive actions carried out by the Cuban government against peaceful human and civil rights advocates." In June 2014, the State Department released a statement in response to the latest arbitrary detentions by Cuban authorities of dozens of civil society members and activists and the violent assault of an independent journalist, Roberto de Jesus Guerra. The State Department condemned "the Cuban government's systematic use of physical violence and arbitrary detention." On July 14, 2014, the State Department issued a statement condemning the detention of more than 100 members of the Ladies in White who were seeking to commemorate the 20-year anniversary of the loss of life when the Cuban government sank a tugboat known as the "13 de Marzo" as it attempted to leave Cuba. Securing the release of Alan Gross from prison in Cuba also remained a top U.S. priority. The State Department maintained that it was using every appropriate channel to press for his release, including the Vatican. As noted by the State Department in early May 2014, Gross's continued well-being remained an impediment to more constructive bilateral relations. On December 17, 2014, President Obama announced major developments in U.S.-Cuban relations. First, he announced that the Cuban government had released USAID subcontractor Alan Gross on humanitarian grounds after five years imprisonment. (For background, see " Imprisonment and Ultimate Release of USAID Subcontractor Alan Gross " below.) As noted above, Gross's continued imprisonment was an impediment to an improvement in U.S.-Cuban relations. The President also announced that, in a separate action, the Cuban government released "one of the most important intelligence assets that the United States has ever had in Cuba" in exchange for three Cuban intelligence agents who had been imprisoned in the United States since 1998 (for background, see " Cuban Five—Remaining Three Released " below). Media reports identified the U.S. intelligence asset as Rolando Sarraff Trujillo, a cryptographer in Cuba's Directorate of Intelligence, who reportedly provided information that helped the FBI dismantle three Cuban spy networks in the United States. Most significantly, in the aftermath of having secured the release of Gross and the U.S. intelligence asset, President Obama announced a major shift in U.S. policy toward Cuba, moving away from a sanctions-based policy aimed at isolating Cuba to a policy of engagement. The President said that his Administration "will end an outdated approach that, for decades, has failed to advance our interests, and instead we will begin to normalize relations between our two countries." The President maintained that the United States would continue to speak out on human rights and democracy issues, but stressed that more could be done to support the Cuban people through engagement. The President outlined three major steps to move toward normalization: reestablishment of diplomatic relations with Cuba (relations were severed in 1961); a review of Cuba's designation by the Department of State as a state sponsor of international terrorism (Cuba has been on the list since 1982; see " Terrorism Issues " for background ); and an increase in travel, commerce, and the flow of information to and from Cuba. A White House fact sheet listed numerous policy changes to implement the third step. These include: facilitating an expansion of travel by authorizing general licenses for the existing 12 categories of travel authorized by law; increasing permissible remittances by U.S. persons to Cuban nationals from $500 to $2,000 per quarter; expanding commercial sales/exports to Cuba of certain goods and services to empower Cuba's nascent private sector, including authorization for certain building materials for private residential construction, goods for use by private sector Cuban entrepreneurs, and agricultural equipment for small farmers; authorizing licensed travelers to import $400 worth of goods from Cuba, with no more than $100 for tobacco products and alcohol combined; permitting U.S. financial institutions to open correspondent accounts at Cuban financial institutions to facilitate authorized transactions; revising the definition of "cash in advance" for authorized trade with Cuba to specify that it means "cash before transfer of title" for payment (for background, see " U.S. Agricultural Exports and Sanctions " below); permitting the use of U.S. credit and debit cards by authorized travelers to Cuba; permitting the commercial sale of certain consumer communication devices, related software, applications, hardware, and services, and items for the establishment and update of communications-related systems; permitting telecommunications providers to establish the necessary mechanisms in Cuba, including infrastructure, to provide commercial telecommunications and Internet services; and providing a general license for U.S.-owned or controlled entities in third countries to provide services to, and engage in financial transactions with, Cuban individuals in third countries. These actions will require changes to U.S. embargo regulations administered by the Department of the Treasury, Office of Foreign Assets Control (Cuban Assets Control Regulations; 31 CFR Part 515 ) and the Department of Commerce, Bureau of Industry and Security (Export Administration Regulations; 15 CFR Parts 730-774 ). While the changes to the embargo regulations have not yet been issued (Administration officials expect the changes within the next several weeks), they appear—as described by the White House—to be within the scope of the President's discretionary licensing authority to make changes to the embargo regulations, and somewhat similar to various policy changes made by President Obama and his predecessors to ease or strengthen the embargo restrictions. The new policy changes build upon previous changes that President Obama took in 2009, when he lifted all restrictions on family travel and remittances to family in Cuba, and in 2011, when he took action to increase purposeful travel to Cuba, such as people-to-people educational trips. The President acknowledged that he does not have the authority to lift the embargo because it was codified into legislation (Section 102(h) of the Cuban Liberty and Democratic Solidarity [LIBERTAD] Act of 1996, P.L. 104-114 ). The President maintained that he looks forward to engaging Congress in a debate about lifting the embargo. The LIBERTAD Act ties the lifting of the embargo to conditions in Cuba (including that a democratically elected government is in place). Lifting the overall economic embargo at this time would require amending or repealing that law as well as other statutes, such as the Cuban Democracy Act of 1992 (Title XVII of P.L. 102-484 ) and the Trade Sanctions Reform and Export Enhancement Act of 2000 ( P.L. 106-387 ), that have provisions impeding normal economic relations with Cuba. The President also indicated that his Administration was prepared to have Cuba join the Summit of the Americas to be held in Panama in April 2015. The White House emphasized that human rights and democracy will be key themes of the summit, and asserted that Cuban civil society must be allowed to participate with civil society from other countries participating in the summit. Cuba's participation in the summit was a looming challenge for the Administration since it had opposed Cuba's participation in the 2012 Summit of the Americas in Colombia. Several Latin American nations had vowed not to participate in the 2015 summit if Cuba was not invited. (For background, also see " Cuba's Foreign Relations " below.) Over the years, although U.S. policy makers have agreed on the overall objectives of U.S. policy toward Cuba—to help bring democracy and respect for human rights to the island—there have been several schools of thought about how to achieve those objectives. Some have advocated a policy of keeping maximum pressure on the Cuban government until reforms are enacted, while continuing efforts to support the Cuban people. Others argue for an approach, sometimes referred to as constructive engagement, that would lift some U.S. sanctions that they believe are hurting the Cuban people, and move toward engaging Cuba in dialogue. Still others call for a swift normalization of U.S.-Cuban relations by lifting the U.S. embargo. Legislative initiatives introduced over the past decade have reflected these three policy approaches. Over the past decade, there have been efforts in Congress to ease U.S. sanctions, with one or both houses at times approving amendments to appropriations measures that would have eased U.S. sanctions on Cuba. Until 2009, these provisions were stripped out of final enacted measures, in part because of presidential veto threats. In March 2009, Congress took action to ease some restrictions on travel to Cuba, marking the first time that Congress has eased Cuba sanctions since the approval of the Trade Sanctions Reform and Export Enhancement Act of 2000. In light of Fidel Castro's departure as head of government and the gradual economic changes being made by Raúl Castro, some observers called for a reexamination of U.S. policy toward Cuba. In this new context, two broad policy approaches have been advanced to contend with change in Cuba: an approach that maintains the U.S. dual-track policy of isolating the Cuban government while providing support to the Cuban people; and an approach aimed at influencing the attitudes of the Cuban government and Cuban society through increased contact and engagement. In general, those who advocate easing U.S. sanctions on Cuba make several policy arguments. They assert that if the United States moderated its policy toward Cuba—through increased travel, trade, and dialogue—then the seeds of reform would be planted, which would stimulate forces for peaceful change on the island. They stress the importance to the United States of avoiding violent change in Cuba, with the prospect of a mass exodus to the United States. They argue that since the demise of Cuba's communist government does not appear imminent, even without Fidel Castro at the helm, the United States should espouse a more pragmatic approach in trying to bring about change in Cuba. Supporters of changing policy also point to broad international support for lifting the U.S. embargo, to the missed opportunities for U.S. businesses because of the unilateral nature of the embargo, and to the increased suffering of the Cuban people because of the embargo. Proponents of change also argue that the United States should be consistent in its policies with the world's few remaining communist governments, including China and Vietnam. On the other side, opponents of changing U.S. policy maintain that the two-track policy of isolating Cuba, but reaching out to the Cuban people through measures of support, is the best means for realizing political change in Cuba. They point out that the Cuban Liberty and Democratic Solidarity Act of 1996 sets forth the steps that Cuba needs to take in order for the United States to normalize relations. They argue that softening U.S. policy without concrete Cuban reforms would boost the Castro government, politically and economically, and facilitate the survival of the communist regime. Opponents of softening U.S. policy argue that the United States should stay the course in its commitment to democracy and human rights in Cuba, and that sustained sanctions can work. Opponents of loosening U.S. sanctions further argue that Cuba's failed economic policies, not the U.S. embargo, are the causes of Cuba's difficult living conditions. Public opinion polls show a majority of Americans support normalizing relations with Cuba, although the number is more closely split among Cuban Americans in Miami-Dade County in Florida. A February 2014 poll by the Atlantic Council found that 56% of respondents nationwide supported normalizing or engaging more directly in Cuba and that 63% or respondents in Florida supported such a change. Since the early 1990s, Florida International University (FIU) has conducted polling on the Cuban American community in Miami-Dade County regarding U.S. policy toward Cuba. FIU's 2014 poll, issued in June 2014, showed a slight majority of Cuban Americans in Miami-Dade County, 52%, opposed the embargo, although that support dropped to 51% among registered voters. The FIU poll also showed that a large majority of Cuban Americans in Miami Dade, 69%, supported the lifting of travel restrictions for all Americans to travel to Cuba. With regard to President Obama's announcement of a new direction for U.S. policy toward Cuba in December 2014, some Members of Congress lauded the Administration's actions as in the best interests of the United States and a better way to support change in Cuba, while other Members strongly criticized the President for not obtaining concessions from Cuba to advance human rights. With some Members vowing to oppose the Administration's efforts toward normalization, the direction of U.S.-Cuban relations is likely to be hotly debated in the 114 th Congress. For many years, Congress has played an active role in U.S. policy toward Cuba through the enactment of legislative initiatives and oversight on the many issues that comprise policy toward Cuba. These include U.S. restrictions on travel and remittances to Cuba; U.S. agricultural exports to Cuba with conditions; funding and oversight of U.S.-government sponsored democracy and human rights projects; the imprisonment of USAID subcontractor Alan Gross in Cuba since December 2009; funding and oversight for U.S.-government sponsored broadcasting to Cuba (Radio and TV Martí); terrorism issues; migration issues; bilateral anti-drug cooperation; and the status of Cuba's offshore oil development, including efforts to ensure adequate oil spill prevention, preparedness, and response efforts. Restrictions on travel to Cuba have been a key and often contentious component of U.S. efforts to isolate the communist government of Fidel Castro for much of the past 50+ years. Over time there have been numerous changes to the restrictions and for five years, from 1977 until 1982, there were no restrictions on travel. Restrictions on travel and remittances to Cuba are part of the CACR, the overall embargo regulations administered by the Treasury Department's Office of Foreign Assets Control (OFAC). Under the George W. Bush Administration, enforcement of U.S. restrictions on Cuba travel increased, and restrictions on travel and on private remittances to Cuba were tightened. In 2003, the Administration eliminated travel for people-to-people educational exchanges that had begun under the Clinton Administration. In 2004, the Administration imposed further restrictions on travel, especially family travel and the provision of private humanitarian assistance to Cuba in the form of remittances and gift parcels. Under the Obama Administration, Congress took legislative action in March 2009 easing restrictions on family travel (restoring the restrictions to as they were under the Clinton Administration) and on travel related to U.S. agricultural and medical sales to Cuba ( P.L. 111-8 , Sections 620 and 621 of Division D). In April 2009, the Obama Administration went further when the President announced that he was lifting all restrictions on family travel as well as restrictions on cash remittances to family members in Cuba. In January 2011, the Obama Administration made a series of changes further easing restrictions on travel and remittances to Cuba. The measures (1) increased purposeful travel to Cuba related to religious, educational, and journalistic activities, including people-to-people travel exchanges; (2) allowed any U.S. person to send remittances to non-family members in Cuba (up to $500 per quarter) and made it easier for religious institutions to send remittances for religious activities; and (3) allowed U.S. international airports to become eligible to provide services to licensed charter flights to and from Cuba. In most respects, these new measures were similar to policies that were undertaken by the Clinton Administration in 1999, but were subsequently curtailed by the Bush Administration in 2003 and 2004. An exception is the expansion of airports to service licensed flights to and from Cuba. While the new travel regulations immediately went into effect for those categories of travel falling under a general license category, OFAC delayed processing applications for new travel categories requiring a specific license (such as people-to-people exchanges) until it updated and issued guidelines in April 2011. The first people-to-people trips began in August 2011. In May 2012, the Treasury Department tightened its restrictions on people-to-people travel by making changes to its license guidelines. The revised guidelines require an organization applying for a people-to-people license to describe how the travel "would enhance contact with the Cuban people, and/or support civil society in Cuba, and/or promote the Cuban people's independence from Cuban authorities." The revised guidelines also require specification on how meetings with prohibited officials of the Cuban government would advance purposeful travel by enhancing contact with the Cuban people, supporting civil society, or promoting independence from Cuban authorities. In September 2012, various press reports cited a slowdown in the Treasury Department's approval or reapproval of licenses for people-to-people travel since the agency had issued new guidelines in May. Companies conducting such programs complained that the delay in the licenses was forcing them to cancel trips and even to lay off staff. By early October 2012, however, companies conducting the people-to-people travel maintained that they were once again receiving license approvals. In early April 2013, some Members of Congress strongly criticized singers Beyoncé Knowles-Carter and her husband Shawn Carter, better known as Jay-Z, for traveling to Cuba. Members were concerned that the trip, as described in the press, was primarily for tourism, which would be contrary to U.S. law and regulations. Some Members also criticized the singers for not meeting with those who have been oppressed by the Cuban government. The Treasury Department stated that the two singers were participating in an authorized people-to-people exchange trip organized by a group licensed by OFAC to conduct such trips (pursuant to 31 C.F.R. 515.565(b)(2) of the Cuban Assets Control Regulations), and OFAC determined there was no apparent violations of U.S. sanctions. An August 2014 report by the Treasury Department's Office of Inspector General concurred with OFAC's determination that the trip did not violate U.S. sanctions. On April 30, 2013, 59 House Democrats sent a letter to President Obama lauding the President for his 2009 action lifting restrictions on family travel and remittances, and for his 2011 action easing restrictions on some categories of travel, including people-to-people travel. The Members also called for the President to further use his "executive authority to allow all current categories of permissible travel, including people-to-people travel," to be carried out under a general license (instead of having to apply to Treasury Department for a specific license). Such an action, according to the Members, would increase opportunities for engagement and help Cubans create more jobs and opportunities to expand their independence from the Cuban government. As noted above, just after the adjournment of the 113 th Congress, President Obama announced major changes in U.S. policy toward Cuba on December 17, 2014. These changes included the provision for general licenses for the 12 existing categories of travel to Cuba and an increase in the amount of remittances to Cuba by any U.S. person to non-family members in Cuba to $2,000 per quarter (up from $500 per quarter). U.S. credit and debit cards will also be permitted for use by authorized travelers to Cuba. Regulations implementing these changes reportedly will be issued in several weeks. Major arguments made for lifting the Cuba travel ban altogether are that it abridges the rights of ordinary Americans to travel; it hinders efforts to influence conditions in Cuba and may be aiding Castro by helping restrict the flow of information; and Americans can travel to other countries with communist or authoritarian governments. Major arguments in opposition to lifting the Cuba travel ban are that more American travel would support Castro's rule by providing his government with potentially millions of dollars in hard currency; that there are legal provisions allowing travel to Cuba for humanitarian purposes that are used by thousands of Americans each year; and that the President should be free to restrict travel for foreign policy reasons. Legislative Activity. In the first session of the 113 th Congress, both the House and Senate versions of the FY2014 Financial Services and General Government appropriations measure, H.R. 2786 and S. 1371 , had different provisions that would have tightened and eased travel restrictions respectively, but none of these provisions were included in the FY2014 omnibus appropriations measure, H.R. 3547 ( P.L. 113-76 ), signed into law January 17, 2014. The House version of the FY2014 Financial Services and General Government appropriations measure, H.R. 2786 ( H.Rept. 113-172 ), would have prohibited FY2014 funding used "to approve, license, facilitate, authorize, or otherwise allow" people-to-people travel to Cuba, which the Obama Administration authorized in 2011. In contrast, the Senate version of the measure, S. 1371 ( S.Rept. 113-80 ), would have expanded the current general license for professional research and meetings in Cuba to allow U.S. groups to sponsor and organize conferences in Cuba, but only if specifically related to disaster prevention, emergency preparedness, and natural resource protection. (For additional information see CRS Report R43352, Financial Services and General Government (FSGG): FY2014 Appropriations .) In the second session of the 113 th Congress, the House version of the FY2015 Financial Services and General Government Appropriations Act ( H.R. 5016 , H.Rept. 113-508 ), approved July 16, 2014, includes two provisions related to U.S. restrictions on travel to Cuba. Section 126 of the bill would prevent any funds in the act from being used to approve, license, facilitate, authorize or otherwise allow people-to-people travel. Section 127 would require a joint report from the Secretary of the Treasury and the Secretary of Homeland Security with information for each fiscal year since FY2007 on the number of travelers visiting close relatives in Cuba; the average duration of these trips; the average amount of U.S. dollars spent per family traveler (including amount of remittances carried to Cuba); the number of return trips per year; and the total sum of U.S. dollars spent collectively by family travelers for each fiscal year. Ultimately Congress did not complete action on H.R. 5016 , and the FY2015 omnibus appropriations measure approved in December 2014 ( P.L. 113-235 ) did not include the provisions on Cuba in H.R. 5016 . Several legislative initiatives were introduced in the 113 th Congress that would have lifted all travel restrictions: H.R. 871 (Rangel) would lift travel restrictions; H.R. 873 (Rangel) would lift restrictions on U.S. agricultural exports as well as travel restrictions; and H.R. 214 (Serrano), H.R. 872 (Rangel), and H.R. 1917 (Rush) would lift the overall embargo on Cuba, including travel restrictions. U.S. commercial agricultural exports to Cuba have been allowed for more than a decade, but with numerous restrictions and licensing requirements. The 106 th Congress passed the Trade Sanctions Reform and Export Enhancement Act of 2000 or TSRA ( P.L. 106-387 , Title IX) that allows for one-year export licenses for selling agricultural commodities to Cuba, although no U.S. government assistance, foreign assistance, export assistance, credits, or credit guarantees are available to finance such exports. TSRA also denies exporters access to U.S. private commercial financing or credit; all transactions must be conducted in cash in advance or with financing from third countries. Cuba has purchased about $5 billion in products from the United States since 2001, largely agricultural products. U.S. exports to Cuba rose from about $7 million in 2001 to $404 million in 2004 and to a high of $712 million in 2008, far higher than in previous years, in part because of the rise in food prices and because of Cuba's increased food needs in the aftermath of several hurricanes and tropical storms that severely damaged the country's agricultural sector. From 2002 through 2010, the United States was the largest supplier of food and agricultural products to Cuba. In 2011, Brazil became Cuba's largest agricultural supplier, but this shifted back again to the United States in 2012. U.S. exports to Cuba declined considerably from 2009 through 2011, amounting to $363 million in 2010 and 2011 (see Figure 5 ), while in 2012, they rose to $464 million, a 28% increase. Part of the increase in 2012 can be attributed to an increase in Cuba's import needs because of damage to the agricultural sector in eastern Cuba caused by Hurricane Sandy in October. In 2013, U.S. exports to Cuba fell to $359 million, a decline of about 23% from the previous year. In the first nine months of 2014, U.S. exports to amounted to $243 million, about 18% less than the same period in 2013. Looking at the composition of U.S. exports to Cuba in recent years, the leading products have been poultry, soybean oilcake, corn, and soybeans. Among the reasons for the overall decline in U.S. exports to Cuba in recent years, analysts cite Cuba's shortage of hard currency; credits and other arrangements offered by other governments to purchase their countries' products; and Cuba's perception that its efforts to motivate U.S. companies, organizations, local and state officials, and Members of Congress to push for change in U.S. sanctions policy toward Cuba have been ineffective. The U.S. International Trade Commission (USITC) produced a study in 2007 analyzing the effects of both U.S. government financing restrictions for agricultural exports to Cuba and U.S. travel restrictions on the level of U.S. agricultural sales to Cuba. At the time of the study, the U.S. share of various Cuban agricultural imports was estimated to range from 0% to 99% depending on the commodity. If U.S. financing restrictions were lifted, the study estimated that the U.S. share of Cuban agricultural, fish, and forest products imports would rise to between one-half and two-thirds. According to the study, if travel restrictions for all U.S. citizens were lifted, the influx of U.S. tourists would be significant in the short term and would boost demand for imported agricultural products, particularly high-end products for the tourist sector. If both financing and travel restrictions were lifted, the study found that the largest gains in U.S. exports to Cuba would be for fresh fruits and vegetables, milk powder, processed foods, wheat, and dry beans. In 2009, the USITC issued a working paper that updated the agency's 2007 study on U.S. agricultural sales to Cuba. The update concluded that if U.S. restrictions on financing and travel were lifted in 2008, U.S. agricultural exports to Cuba would have increased between $216 million and $478 million and the U.S. share of Cuba's agricultural imports would have increased from 38% to between 49% and 64%. Among the U.S. agricultural products that would have benefited the most were wheat, rice, beef, pork, processed foods, and fish products. In general, some groups favor further easing restrictions on agricultural exports to Cuba. U.S. agribusiness companies that support the removal of restrictions on agricultural exports to Cuba believe that U.S. farmers are unable to capitalize on a market so close to the United States. Those who support the lifting of financing restrictions contend such an action would help smaller U.S. companies increase their exports to Cuba more rapidly. Opponents of further easing restrictions on agricultural exports to Cuba maintain that U.S. policy does not deny such sales to Cuba, as evidenced by the large amount of sales since 2001. As noted above, just after the adjournment of the 113 th Congress, President Obama announced major changes in U.S. policy toward Cuba on December 17, 2014. These changes included the measures to expand commercial sales/exports to boost Cuba's nascent private sector, including agricultural equipment for small farmers, certain building materials for private residential construction, and goods for use by private sector Cuban entrepreneurs. U.S. institutions will be permitted to open correspondent accounts at Cuban financial institutions to facilitate the processing of authorized transactions, and the definition of the term "cash in advance" will be revised to specify that it means "cash before transfer of title." Regulations implementing these changes reportedly will be issued in several weeks. Legislative Activity. Over the past several years, there have been legislative efforts to further ease restrictions on agricultural exports to Cuba. For FY2010 and FY2011, Congress included a provision in omnibus appropriations measures (Division C, Section 619 of P.L. 111-117 , and continued by reference in Division B, Section 1101 of P.L. 112-10 ) that temporarily overturned OFAC's 2005 clarification that TSRA's requirement for "payment of cash in advance" meant that the payment for the agricultural goods had to be received prior to the shipment of the goods from the port at which they were loaded in the United States. U.S. agricultural exporters and some Members of Congress had objected that OFAC's 2005 action constituted a new sanction that violated the intent of TSRA, and jeopardized millions in agricultural sales. The legislative provisions cited above redefined payment of cash in advance for FY2010 and FY2011 to mean that payment was to be received before the transfer of title to, and control of, the exported items to the Cuban purchaser. This essentially meant that payment could occur before a shipment was offloaded in Cuba, rather than before an export shipment left a U.S. port. For FY2012, Congress did not include a similar provision in the Consolidated Appropriations Act, 2012 ( P.L. 112-74 ). While the Senate Appropriations Committee-approved version of the FY2012 Financial Services appropriations measure ( S. 1573 ) had a provision that would have continued the definition of "payment of cash in advance" utilized in FY2010 and FY2011, this was not included in the final omnibus legislation. The Senate bill also contained another Cuba provision that would have prohibited restrictions on direct transfers from a Cuban financial institution to a U.S. financial institution in payment for licensed exports to Cuba. This provision as well was not included in the omnibus appropriations legislation. In the 113 th Congress, one bill was introduced that included measures to facilitate the export of U.S. agricultural products to Cuba, H.R. 873 (Rangel), while three other bills that would have lifted the overall embargo— H.R. 214 (Serrano), H.R. 872 (Rangel), and H.R. 1917 (Rush)—would have lifted restrictions and licensing requirements on U.S. agricultural exports to Cuba. In other action, a July 2014 draft report by the Senate Appropriations Committee, Subcommittee on Financial Services and General Government to the Senate version of the FY2015 Financial Services appropriations measure (not introduced) would have directed the Treasury Department to coordinate with the Departments of Commerce and Agriculture to conduct a review of the extent to which the prohibition on U.S. private financing or credit for sales of U.S. agricultural commodities negatively affects small U.S. exporters and farmers. For some 15 years, the United States has imposed a trademark sanction specifically related to Cuba. A provision in the FY1999 omnibus appropriations measure (§211 of Division A, Title II, P.L. 105-277 , signed into law October 21, 1998) prevents the United States from accepting payment for trademark registrations and renewals from Cuban nationals that were used in connection with a business or assets in Cuba that were confiscated, unless the original owner of the trademark has consented. The provision prohibits U.S. courts from recognizing such trademarks without the consent of the original owner. The measure was enacted because of a dispute between the French spirits company, Pernod Ricard, and the Bermuda-based Bacardi Ltd. Pernod Ricard entered into a joint venture in 1993 with the Cuban government to produce and export Havana Club rum. Bacardi maintains that it holds the right to the Havana Club name because in 1995 it entered into an agreement for the Havana Club trademark with the Arechabala family, who had originally produced the rum until its assets and property were confiscated by the Cuban government in 1960. Although Pernod Ricard cannot market Havana Club in the United States because of the trade embargo, it wants to protect its future distribution rights should the embargo be lifted. The European Union initiated World Trade Organization (WTO) dispute settlement proceedings in June 2000, maintaining that the U.S. law violates the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS). In January 2002, the WTO ultimately found that the trademark sanction violated WTO provisions on national treatment and most-favored-nation obligations in the TRIPS Agreement. On March 28, 2002, the United States agreed that it would come into compliance with the WTO ruling through legislative action by January 3, 2003. That deadline was extended several times since no legislative action had been taken to bring Section 211 into compliance with the WTO ruling. On July 1, 2005, however, in an EU-U.S. bilateral agreement, the EU agreed that it would not request authorization to retaliate at that time, but reserved the right to do so at a future date, and the United States agreed not to block a future EU request. In June 2013, EU officials reportedly raised the issue of U.S. compliance at a WTO Dispute Settlement Body meeting, maintaining that there has been enough time for the United States to settle the issue, while U.S. officials maintained that relevant bills were before the U.S. Congress. On August 3, 2006, the U.S. Patent and Trademark Office announced that Cuba's Havana Club trademark registration was "cancelled/expired," a week after OFAC had denied a Cuban government company the license that it needed to renew the registration of the trademark. On March 29, 2011, the U.S. Court of Appeals of the District of Columbia upheld the decision to deny the renewal of the trademark, while in May 2012, the U.S. Supreme Court declined to hear the case, effectively letting stand the denial to renew the trademark. Bacardi began marketing Havana Club rum in the United States in 2006 in limited quantities in Florida, and Pernod Ricard filed suit that the representation of the origin of the rum was misleading. In April 2010, a U.S. District Court in Delaware ruled in Bacardi's favor that the labeling was not misleading, and this was reaffirmed by a U.S. Court of Appeals on August 4, 2011. Legislative Activity. In Congress, two different approaches have been advocated for a number of years to bring Section 211 into compliance with the WTO ruling. Some want a narrow fix in which Section 211 would be amended so that it applies to all persons claiming rights in trademarks confiscated by Cuba, whatever their nationality, instead of being limited to designated nationals, meaning Cuban nationals. Advocates of this approach argue that it would treat all holders of U.S. trademarks equally. Others want Section 211 repealed altogether. They argue that the law endangers over 5,000 trademarks of over 500 U.S. companies registered in Cuba. The House Committee on the Judiciary held a March 3, 2010, hearing on the "Domestic and International Trademark Implications of HAVANA CLUB and Section 211 of the Omnibus Appropriations Act of 2009," which featured proponents of both legislative approaches. (See http://judiciary.house.gov/hearings/hear_100303.html .) Several legislative initiatives were introduced during the 112 th Congress reflecting these two approaches to bring Section 211 into compliance with the WTO ruling, but no action was taken on these measures. In the 113 th Congress, identical bills H.R. 778 (Issa) and S. 647 (Nelson) would have applied the narrow fix so that the trademark sanction would apply to all nationals, while four broader bills lifting U.S. sanctions on Cuba— H.R. 214 (Serrano); H.R. 872 (Rangel); H.R. 873 (Rangel); and H.R. 1917 (Rush)—each have a provision that would have repealed the trademark sanction. The July 2005 EU-U.S. bilateral agreement, in which the EU agreed not to retaliate against the United States, but reserved the right to do so at a later date, has reduced pressure on Congress to take action to comply with the WTO ruling. Since 1996, the United States has provided assistance—through the U.S. Agency for International Development (USAID), the State Department, and the National Endowment for Democracy (NED)—to increase the flow of information on democracy, human rights, and free enterprise to Cuba. USAID and State Department efforts are largely funded through Economic Support Funds (ESF) in the annual foreign operations appropriations bill. From FY1996 to FY2014, Congress appropriated some $264 million in funding for Cuba democracy efforts. In recent years, this included $45.3 million for FY2008 and $20 million in each fiscal year from FY2009 through FY2012, $19.3 million in FY2013, and $20 million in FY2014. The Administration's FY2015 request is for $20 million. Generally, as provided in appropriations measures, ESF has to be obligated within two years. In earlier years, USAID received the majority of this funding, but the State Department also received funding beginning in FY2004 and in recent years has been allocated slightly more funding than USAID. The State Department generally has transferred a portion of the Cuba assistance that it administers to NED. For FY2014, however, Congress stipulated that not less than $7.5 million shall be provided directly to NED while not more than $10 million shall be administered by the State Department; Congress also stipulated that no ESF appropriated under the Act may be obligated by USAID for any new programs or activities in Cuba ( P.L. 113-76 ). USAID's Cuba program has supported a variety of U.S.-based non-governmental organizations with the goals of promoting a rapid, peaceful transition to democracy, helping develop civil society, and building solidarity with Cuba's human rights activists. USAID maintains on its website that current USAID program partners are Foundation for Human Rights in Cuba, $3.4 million (2011-2014); Grupo de Apoyo a la Democracia, $3.5 million (2012-2015); International Relief and Development, $3.5 million (2011-2014); International Republican Institute, $3 million (2012-2015); National Democratic Institute, $2.3 million (2011-2014); New America Foundation, $4.3 million (2012-2015); and Pan-American Development Foundation, $3.9 million (2011-2014). (See USAID's Cuba program website at http://www.usaid.gov/where-we-work/latin-american-and-caribbean/cuba .) FY2012. The Administration requested $20 million in ESF for FY2012 with the promotion of democratic principles as the core goal of assistance, and Congress supported the full amount in the conference report to the FY2012 Consolidated Appropriations Act ( H.Rept. 112-331 to H.R. 2055 , P.L. 112-74 ). The budget request stated that there was an increased effort to manage programs more transparently, focus efforts on Cuba, and widen the scope of the civic groups receiving supports. According to the Administration's request, U.S. assistance would strengthen a range of independent elements of Cuban civil society, including associations and labor groups, marginalized groups, youth, legal associations, and women's networks. The programs would be designed to increase the capacity for community involvement of civil society organizations and networking among the groups. The program would also support Cuban efforts to document human rights violations, provide humanitarian assistance to political prisoners and their families, and build leadership skills of civil society leaders. Finally, the budget request maintained that U.S. assistance also would support the dissemination of information regarding market economies and economic rights. The Senate Appropriations Committee-reported version of the FY2012 Department of State, Foreign Operations, and Related Programs Appropriations bill, S. 1601 ( S.Rept. 112-85 ), would have provided $15 million in ESF for Cuba ($5 million less than the request), including humanitarian and democracy assistance, support for economic reform, private sector initiatives, and human rights. In its report to the bill, the committee maintained that it expected that funds would be made available, and programs carried out, in a transparent manner. The committee also would have directed that the USAID Administrator provide regular updates to the committee on the number of Cubans who receive assistance and the types of assistance. In contrast to the Senate bill, a draft House Appropriations Committee bill and report (marked up by the Subcommittee on State, Foreign Operations, and Relations Programs on July 27, 2011) would have recommended $20 million in ESF for Cuba (the full Administration's request), and would have directed that the funds be used only for democracy-building, and not for business promotion, economic reform, social development or other purposes expressly authorized by Section 109(a) of the Cuban Liberty and Democratic Solidarity Act of 1996 ( P.L. 104-114 ). (See the draft committee report, available at http://appropriations.house.gov/UploadedFiles/FY12-SFOPSCombinedReport-CSBA.pdf .) As notified to Congress in May 2013, of the $20 million in Cuba projects for FY2012, USAID will administer $9.45 million; the State Department's Bureau of Democracy, Human Rights, and Labor will administer $9.85 million (of which $4 million will be transferred to NED); and the State Department's Bureau of Western Hemisphere Affairs will administer $0.7 million. In terms of the types of programs funded, $2.96 million will be used to support human rights initiatives; $13.07 million will be used for civil society and media programs; and $3.97 million for be used for program support. FY2013. For FY2013, the Administration requested $15 million in ESF for human rights and democracy programs for Cuba. According to the request, "U.S. assistance will continue to support human rights and civil society initiatives that promote basic freedoms, particularly freedom of expression. Programs will continue to provide humanitarian assistance to prisoners of conscience and their families, as well as strengthen independent Cuban civil society, and promote the flow of uncensored information to, from, and within the island." The Senate Appropriations Committee-reported version of the FY2013 State Department, Foreign Operations, and Related Programs Appropriations Act, S. 3241 ( S.Rept. 112-172 ), would have provided $15 million in ESF for Cuba (the same as the Administration's request), including "for humanitarian assistance, support for economic reform, private sector initiatives, democracy, and human rights." In contrast, the House Appropriations Committee-reported version of the bill, H.R. 5857 ( H.Rept. 112-94 ), would have provided $20 million in ESF ($5 million more than the Administration's request), but would transfer and merge the aid with funds available to the National Endowment for Democracy "to promote democracy and strengthen civil society in Cuba." The report to the House bill maintained that assistance "shall not be used for business promotion, economic reform, social development, or other purposes not expressly authorized by section 109(a)" of the Cuban Liberty and Democratic Solidarity Act ( P.L. 104-114 ). Congress did not complete action on FY2013 appropriations before the beginning of the fiscal year, but in September 2012, it approved a continuing resolution ( H.J.Res. 117 , P.L. 112-175 ) that continued FY2013 funding through March 27, 2013, at the same rate for projects and activities in FY2012, plus an across-the-board increase of 0.612%, although specific country accounts were left to the discretion of responsible agencies. On March 21, 2013, Congress completed action on full-year FY2013 appropriations with the approval of H.R. 933 ( P.L. 113-6 ). This continued FY2013 funding for Cuba democracy programs but funding was also affected by budget sequestration cutbacks set forth in the Budget Control Act of 2011 ( P.L. 112-25 ), as amended by the American Taxpayer Relief Act ( P.L. 112-240 ). Ultimately, $19.283 million was appropriated for FY2013 Cuba democracy funding. As notified to Congress in July 2014, of the $19.283 million appropriated, the State Department will administer $17.783 million (with the Bureau of Democracy, Human Rights, and Labor administering $15.433 million and the Bureau of Western Hemisphere Affairs administering) and the Broadcasting Board of Governors (pursuant to a separate notification) will administer $1.5 million. Of the $17.783 million administered by the State Department, $4.028 million will be dedicated to the program area of rule and human rights; $12.079 million will be used to support civil society programs (with $4 million transferred to the National Endowment for Democracy); and $1.675 million will be used for program management and oversight. FY2014. For FY2014, the Administration again requested $15 million in ESF for Cuba human rights and democracy projects. According to the budget request, U.S. aid will strengthen independent Cuban civil by supporting initiatives that promote democracy, human rights, and fundamental freedoms, particularly freedom of expression. Programs will also provide humanitarian assistance to victims of political repression and their families and promote the flow of uncensored information to, from, and within Cuba. The Senate Appropriations Committee version of the FY2014 Department of State, Foreign Operations, and Related Programs Appropriations Act, S. 1372 ( S.Rept. 113-81 , reported July 25, 2013), would have provided that ESF assistance appropriated for Cuba only be made available "for humanitarian assistance and to support the development of private business." The House Appropriations Committee version of the bill, H.R. 2855 ( H.Rept. 113-185 , reported July 30, 2013) would have provided that $20 million in ESF assistance ($5 million more than the Administration's request) be transferred to the National Endowment for Democracy "to promote democracy and strengthen civil society in Cuba." The report to the House bill stated that such assistance provided for Cuba "shall not used for business promotion, economic reform, social development, or other purposes not expressly authorized by section 109(a)" of the of the Cuban Liberty and Democratic Solidarity Act ( P.L. 104-114 ). Congress ultimately completed action on FY2014 appropriations in January 2014 when it enacted the Consolidated Appropriations Act, 2014, H.R. 3547 ( P.L. 113-76 ), signed into law January 17, 2014. As noted above, the law stated that up to $17.5 million should be made available in ESF for programs and activities in Cuba and stipulated that no ESF appropriated under the act may be obligated by USAID for any new programs or activities in Cuba. The joint explanatory statement to the bill states that of the $17.5 million, not less than $7.5 million shall be provided directly to NED, and not more than $10 million shall be administered by the State Department's Bureau of Democracy, Human Rights, and Labor and Bureau of Western Hemisphere Affairs. Ultimately, however, the Administration is providing an estimated $20 million in ESF for FY2014 Cuba democracy programs, $5 million more than requested and $2.5 million more than the $17.5 million implied by P.L. 113-76 and its joint explanatory statement. FY2015. The Administration requested $20 million in ESF for Cuba democracy program in 2015, the same as being provided in FY2014. According to the foreign aid budget request: "U.S. assistance will support civil society initiatives that promote democracy, human rights and fundamental freedoms, particularly freedom of expression. Programs will provide humanitarian assistance to victims of political repression and their families, strengthen independent Cuban civil society, and promote the flow of uncensored information to, from, and within the island." The request described three key aspects of the program: (1) working with independent elements of civil society to increase the capacity for community involvement, build networking among civil society organizations, and build the leadership skills of a future generation of civil society leaders; (2) facilitating information sharing into and out of Cuba, as well as among civil society groups on the island, including through the use of new technology; and (3) supporting Cuban-led efforts to document human rights violations, and providing humanitarian assistance to victims of political repression and their families. The House Appropriations Committee-reported FY2015 Department of State, Foreign Operations, and Related Programs Appropriations bill, H.R. 5013 ( H.Rept. 113-499 ), would have made available $20 million in ESF "to promote democracy and strengthen civil society in Cuba." The report to the bill directed that funds shall not be used for business promotion or economic reform, and that the criteria used for selecting grantees include "pro-democracy experience inside Cuba." The Senate Appropriations Committee-reported version of the measure, S. 2499 ( S.Rept. 113-195 ), would have provided up to $10 million in ESF for programs in Cuba and an additional $5 million for USAID programs to provide technical and other assistance to support the development of private businesses in Cuba. Congress ultimately completed action on FY2015 appropriations when it enacted a FY2015 omnibus appropriations measure ( P.L. 113-235 ) in December 2015. The measure stated that ESF assistance appropriated by the law should be made available for Cuba, but did not specify an amount. National Endowment for Democracy. NED is not a U.S. government agency but an independent nongovernmental organization that receives U.S. government funding. Its Cuba program is funded by the organization's regular appropriations by Congress as well as by funding from the State Department. Until FY2008, NED's democratization assistance for Cuba had been funded largely through the annual Commerce, Justice, and State (CJS) appropriations measure, but is now funded through the State Department, Foreign Operations and Related Agencies appropriations measure. As noted above, for FY2014, Congress stipulated that not less than $7.5 million of democracy assistance for Cuba be provided directly to NED for activities and programs in Cuba. Depending on how much actually flows to NED, this would be at least two times the $3.4 million that NED spent for its Cuba projects in FY2013. According to NED, its Cuba funding in recent years has been as follows: $1.4 million in FY2008; $1.5 million in FY2009; $2.4 million in FY2010; $1.65 million in FY2011; and $2.6 million in FY2012. In FY2013, NED provided $3.4 million as follows: Afro-Cuban Alliance, Inc. (two projects); Asociación de Iberoamericanos por la Libertad; Asociación Diario de Cuba; Center for a Free Cuba; Centro de Investigación y Capacitación de Emprendedores Sociales Asociación Civil; Centro Democracia y Comunidad; Centro para la Apertura y el Desarrollo de América Latina; Clovek v tisni, o.p.s.—People in Need; Committee for Free and Democratic Cuban Unions, Incorporated; Cuban Democratic Directorate; Cuban Soul Foundation; Cubanet News Inc.; Fundación Hispano Cubana; Global Rights (two projects); Grupo Internacional para la Responsibilidad Social Corporativa en Cuba (two projects); Instituto Cubano por la Libertad de Expresión y Prensa; Instituto Político para La Libertad Perú; International Platform for Human Rights in Cuba; Lech Walesa Institute; Observatorio Cubano de Derechos Humanos; Outreach Aid to the Americas, Inc.; People in Peril Association, CVO; Plataforma de Integración Cubana; Civic Education (three projects); Human Rights; and Rule of Law (two projects). The U.S. Government Accountability Office (GAO) has issued several reports since 2006 examining USAID and State Department democracy programs for Cuba. In 2006, GAO issued a report examining programs from 1996 through 2005, and concluded that the U.S. program had significant problems and needed better management and oversight. According to GAO, internal controls, for both the awarding of Cuba program grants and oversight of grantees, "do not provide adequate assurance that the funds are being used properly and that grantees are in compliance with applicable law and regulations." Investigative news reports on the program maintained that high shipping costs and lax oversight had diminished its effectiveness. GAO issued a second report in 2008 examining USAID's Cuba democracy program. The report lauded the steps that USAID had taken since 2006 to address problems with its Cuba program and improve oversight of the assistance. These included awarding all grants competitively since 2006, hiring more staff for the program office since January 2008, and contracting for financial services in April 2008 to enhance oversight of grantees. The GAO report also noted that USAID had worked to strengthen program oversight through pre-award and follow-up reviews, improving grantee internal controls and implementation plans, and providing guidance and monitoring about permitted types of assistance and cost sharing. The 2008 GAO report also maintained, however, that USAID had not staffed the Cuba program to the level needed for effective grant oversight. GAO recommended that USAID (1) ensure that its Cuba program office is staffed at the level that is needed to fully implement planned monitoring activities; and (2) periodically assess the Cuba program's overall efforts to address and reduce grantee risks, especially regarding internal controls, procurement practices, expenditures, and compliance with laws and regulations. More recently, in January 2013, GAO issued its third report on Cuba democracy programs. The report concluded that USAID had improved its performance and financial monitoring of implementing partners' use of program funds, but found that the State Department's financial monitoring had gaps. Both agencies were reported to be taking steps to improve financial monitoring. GAO recommended that the Secretary of State take two actions to strengthen the agency's ability to monitor the use of Cuba democracy program funds: use a risk-based approach for program audits that considers specific indicators for program partners; and obtain sufficient information to approve implementing partners' use of subpartners. In early April 2014, an Associated Press investigative report alleged that USAID, as part of its democracy promotion efforts for Cuba, had established a "Cuban Twitter" known as ZunZuneo, a communications network designed as a "covert" program "to undermine" Cuba's communist government built with "secret shell companies" and financed through foreign banks. According to the press report, the project, which was used by thousands of Cubans, lasted more than two years until it ended in 2012. USAID, which strongly contested the report, issued a statement and facts about the ZunZuneo program. It maintained that program was not "covert," but rather that, just as in other places where it is not always welcome, the agency maintained a "discreet profile" on the project to minimize risk to staff and partners and work safely. Some Members of Congress strongly criticized USAID for not providing sufficient information to Congress about the program when funding was appropriated, while other Members strongly defended the agency and the program. In August 2014, the Associated Press reported on another U.S.-funded democracy program for Cuba in which a USAID contractor sent about a dozen youth from several Latin American countries (Costa Rica, Peru, and Venezuela) in 2010 and 2011 to Cuba to participate in civic programs, including an HIV-prevention workshop, with the alleged goal to "identify potential social-change actors" in Cuba. The AP report alleged that "the assignment was to recruit young Cubans to anti-government activism under the guise of civic programs. USAID responded in a statement maintaining that the AP report "made sensational claims against aid workers for supporting civil society programs and striving to give voice to these democratic aspirations." As noted earlier, USAID subcontractor Alan Gross was imprisoned in Cuba from December 2009 until December 2014 for his work on a Cuba democracy project designed to provide Cuba's Jewish community with communication equipment for wireless Internet connectivity. In March 2011, he was convicted by a Cuban court in March 2011 and sentenced to 15 years in prison. Gross has remained in prison despite numerous calls for his release on humanitarian grounds by Members of Congress, the Obama Administration, and many other religious and human rights groups. His continued imprisonment was impediment to an improvement in U.S.-Cuban relations. In 2012, Cuba began linking the release of Alan Gross to the release of the so-called "Cuban five", who were convicted in the United States for espionage in 2001 (see " Cuban Five " below). The United States rejected such linkage, maintaining there was no equivalence between the cases. Gross was working as a USAID subcontractor for Development Alternatives Inc. (DAI), a Bethesda-based company that had received a contract from USAID to help support Cuban civil society organizations. As part of the project, Gross installed broadband Internet connections for three Jewish communities in the cities of Havana, Camagüey, and Santiago de Cuba. He was arrested on December 4, 2009, at Jose Martí International Airport in Havana when he was planning to leave the country after his fifth trip to Cuba under his subcontract with DAI. According to a statement at the time by DAI, Gross "was working with a peaceful, non-dissident civic group—a religious and cultural group recognized by the Cuban government—to improve its ability to communicate with its members across the island and overseas." After 14 months in prison, a Cuban court in Havana officially charged Gross on February 4, 2011, with "actions against the independence and territorial integrity of the state" pursuant to Article 91 of Cuba's Penal Code. After a two-day trial in March 2011, Gross was convicted and sentenced to 15 years in prison. Gross's lawyer had asked for the Cuban government to release Gross as a humanitarian gesture, maintaining that his health continued to deteriorate and noting that his elderly mother had been diagnosed with lung cancer, and his daughter was recovering from cancer treatment. Cuba's Supreme Court heard arguments for Gross's appeal on July 22, 2011, but the court rejected the appeal on August 5, 2011. There had been some hope in April 2012 that Cuba would positively respond to a humanitarian request by Alan Gross to visit his elderly sick mother in the United States for a period of two weeks, but this did not occur. In contrast, a U.S. federal judge in Florida granted René González, one of the so-called "Cuban five" convicted in 2001, the right to visit his dying brother in Cuba for two weeks. In September 2012, Judy Gross, the wife of Alan Gross, expressed concern in media reports about the health of her husband, who had lost more than 100 pounds while in prison, and fears that he would not survive continued imprisonment. In early October 2012, Judy Gross expressed concern that her husband could have cancer. In November 2012, the Cuban government maintained that Gross was in normal health and that a biopsy on a lesion showed that he did not have cancer. In November 2012, Alan and Judy Gross filed a suit in U.S. District Court against the U.S. government and his employer, DAI, alleging that they "failed to disclose adequately to Mr. Gross, both before and after he began traveling to Cuba, the material risks that he faced due to his participation in the project." DAI ultimately reached an undisclosed settlement with Alan and Judy Gross on May 16, 2013, while on May 28, 2013, a U.S. federal judge dismissed the lawsuit against the U.S. government. Gross's lawyers reportedly will appeal the judge's dismal. On December 23, 2014, USAID agreed to pay $3.2 million to DAI to resolve pending claims before the Civilian Board of Contract Appeals under a cost-reimbursement contract; press reports indicate that Gross will receive much of the settlement. In the five years that Gross was imprisoned, numerous U.S. officials and Members of Congress repeatedly raised the issue of his detention with the Cuban government and called for his release. In late November 2012, Judy Gross urged President Obama to give the case top priority and to designate a special envoy to meet with the Cuban government for her husband's release. On December 3, 2012, the third anniversary of Gross's imprisonment, the State Department issued a statement again calling for his release, and asked the Cuban government to grant Gross's request to travel to the United States to visit his gravely ill 90-year-old mother. On December 5, 2012, the Senate approved S.Res. 609 (Moran) by voice vote, marking the first congressional vote on the issue since Gross's detention. With 31 cosponsors, the resolution called for the immediate and unconditional release of Gross, and urged the Cuban government in the meantime to provide all appropriate diagnostic and medical treatment to address the full range of medical issues facing Mr. Gross and to allow him to choose a doctor to provide him with an independent medical assessment. (In August 2013, Cuba allowed a U.S. doctor to visit and examine Gross.) During his incarceration, the State Department maintained that securing the release of Alan Gross remained a top U.S. priority. On December 3, 2013, the fourth anniversary of Gross's imprisonment, the State Department maintained that it was using every appropriate diplomatic channel, both publicly and privately, to press for Gross's release. The State Department also reiterated its call for the Cuban government to release Gross immediately, as did National Security Adviser Susan Rice. On January 14, 2014, in a meeting with the Vatican, Secretary of State Kerry asked for their assistance in securing the release of Gross. The State Department issued a press statement on May 2, 2014, Gross's 65 th birthday, expressing deep concern about his well-being and again calling on the Cuban government to release him and allow him to be reunited with his family. The statement also asserted that Gross's "detention remains an impediment to more constructive relations between Cuba and the United States." In June 2014, President Obama asked visiting Uruguayan President José Mujica to raise the issue of Gross's release with Raúl Castro. Gross's incarceration has been raised by the United States at semi-annual migration talks with Cuba, including those held in July 2014. In early April 2014, Gross went on an nine-day hunger strike in which he was protesting his treatment by the Cuban and U.S. governments. He maintained that there would be further protests to come, and that his 91-year old mother had urged him to resume eating. Later in April, Gross's lawyer, Scott Gilbert, maintained that his client planned to return from Cuba to his family within the year, and that his 65 th birthday in Cuba—on May 2, 2014—would be his last because he would renew a hunger strike if he was not released within the year. Gilbert maintained that Gross's imprisonment had taken a toll on his health, with some lost vision in his right eye, a missing tooth, a limp because of his hips, and weight loss of nearly 110 pounds. He maintained that Cuban Foreign Minister Bruno Rodriguez has reiterated Cuba's "strong interest in sitting down with officials of the United States at the highest levels to resolve this issue with no preconditions." In the aftermath of the May 31, 2014, release of five Taliban members from the Guantanamo Bay detention facility in order to effectuate the release of U.S. prisoner of war Sergeant Bowe Bergdahl held captive by the Taliban since 2009, some observers and Members of Congress called for the Administration to consider similar efforts to secure the release of Alan Gross while others rejected such an action. Gross's elderly mother died on June 18, 2014, after battling lung cancer, and the United States urged Cuba to release Gross temporarily so that he could be with his family. Gross's lawyer and his wife expressed concern in late June 2014 that Gross might try to end his life. As noted above, Gross ultimately was released by Cuba on humanitarian grounds on December 17, 2014, and returned to the United States. U.S.-government sponsored radio and television broadcasting to Cuba—Radio and TV Martí—began in 1985 and 1990 respectively. According to the Broadcasting Board of Governors (BBG) FY2015 Congressional Budget Request , Radio and TV Martí "inform and engage the people of Cuba by providing a reliable and credible source of news and information." The BBG's Office of Cuba Broadcasting uses "a mix of media, including shortwave, medium wave, direct-to-home satellite, Internet, flash drives, and DVDs to help reach audiences in Cuba." Until October 1999, U.S.-government funded international broadcasting programs had been a primary function of the United States Information Agency (USIA). When USIA was abolished and its functions were merged into the Department of State at the beginning of FY2000, the BBG became an independent agency that included such entities as the Voice of America (VOA), Radio Free Europe/Radio Liberty (RFE/RL), Radio Free Asia, and the Office of Cuba Broadcasting (OCB), which manages Radio and TV Marti. OCB is headquartered in Miami, FL. Legislation in the 104 th Congress ( P.L. 104-134 ) required the relocation of OCB from Washington, DC, to South Florida. The move began in 1996 and was completed in 1998. (In the 113 th Congress, H.R. 4490 , approved by the House in July 2014, would abolish the BBG and create a new United States International Communications Agency, and the OCB would be a part of the new agency. For more information, see CRS Report R43521, U.S. International Broadcasting: Background and Issues for Reform , by [author name scrubbed].) TV Martí programming has been broadcast through multiple transmission methods over the years. Its broadcasts are transmitted via the Internet and satellite television 24 hours a day, seven days per week. From its beginning in 1990 until July 2005, TV Martí was broadcast via an aerostat (blimp) from facilities in Cudjoe Key, FL, for four and one-half hours daily, but the aerostat was destroyed by Hurricane Dennis. From mid-2004 until 2006, TV Martí programming was transmitted for several hours once a week via an airborne platform known as Commando Solo operated by the Department of Defense utilizing a C-130 aircraft. In August 2006, OCB began to use contracted private aircraft to transmit prerecorded TV Martí broadcasts, and by late October 2006 the OCB inaugurated an aircraft-broadcasting platform known as AeroMartí with the capability of transmitting live broadcasts. In recent years, AeroMartí transmitted broadcasts two and one-half hours for five days weekly, but beginning in May 2013, AeroMartí flights were curtailed because of the FY2013 budget sequestration. Moreover, as noted below, the BBG proposed eliminating AeroMartí in its FY2013 and FY2014 budget requests because of decreases in its cost effectiveness, and it was ultimately eliminated in FY2014, according to the BBG. According to the BBG, the OCB uses multiple web domains and anti-censorship tools such as web-based proxies to reach Internet users in Cuba. Since 2011, the OCB has used SMS messaging to communicate with audiences in Cuba, allowing OCB to "push" information to mobile phone users in Cuba in a manner that is difficult to filter. The OCB's website, martinoticias.com, began streaming Radio and TV Martí programming 24 hours a day in 2013. It has also launched a YouTube Channel, Facebook page, and Twitter feed. From FY1984 through FY2014, Congress appropriated about $770 million for broadcasting to Cuba. In recent years, funding amounted to $27.977 million in FY2012, $26.293 million in FY2013, and an estimated $27.043 million in FY2014. The FY2015 request was for $23.130 million, and Congress ultimately appropriated $27.130 million, but also provided that additional funding may be transferred to the Office of Cuba Broadcasting from appropriated Economic Support Funds to restore program reductions. FY2012. The Administration requested $28.475 million for Cuba broadcasting in FY2012. The Senate Appropriations Committee version of the FY2012 State Department, Foreign Operations, and Related Programs Appropriations measure, S. 1601 ( S.Rept. 112-85 ), recommended $28.181 million in funding for Cuba broadcasting, $294,000 less than the request. In contrast, a draft House Appropriations Committee report and bill (marked up by the House Appropriations Committee's Subcommittee on State, Foreign Operations, and Related Programs on July 27, 2011) recommended $30.175 million for Cuba broadcasting, $1.7 million more than the request. (See the draft committee report, available at http://appropriations.house.gov/UploadedFiles/FY12-SFOPSCombinedReport-CSBA.pdf .) In final action on the FY2012 Consolidated Appropriations Act ( H.R. 2055 , P.L. 112-74 ), Congress approved full funding of the Administration's $28.475 million request for broadcasting to Cuba. The BBG's actual spending for FY2012 funding was $27.977 million. FY2013. The Administration requested $23.594 million for Cuba broadcasting in FY2013, almost $4.5 million lower than FY2012 funding. According to the BBG's budget request, program reductions are possible because of OCB's planned streamlining in the planning and execution of news coverage and reliance on additional technical support from the BBG's International Broadcasting Bureau. The BBG proposed eliminating the AeroMartí platform for a savings of $2 million because of decreases in its cost effectiveness. The Senate Appropriations Committee-reported FY2013 State Department, Foreign Operations, and Related Programs Appropriations Act, S. 3241 ( S.Rept. 112-172 ), would have provided $23.4 million ($194,000 less than the Administration's request). The committee's report to the bill expressed its support for "the proposed reduction in TV Martí operating costs, including the termination of the Aeromartí contract, as long as such action will not reduce its current broadcast schedule of 166 weekly hours." The House Appropriations Committee-reported bill, H.R. 5857 ( H.Rept. 112-494 ), would have provided $28.062 million ($4.468 million more than the Administration's request and the same amount provided in FY2012). As already noted, Congress did not complete action on FY2013 appropriations before the end of the fiscal year, but in September 2012 it approved a continuing resolution ( P.L. 112-175 ) that continued funding through March 27, 2013, at the same rate for projects and activities in FY2012 plus an across-the-board increase of 0.612%. On March 21, 2013, Congress completed action on FY2013 appropriations with the approval of H.R. 933 ( P.L. 113-6 ), but it did not stop funding reductions caused by sequestration set forth in the Budget Control Act of 2011 ( P.L. 112-25 ), as amended by the American Taxpayer Relief Act ( P.L. 112-240 ). In its FY2014 Congressional Budget Request, the BBG maintained that the FY2013 enacted level for Cuba broadcasting was $28.266 million, but this did not reflect the funding reduction caused by sequestration. (In May 2013, because of sequestration, the OCB curtailed AeroMartí flights that transmitted TV Martí broadcasts.) The BBG's actual spending for OCB in FY2013 was $26.293 million. FY2014. The Administration requested $23.804 million for Cuba broadcasting, about $4.5 million less than that provided in FY2013, although roughly similar to the FY2013 budget request for Cuba broadcasting. In terms of program reductions, the BBG again proposed eliminating AeroMartí an aircraft-based broadcast system targeting Havana and surrounding areas, because of decreases in cost effectiveness. The BBG maintains that the signal is heavily jammed by the Cuban government, significantly limiting its reach and impact in Cuba. (As noted above, the OCB curtailed AeroMartí flights beginning in May 2013 because of the FY2013 budget sequestration.) The OCB would also eliminate the use of two shortwave frequencies at night. The BBG is also proposing to eliminate seven OCB positions working in a unit that served as a clearinghouse for research and information on issues related to Cuba. It also proposed reducing contractors and up to 50 OCB positions. According to the BBG's budget request, the agency will seek to execute inter-agency agreements with the Department of State and the U.S. Agency for International Development to utilize some existing unobligated resources allocated for Cuba democracy, human rights, and entrepreneurship programs; the BBG would use the resources to fund OCB's special TV programming and to maintain a 24 hours per day broadcast schedule. The House Appropriations Committee version of the FY2014 Department of State, Foreign Operations, and Related Programs Appropriations Act, H.R. 2855 ( H.Rept. 113-185 , reported July 30, 2013), would have provided $28.266 million for Cuba broadcasting, about $4.5 million more than the Administration's request. In contrast, the Senate Appropriations Committee version, S. 1372 ( S.Rept. 113-81 , reported July 25, 2013), would have provided $23.804 million, the same amount as the Administration's request. Congress ultimately appropriated $27.043 million for Cuba broadcasting when it enacted the FY2014 omnibus appropriations measure, H.R. 3547 ( P.L. 113-76 ), signed into law January 17, 2014. This amounted to about $3.24 million above the Administration's request. FY2015. The Administration requested $23.130 million in FY2015 for the OCB, about $3.9 million less than the estimated amount planned for FY2014. According to the request, the BBG anticipates that OCB may receive up to a $5 million transferred from the ESF foreign aid spending account originally appropriated for Cuba democracy programs. According to the BBG, this would "leverage the well-established relationships on the island by OCB to conduct activities" in accordance with the Cuban Liberty and Democratic Solidarity Act of 1996. The House Appropriations Committee-reported version of the FY2015 Department of State, Foreign Operations, and Related Programs Appropriations Act, H.R. 5013 ( H.Rept. 113-499 ) would have provided not less than $28.266 million for the OCB, about $5.1 million more than the request and about $1.2 million more than the FY2014 program level. According to the report to the bill, the increase above the FY2014 OCB program level "is intended to mitigate the impact of absorbing transmission and personnel costs." The Senate Appropriations Committee-reported version of the appropriations measure, S. 2499 ( S.Rept. 113-195 ), would have provided $23.130 million for the OCB, the same amount requested by the Administration. Ultimately Congress appropriated $27.130 million for Cuba broadcasting in the FY2015 omnibus appropriations measure ( P.L. 113-235 ) enacted in December 2014. The explanatory statement to the measure also indicated that funds may be transferred to the OCB from appropriated ESF to restore OCB program reductions. Both Radio and TV Martí have at times been the focus of controversies, including questions about adherence to broadcast standards. There have been various attempts over the years to cut funding for the programs, especially for TV Martí, which has not had much of an audience because of Cuban jamming efforts. From 1990 through 2008, there were numerous government studies and audits of the OCB, including investigations by the GAO, by a 1994 congressionally established Advisory Panel on Radio and TV Martí, by the State Department Office Inspector General (OIG), and by the combined State Department/BBG Office Inspector General. In January 2009, GAO issued a report asserting that the best available research suggests that Radio and TV Martí's audience is small, and cited telephone surveys since 2003 showing that less than 2% of respondents reported tuning in to Radio or TV Martí during the past week. With regard to TV Martí viewership, according to the report, all of the IBB's telephone surveys since 2003 show that less than 1% of respondents said that they had watched TV Martí during the past week. According to the GAO report, the IBB surveys show that there was no increase in reported TV Martí viewership following the beginning of AeroMartí and DirecTV satellite broadcasting in 2006.The GAO report also cited concerns with adherence to relevant domestic laws and international standards, including the domestic dissemination of OCB programming, inappropriate advertisements during OCB programming, and TV Martí's interference with Cuban broadcasts. GAO testified on its report in a hearing held by the House Subcommittee on International Organizations, Human Rights, and Oversight of the Committee on Foreign Affairs on June 17, 2009. In April 2010, the Senate Foreign Relations Committee majority issued a staff report that concluded that Radio and TV Martí "continue to fail in their efforts to influence Cuban society, politics, and policy." The report cited problems with adherence to broadcast standards, audience size, and Cuban government jamming. Among its recommendations, the report called for the IBB to move the Office of Cuba Broadcasting back to Washington and integrate it fully into the Voice of America. In December 2011, GAO issued a report examining the extent to which the BBG's strategic plan for broadcasting required by the conference report to the FY2010 Consolidated Appropriations measure ( H.Rept. 111-366 to H.R. 3288 / P.L. 111-117 ) met the requirements established in the legislation. The BBG strategic plan was required to include (1) an analysis of the current situation in Cuba and an allocation of resources consistent with the relative priority of broadcasting to Cuba as determined by the annual Language Service Review and other factors; (2) the estimated audience sizes in Cuba for Radio and TV Martí and the sources and relative reliability of the data; (3) the cost of any and all types of TV transmission and the effectiveness of each in increasing such audience size; (4) the principal obstacles to increasing audience size; (5) an analysis of other options for disseminating news and information to Cuba and the cost effectiveness of each option; and (6) an analysis of the program efficiencies and effectiveness that can be achieved through shared resources and cost saving opportunities in radio and television production between Radio and TV Martí and the Voice of America. GAO found that the BBG's strategic plan lacked key information. Of the six requirements set forth in the conference report, the GAO found that the BBG's strategic plan fully addressed item (4) regarding the principal obstacles to increasing audience sized, but only partially addressed the other five items. The GAO report stated that the BBG can develop and provide more information to Congress, including an analysis of the cost savings opportunities of sharing resources between Radio and TV Martí and the Voice of America's Latin America Division. In May 2012, a controversy occurred involving an editorial by OCB Director Carlos García-Pérez in which he strongly criticized Cuban Cardinal Jaime Ortega and referred to the Cardinal as a "lackey" of the Cuban government. The strong language was criticized by several Members of Congress, who called for the Administration to reject the comments against Cardinal Ortega. The editorial raised significant questions about the editorial policy of OCB as well as OCB's adherence to broadcast standards. Such an editorial, authored by the director of OCB, could lead one to conclude that the views articulated were those of the U.S. government. BBG's Director of Communications and External Affairs Lynne Weil maintained that such "editorials, unless otherwise stated, represent the views of the broadcasters only and not necessarily those of the U.S. government." Cuba was added to the State Department's list of states sponsoring international terrorism in 1982 (pursuant to Section 6(j) of the Export Administration Act (EAA) of 1979; P.L. 96-72 ; 50 U . S . C . A ppendix 2504(j) ) because of its alleged ties to international terrorism and support for terrorist groups in Latin America, and it has remained on the list since that time. Under various provisions of law, certain trade benefits, most foreign aid, support in the international financial institutions, and other benefits are restricted or denied to countries named as state sponsors of international terrorism. Under the authority of Section 6(j) of the Export Administration Act, validated licenses are required for exports of virtually all items to countries on the terrorism list, except items specially allowed by public law, such as informational materials, humanitarian assistance, and food and medicine. Cuba had a long history of supporting revolutionary movements and governments in Latin America and Africa, but in 1992, Fidel Castro said that his country's support for insurgents abroad was a thing of the past. Cuba's change in policy was in large part due to the breakup of the Soviet Union, which resulted in the loss of billions of dollars in annual subsidies to Cuba, and led to substantial Cuban economic decline. Critics of retaining Cuba on the terrorism list maintain that it is a holdover from the Cold War. They argue that domestic political considerations keep Cuba on the terrorism list and maintain that Cuba's presence on the list diverts U.S. attention from struggles against serious terrorist threats. Those who support keeping Cuba on the terrorism list argue that there is ample evidence that Cuba supports terrorism. They point to the government's history of supporting terrorist acts and armed insurgencies in Latin America and Africa. They point to the government's continued hosting of members of foreign terrorist organizations and U.S. fugitives from justice. In its C ountry Reports on Terrorism 2013 report (issued April 30, 2014), the State Department stated that Cuba has long provided safe haven to members of the Basque Fatherland and Liberty (ETA) and the Revolutionary Armed Forces of Colombia (FARC). The report noted, however, that Cuba's ties to ETA have become more distant and that about eight of the two dozen ETA members in Cuba were relocated with the cooperation of the Spanish government. With regard to the FARC, the terrorism report noted that throughout 2012, the Cuban government supported and hosted peace negotiations between the FARC and the Colombian government. As in its 2011 and 2012 reports, the State Department stated in the 2013 terrorism report that "there was no indication that the Cuban government provided weapons or paramilitary training to terrorist groups." Another issue noted in the 2013 terrorism report that has been mentioned for many years in the annual report is Cuba's harboring of fugitives wanted in the United States. The report maintained that Cuba provided such support as housing, food ration books, and medical care for these individuals. U.S. fugitives from justice in Cuba include convicted murderers and numerous hijackers, most of whom entered Cuba in the 1970s and early 1980s. For example, Joanne Chesimard, also known as Assata Shakur, was added to the FBI's Most Wanted Terrorist list on May 2, 2013. Chesimard was part of militant group known as the Black Liberation Army. In 1977, she was convicted for the 1973 murder of a New Jersey State Police officer and sentenced to life in prison. Chesimard escaped from prison in 1979, and according to the FBI, lived underground before fleeing to Cuba in 1984. In addition to Chesimard and other fugitives from the past, a number of U.S. fugitives from justice wanted for Medicare and other types of insurance fraud reportedly have fled to Cuba in recent years. On November 6, 2013, William Potts, an American citizen who had hijacked an airplane from New Jersey to Havana in 1984, returned to the United States to face air-piracy charges; he had served 14 years in a Cuban jail for his crime. In the 113 th Congress, H.Res. 262 (King, NY), introduced in June 2013, calls for the immediate extradition or rendering of convicted felon William Morales and all other fugitives from justice who are receiving safe harbor in Cuba in order to escape prosecution or confinement for criminal offenses committed in the United States. Cuba in recent years has returned wanted fugitives to the United States on a case by case basis. For example, in 2011, U.S. Marshals picked up a husband and wife in Cuba who were wanted for a 2010 murder in New Jersey, while in April 2013, Cuba returned a Florida couple who had allegedly kidnapped their own children (who had been in the custody of the mother's parents) and fled to Havana. However, Cuba has generally refused to render to U.S. justice any fugitive judged by Cuba to be "political," such as Chesimard, who they believe could not receive a fair trial in the United States. Moreover, Cuba in the past has responded to U.S. extradition requests by stating that approval would be contingent upon the United States returning wanted Cuban criminals from the United States. These include the return of Luis Posada Carriles, whom Cuba accused of plotting the 1976 bombing of a Cuban jet that killed 73 people. Cuba had also long sought the return of a militant Cuban exile, Orlando Bosch, whom Cuba also accused of responsibility for the 1976 airplane bombing (Bosch died in Florida in 2011). The 2012 terrorism report, issued in May 2013, had noted that Cuba became a member of the Financial Action Task Force of South America (GAFISUD), a regional group associated with the multilateral Financial Action Task Force (FATF), in December 2012. As such, Cuba has committed to adopting and implementing the 40 recommendations of the FATF pertaining to international standards on combating money laundering and the financing of terrorism and proliferation. Cuba is scheduled to undergo a GAFISUD mutual evaluation in 2014 examining its compliance and implementation of the FATF recommendations. As set forth in Section 6(j) of the EAA, a country's retention on the state sponsors of terrorism list may be rescinded by the President in two ways. The first option is for the President to submit a report to Congress certifying that there has been a fundamental change in the leadership and policies of the government and that the government is not supporting acts of international terrorism and is providing assurances that it will not support such acts in the future. The second option is for the President to submit a report to Congress, at least 45 days in advance justifying the rescission and certifying that the government has not provided any support for international terrorism during the preceding six-months, and has provided assurances that it will not support such acts in the future. In addition to Section 6(j) of the EAA, there are two other provisions of law that authorize the designation of a foreign government as a state sponsor of acts of international terrorism: Section 620A of the Foreign Assistance Act (FAA) of 1961 ( 22 U . S . C . 2371 ) and Section 40 of the Arms Export Control Act (AECA) ( 22 U . S . C . 2780 ). Of the three statutes, only the AECA has an explicit provision allowing Congress to block, via the enactment of a joint resolution, a removal of a country on the list. (For further background, see CRS Report R43835, State Sponsors of Acts of International Terrorism—Legislative Parameters: In Brief , by [author name scrubbed].) Another potential option to remove Cuba from the state sponsors of terrorism list was set forth in H.R. 1917 (Rush) introduced in the 113 th Congress. Section 10 of the bill would have rescinded any determination of the Secretary of State in effect on the date of enactment of the Act that Cuba has repeatedly provided support for acts of international terrorism. The bill referenced all three statutes authorizing the designation of a country as a sponsor of acts of international terrorism: Section 6(j) of the EAA; Section 620A of the FAA; and Section 40 of the AECA. As noted above, President Obama announced on December 17, 2014, that he instructed Secretary of State Kerry to review Cuba's designation as a state sponsor of terrorism, with the review "guided by the facts and the law." The President stated that "at a time when we are focused on threats from al Qaeda to ISIL, a nation that meets our conditions and renounces the use of terrorism should not face this sanction." A White House fact sheet indicated that the Secretary of State was to provide a report to the President within six months regarding Cuba's support for international terrorism. Cuba and the United States reached two migration accords in 1994 and 1995 designed to stem the mass exodus of Cubans attempting to reach the United States by boat. On the minds of U.S. policy makers was the 1980 Mariel boatlift in which 125,000 Cubans fled to the United States with the approval of Cuban officials. In response to Fidel Castro's threat to unleash another Mariel, U.S. officials reiterated U.S. resolve not to allow another exodus. Amid escalating numbers of fleeing Cubans, on August 19, 1994, President Clinton abruptly changed U.S. migration policy, under which Cubans attempting to flee their homeland were allowed into the United States, and announced that the U.S. Coast Guard and Navy would take Cubans rescued at sea to the U.S. naval base at Guantanamo Bay, Cuba. Despite the change in policy, Cubans continued fleeing in large numbers. As a result, in early September 1994, Cuba and the United States began talks that culminated in a September 9, 1994, bilateral agreement to stem the flow of Cubans fleeing to the United States by boat. In the agreement, the United States and Cuba agreed to facilitate safe, legal, and orderly Cuban migration to the United States, consistent with a 1984 migration agreement. The United States agreed to ensure that total legal Cuban migration to the United States would be a minimum of 20,000 each year, not including immediate relatives of U.S. citizens. In May 1995, the United States reached another accord with Cuba under which the United States would parole the more than 30,000 Cubans housed at Guantanamo into the United States, but would intercept future Cuban migrants attempting to enter the United States by sea and would return them to Cuba. The two countries would cooperate jointly in the effort. Both countries also pledged to ensure that no action would be taken against those migrants returned to Cuba as a consequence of their attempt to immigrate illegally. On January 31, 1996, the Department of Defense announced that the last of some 32,000 Cubans intercepted at sea and housed at Guantanamo had left the U.S. Naval Station, most having been paroled into the United States. Since the 1995 migration accord, the U.S. Coast Guard has interdicted thousands of Cubans at sea and returned them to their country. Those Cubans who reach shore are allowed to apply for permanent resident status in one year, pursuant to the Cuban Adjustment Act of 1966 (P.L. 89-732). In short, most interdictions, even in U.S. coastal waters, result in a return to Cuba, while those Cubans who touch shore are allowed to stay in the United States. This so-called "wet foot/dry foot" policy has been criticized by some as encouraging Cubans to risk their lives in order to make it to the United States and as encouraging alien smuggling. Others maintain that U.S. policy should welcome those migrants fleeing communist Cuba whether or not they are able to make it to land. The number of Cubans interdicted at sea by the U.S. Coast Guard rose from 666 in FY2002 to a high of 2,868 in FY2007. In the three subsequent years, maritime interdictions declined significantly to 422 by FY2010 (see Figure 6 ). Major reasons for the decline were reported to include the U.S. economic downturn, more efficient coastal patrolling, and more aggressive prosecution of migrant smugglers by both the United States and Cuba. From FY2011 to FY2014, however, the number of Cubans interdicted by the Coast Guard increased each year, from 985 in FY2011 to 2,059 in FY2014. Speculation on the reasons for the increase included Cuba's poor economic and political situation; the Coast Guard's more efficient methods of interdiction; and the easing of the economic situation in the United States, making it easier for the payment of fees to migrant smugglers. The U.S. State Department reports that timely and clear communication between the U.S. Coast Guard and the Cuban Border Guard (TGF) also has been a factor in increasing the rate of migrant interdiction (from 39% in FY2010 to 60% in FY2013), with the TGF providing more operationally relevant information than in the past. Despite the U.S. Coast Guard's maritime interdiction program, thousands of unauthorized Cubans reach the United States each year, either by boat or, especially, at land ports of entry. U.S. Border Patrol apprehensions between ports of entry (largely coastal Florida) of unauthorized Cubans were 910 in FY2009, 712 in FY2010, 959 in FY2011, and 606 in FY2012. These statistics are significantly lower than the FY2005-FY2008 period when Border Patrol apprehensions of Cubans averaged over 3,700 each year. According to the State Department, Cubans continue to favor land-based entry at U.S. ports of entry, especially from Mexico, even though Mexico and Cuba negotiated a migration accord in 2008 an attempt to curb the irregular flow of Cuban migrants through Mexico. In FY2012, 11,383 Cubans presented themselves at land border ports of entry (with more than 90% at the southwest border), while in FY2013, that figure rose to 14,251 Cubans (with 85% at the southwest border). Press reports indicate that the number of Cubans entering the United States via the southwest border is increasing further in FY2014, with more than 13,500 as of July 2014. Semi-annual U.S.-Cuban talks alternating between Cuba and the United States were held on the implementation of the 1994/1995 migration accords until they were suspended by the United States in 2004. The Obama Administration re-started the talks in 2009, and there were four rounds of talks until January 2011. In addition to migration issues, the talks became a forum to raise other issues of concern, including, for U.S. officials, the imprisonment of Alan Gross. After an 18-month hiatus, another round of migration talks was held on July 17, 2013, in Washington, DC. After the talks, the State Department issued a statement maintaining that the agenda reflected long-standing U.S. priorities on Cuba migration issues and highlighted areas of successful cooperation in migration, including advances in aviation safety and visa processing and identifying needed actions to ensure that the goals of the accord are fully met, especially with regard to safeguarding the lives of intending immigrants. The State Department also reiterated the call for the immediate release of Alan Gross. The Cuban delegation maintained that the meeting took place in a climate of respect and reviewed joint actions to deter illegal migration and alien smuggling. The delegation also noted that Cuba had recently (June 20, 2013) ratified the "Protocol Against the Smuggling of Migrants by Land, Sea, and Air," and the "Protocol to Prevent, Suppress, and Punish Trafficking in Persons, especially Women and Children," both supplements to the U.N. Convention against Transnational Organized Crime. The delegation also said that alien smuggling could not be eliminated as long as the U.S. "wet foot/dry foot policy" and the Cuban Adjustment Act were in place encouraging illegal immigration. Since then, two more rounds of migration talks have been held—on January 9, 2014, and July 9, 2014. Following the talks, both sides issued positive statements noting the issues covered. The State Department noted that the agenda for the meetings included cooperation on aviation security, search and rescue, consular document fraud, and visa processing. Cuba's Ministry of Foreign Affairs reported that it expressed concern about difficulties with its consular services in the United States because of the interruption of its banking services. The Cuban delegation also expressed satisfaction that both governments had agreed earlier in July to enforce technical operation procedures for search and rescue operations in order to saves lives. On two occasions since late 2013, Cuba had suspended its consular services (e.g., passports, passport renewals, visas) in the United States because it has not been able to find a replacement financial institution to replace M&T Bank, which had decided to stop offering bank services to Cuba's diplomatic missions. According to press reports, the State Department has maintained that it has been working with Cuba to help resolve the issue. The first suspension of services began November 26, 2013, but the services were restored on December 9 after M&T Bank postponed closing the accounts of its diplomatic missions in Washington, DC, and New York until March 1, 2014. The second suspension of services began on February 14, 2014, but Cuba's diplomatic missions in the United States reportedly had again resumed all consular services by mid-May 2014 even though Cuba had reportedly still not found a bank to replace M&T. In October 2012, the Cuban government announced that it would be updating its migration policy, effective January 14, 2013, by eliminating the long-standing policy of requiring an exit permit and letter of invitation from abroad for Cubans to travel abroad. Cubans are now able to travel abroad with just an updated passport and a visa issued by the country of destination, if required. Under the change in policy, Cubans can travel abroad for up to two years without forgoing their rights as Cuban citizens. The practice of requiring an exit permit had been extremely unpopular in Cuba and the government had been considering doing away with the practice for some time. The Cuban government said that it would fight against "brain drain," and that the new policy would not apply to scientists, athletes, and other professionals. In early January 2013, however, the Cuban government announced that the new travel policy would also apply to health care professionals, including doctors. When the new policy went into effect on January 14, 2013, thousands of Cubans lined up at government migration offices and travel agencies. Travel under the new policy requires an updated passport as well as any visas required by the receiving countries. A U.S. State Department spokesman said that it welcomed any changes that would allow Cubans to depart from and return to their country freely. According to the State Department, Cuba's announced change is consistent with the Universal Declaration of Human Rights in that everyone should have the rights to leave any country, including their own, and return. As noted above, Internet blogger Yoani Sánchez and several other prominent dissidents and human rights activists have traveled abroad because of Cuba's new migration policy. In light of Cuba's new travel policy, some analysts have raised the question as to whether the United States should review its policy toward Cuban migrants, as set forth in the Cuban Adjustment Act of 1966 (P.L. 89-732), in which those Cubans arriving in the United States are allowed to apply for permanent resident status in one year. Effective August 1, 2013, the State Department made non-immigrant B-2 visas issued to Cubans for family visits, tourism, medical treatment, or other personal travel valid for five years with multiple entries. Previously these visas had been restricted to single entry for six months, and an extensive visa interview backlog had developed at the U.S. Interests Section in Havana. State Department officials maintain that the change increases people-to-people ties and removes procedural and financial burdens on Cuban travelers. Cuba is not a major producer or consumer of illicit drugs, but its extensive shoreline and geographic location make it susceptible to narcotics smuggling operations. Drugs that enter the Cuban market are largely the result of onshore wash-ups from smuggling by high-speed boats moving drugs from Jamaica to the Bahamas, Haiti, and the United States or by small aircraft from clandestine airfields in Jamaica. For a number of years, Cuban officials have expressed concerns over the use of their waters and airspace for drug transit and about increased domestic drug use. The Cuban government has taken a number of measures to deal with the drug problem, including legislation to stiffen penalties for traffickers, increased training for counternarcotics personnel, and cooperation with a number of countries on anti-drug efforts. According to the State Department's 2014 International Narcotics Control Strategy Report (INCSR) , issued February 28, 2014, Cuba has a number of anti-drug-related agreements in place with other countries, including 35 bilateral agreements for counterdrug cooperation and 27 policing cooperation agreements. Since 1999, Cuba's Operation Hatchet has focused on maritime and air interdiction and the recovery of narcotics washed up on Cuban shores. As reported in the INCSR , Cuba reported interdicting 3.05 metric tons of illegal narcotics in 2012, with the overwhelming majority consisting of wash ups. Since 2003, Cuba has aggressively pursued an internal enforcement and investigation program against its incipient drug market with an effective nationwide drug prevention and awareness campaign. Over the years, there have been varying levels of U.S.-Cuban cooperation on anti-drug efforts. In 1996, Cuban authorities cooperated with the United States in the seizure of 6.6 tons of cocaine aboard the Miami-bound Limerick , a Honduran-flag ship. Cuba turned over the cocaine to the United States and cooperated fully in the investigation and subsequent prosecution of two defendants in the case in the United States. Cooperation has increased since 1999 when U.S. and Cuban officials met in Havana to discuss ways of improving anti-drug cooperation. Cuba accepted an upgrading of the communications link between the Cuban Border Guard and the U.S. Coast Guard as well as the stationing of a U.S. Coast Guard Drug Interdiction Specialist (DIS) at the U.S. Interests Section in Havana. The Coast Guard official was posted to the U.S. Interests Section in September 2000, and since that time, coordination has increased. According to the 2014 INCSR , the Coast Guard shares tactical information related to narcotics trafficking on a case by case basis, and responds to Cuban information on vessels transiting through Cuban territorial seas suspected of smuggling. The report maintained that law enforcement communication gradually increased in frequency and transparency in 2013, especially concerning efforts to target drug trafficking at sea. The United States and Cuba held a "professional exchange between experts" on maritime drug interdiction that included tours of facilities, unit capabilities, and possible future joint coordination. Cuba maintains that it wants to cooperate with the United States to combat drug trafficking, and on various occasions has called for a bilateral anti-drug cooperation agreement with the United States. In the 2011 INCSR (issued in March 2011) the State Department acknowledged that Cuba had presented the U.S. government with a draft bilateral accord for counternarcotics cooperation that is still under review. According to the State Department in the INCSR : "Structured appropriately, such an accord could advance the counternarcotics efforts undertaken by both countries." The report maintained that greater cooperation among the United States, Cuba, and its international partners—especially in the area of real-time tactical information-sharing and improved tactics, techniques, and procedures—would likely lead to increased interdictions and disruptions of illegal trafficking. These positive U.S. statements regarding a potential bilateral anti-drug cooperation agreement and greater multilateral cooperation in the region with Cuba were reiterated in the 2012, 2013, and 2014 INCSR s . At a February 1, 2012, hearing before the Senate Caucus on International Narcotics Control on U.S.-Caribbean security cooperation, Caucus Chairman Senator Dianne Feinstein stated that "this limited cooperation we do have between our Coast Guard and Cuban authorities has been very useful, and I hope we can find ways to increase our counternarcotics cooperation with Cuba." The caucus released a report on September 13, 2012, in which Senator Feinstein recommended that the Obama Administration consider taking four steps to increase U.S. collaboration with Cuba on counternarcotics: (1) expand the U.S. Coast Guard and law enforcement presence at the U.S. Interests Section in Havana; (2) establish protocols for direct ship-to-ship communication between the U.S. Coast Guard and the Cuban Border Guard; (3) negotiate a bilateral counternarcotics agreement with Cuba; and (4) allow for Cuba's participation in the U.S.-Caribbean Security Dialogue. Cuba suffered setbacks in 2012 in working toward development of its offshore oil resources when three attempts by foreign oil companies drilling wells were unsuccessful. While the country has proven oil reserves of just 0.1 billion barrels, the U.S. Geological Survey estimates that offshore reserves in the North Cuba Basin could contain an additional 4.6 billion barrels of undiscovered technically recoverable crude oil. If oil is found, some experts estimate that it would take at least three to five years before production would begin. While it is unclear whether eventual offshore oil production could result in Cuba becoming a net oil exporter, it could reduce Cuba's current dependence on Venezuela for oil supplies. As noted above, Venezuela provides Cuba with some 100,000 barrels of oil per day. In 2012, Cuba produced about 51,000 barrels of oil per day on its own, with most production occurring onshore, and consumed 171,000 barrels of oil per day, according to the U.S. Energy Information Administration. Cuba has had several offshore deepwater oil projects involving foreign companies in some 23 exploration blocs. The Spanish oil company Repsol, in a consortium with Norway's Statoil and India's Oil and Natural Gas Corporation (ONGC), began offshore exploratory drilling in late January 2012, using an oil rig known as the Scarabeo-9 (owned by an Italian oil services provider, Saipem, a subsidiary of the Italian oil company ENI). On May 18, 2012, however, Repsol announced that its exploratory well came up dry, and the company subsequently departed Cuba in 2013. In late May 2012, the Scarabeo-9 oil rig was used by the Malaysian company Petronas in cooperation with the Russian company Gazprom to explore for oil in a block off the coast of western Cuba. On August 6, 2012, however, Cuba announced that that the well was found not to be commercially viable because of its compact geological formation. In September 2012, the Venezuelan oil company, PdVSA, announced that it had started exploring for oil off the coast of western Cuba, but on November 2, 2012, Cuba announced that the well was not commercially viable. Brazil's Petrobras signed an agreement in 2008 for the development of an offshore block, but announced its withdrawal in March 2011. Other foreign oil companies that have had exploration agreements for offshore blocks include PetroVietnam, Sonangol (Angola), and ONGC (India). Russian energy companies Rosneft and Zarubezhneft signed an agreement with Cuba's state oil company CubaPetroleo (Cupet) on July 11, 2014, reportedly for the same exploration block that Petrobras had been involved in. As a result of the three unsuccessful wells in 2012, the Scarabeo-9 oil rig left Cuba in November 2012. Most observers maintain that the failure of the three wells was a significant setback for the Cuban government's efforts to develop its deepwater offshore hydrocarbon resources. Some oil experts maintain that it could be years before companies decide to return to drill again in Cuba's offshore deepwaters. While Russian energy companies Rosneft and Zarubezhneft agreed in July 2014 to work jointly on an offshore block, some observers are skeptical about the prospects for the project. In December 2012, Zarubezhneft began drilling an exploratory oil well in a north coastal block (in shallow waters, not deepwater exploration) east of Havana off Cayo Coco, a Cuban tourist resort area. The project was expected to be completed by June 2013, but because of technical problems with the rig and difficult geology, the oil rig being used (known as the Songa Mercur operated by Songa Offshore, a Norwegian oil rig company) stopped work in early April 2013, and left Cuba in June 2013. In the aftermath of the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, some Members of Congress and others expressed concern about Cuba's development of its deepwater petroleum reserves so close to the United States. They were concerned about oil spill risks and about the status of disaster preparedness and coordination with the United States in the event of an oil spill. Dealing with these challenges is made more difficult because of the long-standing poor state of relations between Cuba and the United States. If an oil spill did occur in the waters northwest of Cuba, currents in the Florida Straits could carry the oil to U.S. waters and coastal areas in Florida, although a number of factors would determine the potential environmental impact. If significant amounts of oil did reach U.S. waters, marine and coastal resources in southern Florida could be at risk. The final report of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, issued in January 2011, maintained that since Mexico already drills in the Gulf of Mexico and Cuba has expressed an interest in deepwater drilling in the Gulf of Mexico, that it is in the U.S. national interest to negotiate with these countries to agree on a common, rigorous set of standards, a system of regulatory oversight, and operator adherence to an effective safety culture, along with protocols to cooperate on containment and response strategies in case of a spill. With regard to disaster response coordination, while the United States and Cuba are not parties to a bilateral agreement on oil spills, both countries are signatories to multilateral agreements that commit the two parties to prepare for and cooperate on potential oil spills. Under the auspices of the International Maritime Organization (IMO), the United States and Cuba have participated in regional meetings every few months since 2011 regarding oil spill prevention, preparedness, and response that have allowed information sharing among nations, including the United States and Cuba. Other countries participating have included Mexico, the Bahamas, and Jamaica. After numerous rounds of meetings, in March 2014, the countries finalized a document known as the Wider Caribbean Region Multilateral Technical Operating Procedures for Offshore Oil Pollution Response (MTOP), which consists of information of what would need to be done and coordinated in the case of international response to an oil spill. U.S. oil spill mitigation companies can be licensed by the Treasury and Commerce Departments to provide support and equipment in the event of an oil spill. In addition, the U.S. Coast Guard has obtained licenses from Treasury and Commerce that allow it "to broadly engage in preparedness and response activities, and positions" the agency "to direct an immediate response in the event of a catastrophic oil spill." Some energy and policy analysts, however, have called for the Administration to ease regulatory restrictions on private companies for the transfer of U.S. equipment and personnel to Cuba needed to prevent and combat a spill if it occurs. Interest in Cuba's offshore oil development was strong in the 112 th Congress, particularly over concerns about a potential oil spill, with three congressional hearings held and eight legislative initiatives introduced taking different approaches, none of which were enacted. The various policy approaches included sanctioning foreign companies investing in or supporting Cuba's oil development; requiring the Secretary of the Interior to make recommendations on a joint contingency plan with Mexico, Cuba, and the Bahamas to ensure an adequate response to oil spills; and authorizing U.S. companies to engage in oil spill prevention and clean-up activities in Cuba's offshore oil sector as well as broader exploration and extraction activities. Since 2000, some 15 individuals, including two U.S. government officials, have been convicted in the United States on charges involving spying for Cuba. In June 2009, the FBI arrested a retired State Department employee and his wife, Walter Kendall Myers and Gwendolyn Steingraber Myers, for spying for Cuba for three decades. The two were accused of acting as agents of the Cuban government and of passing classified information to the Cuban government. In November 2009, the Myerses pled guilty to the spying charges, and in July 2010 Kendall Myers was sentenced to life in prison while Gwendolyn Myers was sentenced to 81 months. In 2006, Florida International University (FBI) professor Carlos Alvarez pled guilty to conspiring to be an unregistered agent who had reported on the Cuban exile community, while his wife Elsa Prieto Alvarez, an FIU counselor, pled guilty to being aware of and failing to disclose her husband's activities. Carlos Alvarez received a five-year sentence, while his wife received three years. In May 2003, the Bush Administration ordered the expulsion of 14 Cuban diplomats (7 from New York and 7 from Washington, DC), maintaining that they were involved in monitoring and surveillance activities. The U.S. intelligence community reportedly had been incensed that Cuba's spies had been stealing information on preparations for the U.S. invasion of Iraq and passing them to the Iraqi government. On September 21, 2001, Defense Intelligence Agency (DIA) analyst Ana Montes was arrested on charges of spying for the Cuban government. Montes reportedly supplied Cuba with classified information about U.S. military exercises and other sensitive operations. Montes ultimately pled guilty to spying for the Cuban government for 16 years, during which she divulged the names of four U.S. government intelligence agents working in Cuba and information about a "special access program" related to U.S. national defense. She was sentenced in October 2002 to 25 years in prison in exchange for her cooperation with prosecutors as part of a plea bargain. In response to the espionage case, the State Department ordered the expulsion of four Cuban diplomats (two from Cuba's U.N. Mission in New York and two from the Cuban Interests Section in Washington, DC) in November 2002. In another case related to that of Ana Montes, in April 2013, the Department of Justice unsealed a 2004 indictment charging a former USAID official, Marta Rita Velazquez, with espionage stemming from her role in introducing Montes to the Cuban Intelligence Service in 1984, facilitating Montes's recruitment by Cuban intelligence, and helping Montes gain employment at the DIA. Velazquez joined USAID in 1989 serving as a legal office with responsibilities encompassing Central America, and was also posted to U.S. Embassies in Nicaragua and Guatemala. She resigned from USAID in June 2002 when it was announced that Montes had pled guilty, and moved to Sweden where she remains. In June 2001, five members of the so-called "Wasp Network" originally arrested in September 1998 were convicted on espionage charges by a U.S. Federal Court in Miami. Sentences handed down for the "Cuban five" in December 2001 ranged from 15 years to life in prison for three of the five. The group of five Cuban intelligence agents—Gerardo Hernández, Ramón Labañino, Antonio Guerrero, Fernando González, and René González—penetrated Cuban exile groups and tried to infiltrate U.S. military bases. All five were convicted for various offenses, including acting and conspiring to act as unregistered Cuban intelligence agents in the United States; fraud and misuse of identity documents; and in the case of three (Hernández, Labañino, and Guerrero), conspiracy to gather and transmit national defense information. The five did not deny acting as unregistered Cuban agents, but maintain that their role was to focus on Cuban exile groups responsible for hostile acts against Cuba and potential signs of U.S. military action against Cuba. Gerardo Hernández, who received two life sentences, also was convicted for conspiracy to commit murder for the alleged role he played in the deaths of four pilots of the Cuban American group, Brothers to the Rescue (BTTR), when two small planes they were flying were shot down by the Cuban Air Force in February 1996. The group was known primarily for its humanitarian mission of spotting Cubans fleeing their island nation on rafts, but had also become active in flying over Cuba and dropping anti-government leaflets. The Cuban government vowed to work for the return of the "Cuban five," who have been dubbed "Heroes of the Republic" by Cuba's National Assembly. In December 2008, Cuban President Raúl Castro offered to exchange some imprisoned Cuban political dissidents for the "Cuban five," an offer that was rejected by the State Department, which maintained that the dissidents should be released immediately without any conditions. In June 2009, the U.S. Supreme Court chose not to hear an appeal of the case of the "Cuban five" in which their lawyers were asking for a new trial outside Miami before an unbiased jury. Later in 2009, however, sentences for three of the five were reduced: Ramón Labañino had his life sentence reduced to 30 years; Antonio Guerrero had his life sentence reduced to 21 years and 10 months; and Fernando González had his 19-year sentence reduced to 17 years and 9 months. The sentence of two life terms for Gerardo Hernández, however, was not reduced. During the 113 th Congress, two of the "Cuban five" were released from prison after serving their sentences (with time off for good behavior) and returned to Cuba. René González, who received a 15-year sentence, was released from prison in October 2011 because of time off for good behavior, but still faced three years of probation; a judge ruled that he had to serve it in the United States. In March 2012, González was allowed by a federal judge in Florida to visit his dying brother in Cuba for a period of two weeks, after which he returned to the United States. González was permitted to return to Cuba on April 22, 2013, for a period of two weeks in the aftermath of his father's death, but a U.S. federal judge ruled in early May 2013 that González could stay in Cuba if he renounced his U.S. citizenship (he was a dual national), which he subsequently did at the U.S. Interests Section in Havana. Fernando González was released on February 27, 2014, and was swiftly returned to Cuba a day later, where he received a hero's welcome. Of the three remaining members of the "Cuban five," Antonio Guerrero and Ramón Labañino potentially could have been released in 2017 and 2024, respectively, while Gerardo Hernández continued to face two life terms. On December 17, 2014, President Obama announced that the remaining three Cuban spies in U.S. prison were released in exchange for Cuba's release of "one of the most important intelligence assets that the United States has ever had in Cuba" who was imprisoned in Cuba for nearly two decades. Media reports identified the U.S. intelligence asset as Rolando Sarraff Trujillo, a cryptographer in Cuba's Directorate of Intelligence, who reportedly provided information that helped the FBI dismantle three Cuban spy networks in the United States. In 2012, Cuba had begun linking the release of the "Cuban five" to the release of Alan Gross, the U.S. government subcontractor detained in 2009 and sentenced to 15 years in prison for his work on U.S. government-sponsored democracy projects. The United States rejected such linkages, maintaining there was no equivalence between the cases, and U.S. officials repeatedly called for Gross's release on humanitarian grounds. As noted above, this occurred on December 17, 2014, at the same time that the remaining Cuban spies were released in exchange for the U.S. intelligence asset. (Also see " Imprisonment and Ultimate Release of USAID Subcontractor Alan Gross " above.) For information on legislative initiatives on Cuba in the 112 th Congress, see CRS Report R41617, Cuba: Issues for the 112 th Congress . P.L. 113-6 ( H.R. 933 ). Consolidated and Further Continuing Appropriations Act, 2013. Provides continued funding for Cuba democracy and human rights projects and Cuba broadcasting (Radio and TV Martí) for FY2013. Signed into law March 26, 2013. P.L. 113-76 ( H.R. 3547 ) . Consolidated Appropriations Act, 2014. (Joint explanatory statement available from the House Committee on Rules, http://rules.house.gov/bill/113/hr-3547-sa ). Signed into law January 17, 2014. Provides funding for Cuba democracy and human rights projects and Cuba broadcasting (Radio and TV Martí) for FY2014. With regard to democracy and human rights funding, Division K, Title VII, Section 7045(b) of the law provides up to $17.5 million in Economic Support Funds (ESF) for programs and activities in Cuba and stipulates that no ESF appropriated under the act may be obligated by USAID for any new programs or activities in Cuba. The joint explanatory statement to the bill states that of the $17.5 million, not less than $7.5 million shall be provided directly to the National Endowment for Democracy, and not more than $10 million shall be administered by the State Department's Bureau of Democracy, Human Rights, and Labor and Bureau of Western Hemisphere Affairs. With regard to Cuba broadcasting, the joint explanatory statement provides (pursuant to Section 7019 of the law) $27.043 million. Also see H.R. 2786 , S. 1371 , H.R. 2855 , and S. 1372 below. P.L. 113-235 ( H.R. 83 ). Consolidated and Further Continuing Appropriations Act, 2015. Signed into law December 16, 2014. Division J provides funding for Cuba democracy projects and Cuba broadcasting for FY2015. With regard to democracy funding, the law measure stated that Economic Support Funds should be made available for programs in Cuba, but did not specify an amount (the Administration had requested $20 million). The explanatory statement to the measure provides for $27.130 million to be provided for Cuba broadcasting (the Administration had requested $23.130 million), but also indicated that funds may be transferred to the Office of Cuba Broadcasting (Broadcasting Board of Governors) from appropriated Economic Support Funds to restore OCB program reductions. H.R. 214 (Serrano). Cuba Reconciliation Act. Would have lifted the trade embargo on Cuba. Introduced January 4, 2013; referred to the Committee on Foreign Affairs, and in addition to the Committees on Ways and Means, Energy and Commerce, Financial Services, the Judiciary, Oversight and Government Reform, and Agriculture. H.R. 215 (Serrano). Baseball Diplomacy Act. Would have waived certain prohibitions with respect to nationals of Cuba coming to the United States to play organized professional baseball. Introduced January 4, 2013; referred to the Committee on Foreign Affairs, and in addition to the Committee on the Judiciary. H.R. 778 (Issa) / S. 647 (Nelson). No Stolen Trademarks Honored in America Act. Identical bills would have modified a 1998 prohibition (Section 211 of Division A, Title II, P.L. 105-277 ) by U.S. courts of certain rights relating to certain marks, trade names, or commercial names. The 1998 prohibition or sanction prevents trademark registrations and renewals from Cuban or foreign nations that were used in connection with a business or assets in Cuba that were confiscated, without the consent of the original owner. The bill would have applied a fix so that the sanction would have applied to all nationals and would bring the sanction into compliance with a 2002 World Trade Organization dispute settlement ruling. H.R. 778 introduced February 15, 2013; referred to the Committee on the Judiciary. S. 647 introduced March 21, 2013; referred to the Committee on the Judiciary. H.R. 871 (Rangel). Export Freedom to Cuba Act of 2013. Would have allowed travel between the United States and Cuba. Introduced February 27, 2013; referred to the Committee on Foreign Affairs. H.R. 872 (Rangel). Free Trade with Cuba Act. Would have lifted the trade embargo on Cuba. Introduced February 27, 2013; referred to the Committee on Foreign Affairs, and in addition to the Committees on Ways and Means, Energy and Commerce, the Judiciary, Financial Services, Oversight and Government Reform, and Agriculture. H.R. 873 (Rangel). Promoting American Agriculture and Medical Exports to Cuba Act of 2013. Would have facilitated the export of U.S. agricultural products to Cuba, removed impediments to the export of medical devices and medicines to Cuba, allowed travel to Cuba by U.S. legal residents, and established an agricultural export promotion program with respect to Cuba. Introduced February 27, 2013; referred to the Committee on Foreign Affairs, and in addition to the Committees on Ways and Means, the Judiciary, Agriculture, and Financial Services. H.R. 1917 (Rush). United States-Cuba Normalization Act of 2013. The bill would have lifted the U.S. trade embargo on Cuba; repealed a 1998 trademark sanction (Section 211 of Division A, Title II, P.L. 105-277 ); prohibited restrictions on travel to Cuba; called on the President to conduct negotiations with Cuba to settle property claims of U.S. nationals for confiscated property and secure the protection of internationally recognized human rights; extended nondiscriminatory trade treatment to the products of Cuba; prohibited any limitations on annual remittances to Cuba; removed Cuba from the state sponsors of terrorism list; and called for the immediate and unconditional release of Alan Gross and, until then, would have urged Cuba to allow Mr. Gross to choose a doctor to provide him with an independent medical assessment. The amendments made by this Act would have taken effect 60 days after its enactment or 60 days after the President certified to Congress that Alan Gross had been released by Cuba, whichever occurred later. Introduced May 9, 2013; referred to the Committee on Foreign Affairs, and in addition to the Committees on Ways and Means, Energy and Commerce, the Judiciary, Financial Services, Oversight and Government Reform, and Agriculture. H.R. 2786 (Crenshaw )/ S. 1371 (Udall, NM). FY2014 Financial Services and General Government Appropriations Act. Both bills had contrasting provisions regarding U.S. travel to Cuba, but none of these provisions were included in the FY2014 omnibus appropriations measure, P.L. 113-76 , noted above. H.R. 2786 introduced and reported by the House Appropriations Committee ( H.Rept. 113-172 ) July 23, 2013. Section 124 would have prohibited FY2014 funding used "to approve, license, facilitate, authorize, or otherwise allow" travel-related or other transactions related to nonacademic educational exchanges (i.e., people-to-people travel) to Cuba set forth in 31 C . F . R . 515.565(b)(2) of the CACR. Section 125 of the House bill would have required a Treasury Department report within 90 days of the bill's enactment with information for each fiscal year since FY2007 on the number of travelers visiting close relatives in Cuba; the average duration of these trips; the average amount of U.S. dollars spent per family traveler (including amount of remittances carried to Cuba); the number of return trips per year; and the total sum of U.S. dollars spent collectively by family travelers for each fiscal year. S. 1371 introduced and reported by the Senate Appropriations Committee ( S.Rept. 113-80 ) July 25, 2013. Section 628 would have provided for a new general license for travel-related transactions for full-time professional research; attendance at professional meetings if the sponsoring organization was a U.S. organization; and the organization and management of professional meetings and conferences in Cuba if the sponsoring organization was a U.S. professional organization— if the travel was related to disaster prevention, emergency preparedness, and natural resource protection, including for fisheries, coral reefs, and migratory species. H.R. 2855 (Granger)/ S. 1372 (Leahy). FY2014 Department of State, Foreign Operations, and Related Programs Appropriations Act. H.R. 2855 introduced and reported ( H.Rept. 113-185 ) July 30, 2013. S. 1372 introduced and reported ( S.Rept. 113-81 ) July 25, 2013. The House version would have provided that $20 million in ESF assistance ($5 million more than the Administration's request) be transferred to the National Endowment for Democracy "to promote democracy and strengthen civil society in Cuba," while the Senate version would have provided that ESF assistance appropriated for Cuba only be made available "for humanitarian assistance and to support the development of private business." The House version would also have provided $28.266 million for Cuba broadcasting (Radio and TV Martí), while S. 1372 would have provided $23.804 million, the same amount as the Administration's request. For final action, see the FY2014 omnibus appropriations measure, P.L. 113-76 , described above. H.R. 3585 (Smith, NJ). Walter Patterson and Werner Foerster Justice and Extradition Act. Would have required the President, within 270 days after enactment of the Act and each year after that, to submit a report to the appropriated congressional committees on fugitives currently residing in other countries whose extradition is sought by the United States. Introduced November 21, 2013; referred to the House Committee on Foreign Affairs. H.R. 4194 (Issa) / S. 2109 (Warner)/. Government Reports Elimination Act of 2014. As introduced, Section 1501 of the House bill and Section 2413 of the Senate bill would have repealed a reporting requirement regarding commerce with, and assistance to, Cuba from other foreign countries set forth in Section 108 of the Cuban Liberty and Democratic Solidarity Act of 1996 ( 22 U . S . C . 6038 ). S. 2109 introduced March 11, 2014; referred to the Committee on Homeland Security and Governmental Affairs. H.R. 4194 introduced March 11, 2014; reported by the House Committee on Oversight and Government Reform ( H.Rept. 113-419 ) and passed House by voice vote April 28, 2014, with the Cuba report elimination provision in Section 1401; Senate passed H.R. 4194 , amended, without the Cuba report elimination provision, by Unanimous Consent on September 16, 2014; House agreed to the amended Senate version by a vote of 382-0 on November 12, 2014. H.R. 5013 (Granger)/ S. 2499 (Leahy). FY2015 Department of State, Foreign Operations, and Related Programs Appropriations Act. H.R. 5013 introduced and reported ( H.Rept. 113-499 ) by the House Committee on Appropriations June 27, 2014. S. 2499 introduced and reported ( S.Rept. 113-195 ) June 19, 2014. As reported, H.R. 5013 would have made available $20 million in Economic Support Funds (ESF) "to promote democracy and strengthen civil society in Cuba" while S. 2499 , as reported, would have provided up to $10 million in for programs in Cuba an additional $5 million for USAID programs to provide technical and other assistance to support the development of private businesses in Cuba; the Administration had requested $20 million for Cuba democracy programs. With regard to Cuba broadcasting, H.R. 5013 would have provided not less than $28.266 million for the Office of Cuba Broadcasting (OCB) while S. 2499 would provide $23.130 million, the same amount requested by the Administration. The report to the Senate bill would also encourage the Secretary of State to work with Secretary of the Treasury and the Secretary of Commerce to explore options for increased engagement with Cuban scientists to help protect the Gulf of Mexico and U.S. shorelines from environmental harm caused by oil and gas exploration and to promote scientific advances beneficial to both countries and the region. For final action, see Division J of the FY2015 omnibus appropriations measure, P.L. 113-235 , described above. H.R. 5016 (Crenshaw). FY2015 Financial Services and General Government Appropriations Act. Introduced and reported by the House Committee on Appropriations ( H.Rept. 113-508 ) July 2, 2014. House passed (228-195) July 16, 2014. As approved, Section 126 of the bill would have prevented any funds in the Act from being used to approve, license, facilitate, authorize or otherwise allow people-to-people travel set forth in 31 C . F . R . 515.565(b)(2) of the CACR; Section 127 would have required a joint report from the Secretary of the Treasury and the Secretary of Homeland Security within 90 days of the bill's enactment with information for each fiscal year since FY2007 on the number of travelers visiting close relatives in Cuba; the average duration of these trips; the average amount of U.S. dollars spent per family traveler (including amount of remittances carried to Cuba); the number of return trips per year; and the total sum of U.S. dollars spent collectively by family travelers for each fiscal year. Ultimately, Congress did not complete action on H.R. 5016 , but included FY2015 funding for the Department of the Treasury in the FY2015 omnibus appropriations measure, P.L. 113-235 , described above; the law did not include the provision in H.R. 5016 that would have prevented funding related to people-to-people travel. H.Res. 121 (Hastings, FL). Would have honored Cuban blogger Yoani Sánchez "for her ongoing efforts to challenge political, economic, and social oppression by the Castro regime." Introduced March 15, 2013; referred to the Committee on Foreign Affairs and in addition to the Committee on the Judiciary. H.Res. 262 (King, NY). Would have called for the immediate extradition or rendering to the United States of convicted felon William Morales and all other fugitives from justice who are receiving safe harbor in Cuba in order to escape prosecution or confinement for criminal offenses committed in the United States. Introduced June 14, 2013; referred to the Committee on Foreign Affairs. S. 1681 (Feinstein). Intelligence Authorization Act for Fiscal Year 2014. As reported, Section 325 of the bill would have repealed a reporting requirement on commerce with, and assistance to, Cuba from other foreign countries set forth in Section 108 of the Cuban Liberty and Democratic Solidarity Act of 1996 ( 22 U . S . C . 6038 ). Introduced November 12, 2013; reported by Select Committee on Intelligence November 13, 2013 ( S.Rept. 113-120 ). Senate passed, amended, by voice vote on June 11, 2014, without the provision repealing the reporting requirement on Cuba. (The House subsequently approved the bill on June 24, 2014, by voice vote, and the President signed the measure into law as P.L. 113-126 on July 7, 2014.) Appendix A. Selected Executive Branch Reports and Web Pages U.S. Relations with Cuba, Fact Sheet, State Department Date: August 30, 2013 Full Text: http://www.state.gov/r/pa/ei/bgn/2886.htm Congressional Budget Justification, Department of State, Foreign Operations and Related Programs, FY2015, State Department Date: March 4, 2014 Full Text: http://www.state.gov/documents/organization/222898.pdf Congressional Budget Justificati on for Foreign Operations FY2015 , Annex 3 : Re gional Perspectives (pp.646-647 ), State Department Date: April 18, 2014 Full Text: http://www.state.gov/documents/organization/224070.pdf Country Report s on Human Rights Practices 2013 , Cuba, State Department Date: February 27, 2014 Full Text: http://www.state.gov/documents/organization/220646.pdf C ountry Reports on Terrorism 2013 (State Sponsors of Terrorism chapter), State Department Date: April 2014 Full Text : http://www.state.gov/j/ct/rls/crt/2013/224826.htm Cuba Country Page, State Department Full Text: http://www.state.gov/p/wha/ci/cu/ Cuba Country Page , U.S. Agency for International Development Full Text: http://www.usaid.gov/where-we-work/latin-american-and-caribbean/cuba Cuba Sanctions, Treasury Department Full Text: http://www.treasury.gov/resource-center/sanctions/Programs/pages/cuba.aspx Cuba: What You Need to Know About U.S. Sanctions Against Cuba, Treasury Department, Office of Foreign Assets Control Date: January 24, 2012 Full Text: http://www.treasury.gov/resource-center/sanctions/Programs/Documents/cuba.pdf Fiscal Year 2015 Congressional Budget Request, Broadcasting Board of Governors (Office of Cuba Broadcasting, pp. 51-54) Date: March 25, 2014 Full Text: http://www.bbg.gov/wp-content/media/2014/03/FY-2015-BBG-Congressional-Budget-Request-FINAL-21-March-2014.pdf Interna tional Religious Freedom Report for 2013, Cuba, State Department Date: July 28, 2014 Full Text : http://www.state.gov/j/drl/rls/irf/religiousfreedom/index.htm?year=2013&dlid=222371 International Narcoti cs Control Strategy Report 2014, Vol. I, Cuba , State Department Date: March 2014 Full Text: http://www.state.gov/j/inl/rls/nrcrpt/2014/vol1/222869.htm Tr afficking in Persons Report 2014 (Cu ba, pp. 144-145 of pdf), State Department Date: June 20, 2014 Full Text: http://www.state.gov/j/tip/rls/tiprpt/countries/2014/226708.htm Appendix B. Earlier Developments in 2014 and 2013 See " Recent Developments " above for entries in late 2014. On July 28, 2014, the U.N. Security Council imposed sanctions on Ocean Maritime Management Company, Ltd., the operator of the North Korean ship known as the Chong Chon Gang that was interdicted by Panama in July 2013 after stopping in Cuba and found to be carrying a concealed cargo of arms and related material. On July 16, 2014, the House passed (228-195) the FY2015 Financial Services and General Government Appropriations Act, H.R. 5016 ( H.Rept. 113-508 ), with two provisions related to U.S. restrictions on travel to Cuba. The first, in Section 126, would prevent any funds in the Act from being used for people-to-people travel. The second, in Section 127, would require an Administration report with specific information on family travel to Cuba since FY2007. On July 14, 2014, the State Department issued a statement condemning the detention of more than 100 members of the Ladies in White human rights group seeking to commemorate the 20-year anniversary of the loss of life when the Cuban government sank a hijacked tugboat as it attempted to leave Cuba. On July 9, 2014, the United States and Cuba held semi-annual migration talks in Washington, DC, to discuss implementation of the 1994 and 1995 migration accords. Both sides issued positive statements that noted the issues covered. The State Department noted that the talks included aviation security, search and rescue at sea, and visa processing, and that the United States again called for the release of Alan Gross. On June 30, 2014, the French bank BNP Paribas, SA (BNPP) agreed to plead guilty for violating U.S. sanctions against Sudan, Iran, and Cuba by processing financial transactions involving those countries through the U.S. financial system. The company agreed to pay $8.97 billion in penalties, a record U.S fine. (For background on the settlement from the Department of Justice, see http://www.justice.gov/opa/pr/2014/June/14-ag-686.html .) On June 20, 2014, the State Department released its 2014 Trafficking in Persons Report, with Cuba remaining on the Tier 3 list of countries whose governments do not comply with the minimum standards for combatting trafficking. The report also noted that Cuba had, for the first time, reported concrete action against sex trafficking, and that the Cuban government maintained that it would be amending its criminal code to ensure conformity with the 2000 United Nations Trafficking in Persons Protocol. On June 17, 2014, Florida International University (FIU) issued its 2014 poll on the Cuban American community in Miami-Dade County regarding U.S. policy toward Cuba. The poll showed a slight majority of Cuban Americans in Miami-Dade County, 52%, opposed the embargo, and that 69% supported the lifting of travel restrictions for all Americans to travel to Cuba. On April 30, 2014, the State Department released Country Reports on Terrorism 201 3 , which noted that Cuba has long provided safe haven to members of the Basque Fatherland and Liberty (ETA) and the Revolutionary Armed Forces of Colombia (FARC), but that there was no indication that the Cuban government provided weapons or paramilitary training to terrorist groups. The report also noted that the Cuban government continued to harbor fugitives from U.S. justice. On April 3, 2014, an Associated Press investigative report alleged that the U.S. Agency for International Development (USAID) had established a "Cuban Twitter" known as ZunZuneo from 2010 to 2012 that was designed as a "covert" program "to undermine" Cuba's communist government. USAID strongly contested the facts presented in the report and asserted that it was not a covert program. On March 29, 2014, Cuba approved a new foreign investment law (to go into effect in 90 days) with the goal of attracting needed foreign capital to the country. While the law cuts taxes for foreign investors significantly, it remains to be seen to what extent the new law will actually attract investment. During the second week of March 2014, the United States along with the Bahamas, Cuba, and Jamaica released a document known as the Wider Caribbean Region Multilateral Technical Operating Procedures for Offshore Oil Pollution Response (MTOP) that consists of information of what would need to be done and coordinated in the case of an oil spill. On March 6, 2014, the U.N. Security Council issued the Panel of Experts for North Korea report, which concluded that July 2013 attempted shipment of weapons to North Korea from Cuba that was intercepted by Panama were violations of U.N. sanctions banning weapons transfers to North Korea. The report maintained that there was a "clear and conscious intention to circumvent the [U.N. Security Council] resolutions." On February 28, 2014, the State Department released its 2014 International Narcotics Control Strategy Report, which noted that law enforcement communication with Cuba "gradually increased in frequency and transparency over the course of 2013, especially concerning efforts to target drug trafficking at sea." As in past years, the report noted that a bilateral counternarcotics accord could advance the efforts undertaken by both countries. On February 27, 2014, Fernando González—one of the "Cuban five" intelligence agents convicted in 2001 on espionage charges by a U.S. Federal Court—was released from prison after serving his sentence and swiftly returned to Cuba. Three of the "Cuban five" remain in the United States serving their sentences. On January 28-29, 2014, Cuba hosted the second annual summit of the Community of Latin American and Caribbean Nations (CELAC). The U.N. Secretary General attended and reportedly raised human rights issues with Cuban officials. In a joint declaration, Latin American nations committed to nonintervention and pledged to respect "the inalienable right of every state to choose its political, economic, social, and cultural system." On January 17, 2014, President Obama signed into law the FY2014 omnibus appropriation measure, H.R. 3547 ( P.L. 113-76 ), which stated that up to $17.5 million should be provided for democracy and human rights programs and activities in Cuba and $27.043 million for Cuba broadcasting (Radio and TV Martí). The measure did not include any provisions tightening or easing U.S. restrictions on travel to Cuba that had been in the House and Senate versions of the FY2014 Financial Services appropriations bill, H.R. 2786 and S. 1371 , respectively. On January 9, 2014, U.S. and Cuban officials met in Havana for semi-annual migration talks. The U.S. delegation again raised the issue of Cuba's continued imprisonment of Alan Gross. On December 10, 2013, a handshake between President Obama and President Raúl Castro at the memorial service for Nelson Mandela in South Africa generated considerable international press attention. On December 10, 2013, Cuba cracked down on protests and gatherings planned to commemorate International Human Rights Day and detained more than 150 dissidents. On December 9, 2013, Cuba announced that it had temporarily reopened its consular services in the United States after the New York-based M&T Bank postponed closing the accounts of Cuba's diplomatic missions in Washington, DC, and New York until March 1, 2014. Cuba had suspended its U.S. consular services on November 26 because M&T Bank had decided to stop offering banking services to Cuba's diplomatic missions in the United States. Cuba is continuing to search for a replacement for M&T Bank. On November 18, 2013, in remarks at the Organization of American States, Secretary of State John Kerry maintained that the United States and Cuba "are finding some cooperation on common interests at this point in time" and noted that the Administration welcomes "some of the changes that are taking place in Cuba." However, the Secretary also cautioned that changes in Cuba "should absolutely not blind us to the authoritarian reality of life for ordinary Cubans." On November 8, 2013, in Miami, Florida, President Obama stated, in commenting about U.S. policy toward Cuba, that "we have to be creative ... we have to be thoughtful ... and we have to continue to update our policies." On October 22, 2013, Cuba announced that it would move toward ending its dual-currency system and move toward monetary unification, although it did not provide details or a timetable for the process. On September 26, 2013, the House Foreign Affairs Committee's Subcommittee on the Western Hemisphere held a hearing on Panama's July 2013 interdiction of a North Korean ship, the Chong Chon Gang , that had made stops in Cuba and was found to have weapons hidden aboard on its way back to North Korea. On September 23, 2013, prominent dissident economist Oscar Espinosa Chepe died in Spain after battling chronic liver disease and cancer. On September 20, 2013, the United States and Cuba reached a preliminary agreement on air and maritime search and rescue. On September 16-17, 2013, the United States and Cuba held talks in Havana on restoring direct mail service that had been curtailed in the early 1960s. Talks also were held in Washington, DC, on June 18-19, 2013. On September 15, 2013, Cuba's Conference of Catholic Bishops issued a pastoral letter maintaining that Cuba's political order needed to be updated and that there should be the right of diversity with respect to thought. On August 2, 2013, Cuban human rights activist Iván Fernández Depestre, who had been arrested on July 30 after participating in a peaceful protest, was convicted of "dangerousness" in a summary trial and sentenced to three years in prison. Amnesty International considers him a prisoner of conscience along with five other imprisoned Cubans. On August 1, 2013, the State Department made non-immigrant visas issued to Cubans for family visits, tourism, medical treatment, or other personal travel valid for five years with multiple entries (instead of single entry for six months). On July 17, 2013, the United States and Cuba held migration talks in Washington, DC, with both sides issuing positive statements after the meeting; the last round of migration talks had been in January 2011. On June 1, 2013, an oil rig that had been drilling an exploratory well in a north coastal block east of Havana for the Russian energy company Zarubezhneft was redeployed to Asia. Zarubezhneft said that it experience technical problems with the rig and difficult geology in the area. The action effectively ended offshore drilling in Cuba for now, although Zarubezhneft contends that it will return next year to drill in Cuba. On May 30, 2013, the State Department issued its Country Reports on Terrorism 2012 report, which provides information related to Cuba being on the department's state sponsors of terrorism list. In the report, the State Department stated that there was no indication that the Cuban government provided weapons or paramilitary training to terrorist groups, but it noted that Cuba continues to provide safe haven to some members of the Basque Fatherland and Liberty (ETA) terrorist group as well as U.S. fugitives from justice. On May 16, 2013, imprisoned U.S. Agency for International Development subcontractor Alan Gross reached an undisclosed settlement against his employer, Development Alternatives Inc. Gross and his wife had filed suit in November 2012 in U.S. District Court for failing to disclose the risk that he faced while participating in a project in Cuba. Subsequently, on May 28, 2013, a U.S. federal judge dismissed Gross's lawsuit against the U.S. government. On May 3, 2013, a U.S. federal judge ruled that René González, one of the so-called "Cuban five" spies convicted in the United States in 2001, could stay in Cuba if he renounced his U.S. citizenship, which he subsequently did. González, who had been released from prison in October 2011 but still faced three more years of probation in Florida, had been permitted to visit Cuba for two weeks in the aftermath of his father's death in April 2013. On April 25, 2013, the Department of Justice unsealed a 2004 indictment charging a former U.S. government official, Marta Rita Velazquez, with espionage stemming from her role in introducing Ana Montes (former U.S. government official who pled guilty in 2002 of spying for Cuba) to the Cuban intelligence service. On April 19, 2013, the State Department issued its Country Reports on Human Rights Practices for 2012 , which stated that Cuba's "principal human rights abuses were: abridgement of the rights of citizens to change the government; government threats, intimidation, mobs, harassment, and detentions to prevent free expression and peaceful assembly; and a record number of politically motivated and at times violent short-term detentions." On April 10, 2013, the State Department released its FY2014 budget request for international programs, which included $15 million in Cuba democracy and human rights projects, $5 million less than appropriated in FY2012. On the same day, the Broadcasting Board of Governors released the details of its FY2014 budget request, including $23.804 million for Cuba broadcasting (Radio and TV Martí), about $4.5 million less than that provided in FY2013, although roughly similar to the FY2013 budget request. On March 28, 2013, the U.S. Department of State called for an "investigation with independent international observers into the circumstances leading to the death of [Cuban human rights activists] Oswaldo Payá and Harold Cepero" in July 2012. On March 14, 2013, internationally known Cuban blogger Yoani Sánchez (on a multi-nation trip after receiving a new passport under Cuba's new travel policy) arrived in the United States, with stops in New York City and Washington, DC (including Capitol Hill), through March 21. She then traveled to Europe, but returned to the United States March 28, arriving in Miami. On March 14, 2013, Amnesty International issued an urgent action appeal for prisoner of conscience Calixto Ramón Martínez Arias who began a hunger strike in early March. Calixto was imprisoned in September 2012 for reporting on a cholera outbreak. On March 12, 2013, the State Department released its 2013 International Narcotic s Control Strategy Report , which stated that Cuba maintained a significant level of anti-drug cooperation with the United States in 2012. The report also indicated that the U.S. government was still reviewing a draft bilateral counternarcotics cooperation accord that Cuba presented in 2011, and that such an accord, if structured appropriately, could advance counternarcotics efforts taken by both countries. On March 6, 2013, the Washington Post published an interview with Spanish politician Angel Carromero, who was convicted by a Cuban court in October 2012 for vehicular manslaughter in the death of two human rights activists, including internationally known dissident Oswaldo Payá. Carromero asserted in the interview that the car he was driving was struck from behind and that he had been heavily drugged when he admitted to driving recklessly. Many observers have called for an independent investigation into the accident. In July 2012, the U.S. Senate approved S.Res. 525 (Nelson) calling for an impartial third-party investigation of the crash. On March 5, 2013, Venezuelan President Hugo Chávez died after battling several recurrences of cancer since mid-2011. Under President Chávez, Venezuela became a strong political and financial supporter of Cuba over the past decade, providing the island with some 100,000 barrels of oil per day. On February 24, 2013, Cuba's National Assembly, as expected, appointed Raúl Castro to a second five-year term as President. Most significantly, the Assembly also appointed 52-year old Miguel Díaz-Canel as First Vice President, making him Castro's constitutional successor. Díaz-Canel replaced outgoing 82-year old First Vice President José Ramón Machado Ventura. On January 14, 2013, Cuba's new travel policy went into effect whereby Cubans wanting to travel abroad no longer need an exit permit and letter of invitation. Under the new policy, travel requires only an updated passport and a visa issued by the country of destination, if required. Thousands of Cubans lined up at government migration offices and travel agencies on the first day.
|
Cuba remains a one-party communist state with a poor record on human rights. The country's political succession in 2006 from the long-ruling Fidel Castro to his brother Raúl was characterized by a remarkable degree of stability. In February 2013, Castro was reappointed to a second five-year term as President (until 2018, when he would be 86 years old), and selected 52-year old former Education Minister Miguel Díaz-Canel as his First Vice President, making him the official successor in the event that Castro cannot serve out his term. Raúl Castro has implemented a number of gradual economic policy changes over the past several years, including an expansion of self-employment. A party congress held in April 2011 laid out numerous economic goals that, if implemented, could significantly alter Cuba's state-dominated economic model. Few observers, however, expect the government to ease its tight control over the political system. While the government reduced the number of political prisoners in 2010-2011, the number increased in 2012; moreover, short-term detentions and harassment have increased significantly over the past several years. U.S. Policy Congress has played an active role in shaping policy toward Cuba, including the enactment of legislation strengthening and at times easing various U.S. economic sanctions. While U.S. policy has consisted largely of isolating Cuba through economic sanctions, a second policy component has consisted of support measures for the Cuban people, including U.S. government-sponsored broadcasting (Radio and TV Martí) and support for human rights and democracy projects. For most of the Obama Administration's first six years, it continued this similar dual-track approach. While the Administration lifted all restrictions on family travel and remittances in 2009, eased restrictions on other types of purposeful travel in 2011, and moved to reengage Cuba on several bilateral issues, it also maintained most U.S. economic sanctions in place. On human rights, the Administration welcomed the release of many political prisoners in 2010 and 2011, but it also criticized Cuba's continued harsh repression of political dissidents through thousands of short-term detentions and targeted violence. The Administration continued to call for the release of U.S. government subcontractor Alan Gross, imprisoned in Cuba in 2009, and maintained that Gross's detention remained an impediment to more constructive relations. Just after the adjournment of the 113th Congress, however, President Obama announced on December 17, 2014, that Cuba was releasing Alan Gross on humanitarian grounds and unveiled major changes in U.S. policy toward Cuba, including a restoration of diplomatic relations and new efforts toward engagement. The President maintained that the United States would continue to raise concerns about democracy and human rights in Cuba, but that "we can do more to support the Cuban people and promote our values through engagement." Legislative Activity Strong interest in Cuba continued in the 113th Congress with attention focused on economic and political developments, especially the human rights situation, and U.S. policy toward the island nation, including sanctions. The continued imprisonment of Alan Gross remained a key concern for many Members. In March 2013, Congress completed action on full-year FY2013 appropriations with the approval of H.R. 933 (P.L. 113-6); in January 2014, it completed action on a FY2014 omnibus appropriations measure, H.R. 3547 (P.L. 113-76); and in December 2014, it completed action on a FY2015 omnibus appropriations measure (H.R. 83; P.L. 113-235)—all of these measures continued funding for Cuba democracy projects and Cuba broadcasting (Radio and TV Martí). Both the House and Senate versions of the FY2014 Financial Services and General Government appropriations measure, H.R. 2786 and S. 1371, had provisions that would have tightened and eased travel restrictions respectively, but none of these provisions were included in the FY2014 omnibus appropriations measure (P.L. 113-76). The House version of the FY2015 Financial Services and General Government Appropriation bill, H.R. 5016 (H.Rept. 113-508), had a provision that would have prohibited the use of funds to approve, license, facilitate, or allow people-to-people travel, but the provision was not included in the FY2015 omnibus appropriations measure (P.L. 113-235). Several other initiatives on Cuba were introduced in the 113th Congress, but no action was taken on these bills and resolutions. Several would have lifted or eased U.S. economic sanctions on Cuba: H.R. 214 and H.R. 872 (overall embargo); H.R. 871 (travel); and H.R. 873 (travel and agricultural exports). H.R. 215 would have allowed Cubans to play organized professional baseball in the United States. H.R. 1917 would have lifted the embargo and extended nondiscriminatory trade treatment to the products of Cuba after Cuba released Alan Gross from prison. Identical initiatives, H.R. 778/S. 647 would have modified a 1998 trademark sanction; in contrast, H.R. 214, H.R. 872, H.R. 873, and H.R. 1917 each had a provision that would have repealed the sanction. H.Res. 121 would have honored the work of Cuban blogger Yoani Sánchez. H.Res. 262 would have called for the immediate extradition or rendering of all U.S. fugitives from justices in Cuba. With regard to President Obama's December 2014 announcement of a new direction for policy toward Cuba, some Members of Congress lauded the initiative as in the best interests of the United States and a better way to support change in Cuba, while other Members strongly criticized the President for not obtaining concessions from Cuba to advance human rights. With some Members vowing to oppose the Administration's efforts toward normalization, the direction of U.S.-Cuban relations is likely to be hotly debated in the 114th Congress. This report reflects legislative activity through the 113th Congress and will not be updated; a new version of the report will be issued for the 114th Congress. For additional information, see: CRS In Focus IF10045, Cuba: President Obama's New Policy Approach; CRS Insight IN10202, Cuba: Release of Alan Gross and Major Changes to U.S. Policy; CRS Insight IN10204, U.S. Policy on Cuban Migration; and CRS Report RL31139, Cuba: U.S. Restrictions on Travel and Remittances.
|
The Elementary and Secondary Education Act (ESEA) is the primary source of federal aid to elementary and secondary education. The ESEA was last reauthorized by the Every Student Succeeds Act (ESSA; P.L. 114-95 ) in 2015. The Title I-A program has always been the largest grant program authorized under the ESEA and is funded at $15.5 billion for FY2017. Since its enactment in 1965, Title I-A has provided assistance to meet the special needs of educationally 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. In recent years, Title I-A has also become a vehicle to which a number of requirements affecting broad aspects of public elementary and secondary education for all students have been attached as conditions for receiving Title I-A grants. The U.S. Department of Education (ED) determines Title I-A grants to local educational agencies (LEAs) based on four separate funding formulas: Basic Grants, Concentration Grants, Targeted Grants, and Education Finance Incentive Grants (EFIG). The Title I-A formulas have somewhat distinct allocation patterns, providing varying shares of funds to different types of LEAs or states (e.g., LEAs with high poverty rates or states with comparatively equal levels of spending per pupil among their LEAs). The Basic Grant formula is the original Title I-A formula, and has received appropriations each year since FY1966. The Basic Grant formula is the primary vehicle for providing Title I-A funds: it is the formula under which the largest share of funds are allocated (42% of FY2017 appropriations) and under which the largest proportion of LEAs receive funds. Over time, the Concentration Grant, Targeted Grant, and EFIG formulas have been added to Title I-A to provide additional funds to areas with high numbers or percentages of children from low-income families. As the share of Title I-A funds allocated under these three additional formulas has grown, Title I-A grants have become increasingly targeted on areas with concentrations of poverty. Title I-A grant amounts are primarily driven by the number of children from low-income families in an LEA, although all four formulas also include an expenditure factor based on education expenditures, minimum state grant provisions, and LEA hold harmless provisions. Thus, while almost any change to the Title I-A formulas has an effect on grant amounts, changes to the counts of children included in the formulas generally have the largest effect on grant amounts. This report analyzes issues related to three of the major debates surrounding the Title I-A formulas: (1) the effect of different formula factors and provisions on grant amounts, (2) whether the formulas are more favorable to certain types of LEAs and states, and (3) how effectively the Title I-A formulas target funds on concentrations of poverty. The report is intended to complement CRS Report R44898, History of the ESEA Title I-A Formulas , which provides a detailed examination of the history of the Title I-A formulas and of the underlying tensions in the policy debates about the design of the formulas from enactment of the original ESEA through enactment of the ESSA. This report does not provide a detailed discussion of how the Title I-A formulas operate. For a discussion of how Title I-A funds are allocated under each of the four formulas under current law, see CRS Report R44461, Allocation of Funds Under Title I-A of the Elementary and Secondary Education Act , by [author name scrubbed] and [author name scrubbed]. This report begins with a brief overview of the history of the Title I-A formulas. The next section is an examination of the role of the formula factors and other elements included in the design of the formulas that are used to determine grant amounts. This is followed by an analysis of the Title I-A allocation patterns, and then a discussion of the targeting of Title I-A funds. The report concludes with several appendices that provide additional data to support the analyses it discusses. Appendix A examines FY2016 Title I-A state grant amounts and state grants per child included in the formulas. Appendix B provides supplemental analysis of the extent to which grants are targeted based on concentrations of poverty. Appendix C provides historical appropriations data for the Title I-A formulas dating back to FY1980. Appendix D presents more information on an analysis of the effect of different formula factors on Title I-A grant amounts. Since the program's inception, Title I-A funds have been intended to serve poor children in both public and private schools. Congress initially accomplished this by allocating Title I-A funds through one formula—Basic Grants. The original Basic Grant formula was based on (1) the number of children from low-income families (commonly referred to as formula children) and (2) each state's average per pupil expenditures (APPE) for public elementary and secondary education. Over time, Congress added three additional formulas that essentially provide supplemental funding to LEAs that serve areas with concentrations of poverty. The Concentration Grant formula was added in the 1970s in an attempt to provide additional funding for LEAs with concentrations of poverty. During the consideration of ESEA reauthorization in the early 1990s, the House and the Senate proposed formulas (Targeted Grants and EFIG, respectively) intended to target concentrations of poverty more effectively by providing more funding per child to LEAs with higher numbers or percentages of formula children. As both of these formulas were enacted into law, and the Basic Grant and Concentration Grant formulas were retained, funds are allocated through four formulas under current law. Title I-A has also periodically included a Special Incentive Grant formula, intended to incentivize state and local education spending on elementary and secondary education. This formula was last funded in FY1975. Figure 1 shows the years in which the four formulas were authorized and funded. The figure also indicates the ESEA reauthorizations that made substantial changes to them. In some instances, formulas have been funded every year they have been authorized to receive appropriations, as well as in years in which the authorization of appropriations has expired (e.g., Basic Grants). In other instances, formulas were not funded until a subsequent reauthorization made substantial changes to the originally enacted formulas (e.g., EFIG). Since FY1966, every formula under the program has included some type of population factor and expenditure factor. Over the years, the children included in the determination of the population factor (referred to as formula children) have changed. The expenditure factors have been altered as well. Changes in both areas have substantial implications for state and LEA grant amounts. In addition, while continuing to focus on the targeting of Title I-A dollars on areas with the greatest concentrations of poverty, Congress has periodically taken steps to help provide smaller states with additional funding to run Title I-A programs through state minimum grant provisions. Congress has also modified the Title I-A allocation formulas over time to include hold harmless provisions to prevent LEAs from losing more than a certain amount of funding from year-to-year, provided appropriations are sufficient to make hold harmless payments. Under each formula, Title I-A grants are initially calculated by multiplying a formula child count by an expenditure factor. Because these are the two preeminent formula factors used to determine grants across the Title I-A formulas, they are the primary focus of the ensuing examination of the role different formula factors play in determining allocation levels. Other factors also based on expenditures per student—the equity and effort factors, which are used in one of the allocation formulas—are discussed as well. As previously discussed, formula child counts consist primarily of estimated numbers of school-age children in poor families, and expenditure factors are based on state APPE. The EFIG formula also includes two additional measures of state and local funding: an effort factor that is based on a state's education spending relative to personal income, and an equity factor based on the variation in education spending among LEAs within a state. Under three of the Title I-A allocation formulas—Basic Grants, Concentration Grants, and Targeted Grants—funds are initially calculated at the LEA level. State grants are the total of grant allocations for all LEAs in the state, adjusted for state minimum grant provisions. Under EFIG, grants are first calculated for each state overall and then state funds are subsequently suballocated to LEAs within the state using a different formula. In addition, two of the preeminent design elements in each of the Title I-A allocation formulas, state minimum grant and LEA hold harmless provisions, are the primary focus of the ensuing examination of the role selected formula design elements play in determining allocation levels. They have been chosen for analysis because they are core elements in the design of the formulas, and they are known to have a sizable effect on allocations to certain states and LEAs. In each of the formulas, after initial grant awards are calculated through multiplying a formula child count by at least one expenditure factor, grant amounts are reduced to equal the level of available appropriations for each formula, taking into account a variety of state and LEA minimum grant and hold harmless provisions. LEAs must also have a minimum number and/or percentage of formula children to be eligible to receive a grant under a specific formula. While these thresholds are important elements in the design of the allocation formulas, this section does not examine their effects on allocations. This section begins by examining the role of separate formula factors in determining Title I-A grant amounts. It then examines the role of the LEA hold harmless and state minimum grant provisions. While there have been numerous debates about the inclusion of and changes to different formula factors and provisions, CRS analyses (some of which are presented here) generally suggest that Title I-A grant amounts are primarily driven by formula child counts. The initial estimates of the effects of formula factors discussed here are based on regression analyses presented in Appendix D . One way regression analysis can be used to illuminate the extent to which various formula factors contribute to grant calculations is by examining how much variance in grant amounts is "explained" by each formula factor ( Table D-1 and Table D-2 ). With respect to formula child counts and APPE, formula child counts are estimated to explain 95% of the variance in overall LEA grant amounts, while APPE is estimated to explain less than 1% of it. A similar pattern is found for each of the individual formulas, with formula child counts estimated to explain between 90% and 98% of the variance in grant amounts in independent examinations of each of the formulas. For the EFIG formula, which is initially calculated, formula child counts are estimated to explain over 97% of the variance in state grants made under the EFIG formula. The other factors (APPE, equity, and effort) account for less than 4% of the variance in the EFIG grant amounts. This again suggests that formula child counts are the primary driver of Title I-A grant amounts. The relationship between the formula factors and Title I-A grant amounts is further examined in Figure 2 . More specifically, Figure 2 shows each LEA's formula child count, expenditure factor, equity factor, and effort factor compared to its overall Title I-A grant amount. LEAs with higher formula child counts generally have higher grant amounts. Conversely, there are numerous LEAs with the same expenditure factor (as expenditure factors vary by state, not LEA), but the Title I-A grant amounts for LEAs with the same expenditure factor can range substantially. Similarly, many LEAs have the same effort and equity factors, which are also calculated at the state (not LEA) level, but grant amounts for LEAs with the same effort or equity factor can also range greatly. That is, with respect to the expenditure, equity, and effort factors, there is not a consistent relationship between the value of the factor and an LEA's grant amount. It would be expected that formula child counts play the dominant role in allocations given that the primary aim of Title I-A is to provide support to schools serving high concentrations of low-income students. From a formula design standpoint, one reason that formula child counts are the primary driver of Title I-A grant amounts may be that once grant eligibility threshold level requirements are met, the counts are not bounded (i.e., there are no minimums or maximums placed on formula child counts in the determination of Title I-A grants). They can be substantially different from LEA to LEA. Formula child counts vary at the LEA level, not the state level. The expenditure, equity, and effort factors, on the other hand, are all calculated at the state level so they are the same for all LEAs in a state. In addition, a state's expenditure and effort factors are bounded, limiting the range in which they may vary. And, while there are no bounds placed on the equity factor, it is calculated in such a way that it does not vary much from state to state. As a result, formula child counts range from no formula children to over 350,000 formula children while expenditure factors range from approximately $3,600 to $5,400, equity factors range from about 1.0 to 1.3, and effort factors range from 0.95 to 1.05 ( Figure 2 ). Additionally, formula child counts are a factor in all four formulas while the equity and effort factors are only included in the EFIG formula, which limits their impact on overall LEA grant amounts. Because formula child counts are the dominant factor in grant determinations, in the aggregate states and LEAs with large numbers of formula children will generally get more funding under the formulas. Additionally, while the current formulas do somewhat benefit states with higher expenditure, effort, and equity factors, an increase in the number of formula children in an LEA will likely have a larger effect on grant amounts than an increase in state and local spending on education. However, it should be noted that almost any formula factor change will cause a shift in Title I-A grant amounts. The size of the shift will depend on which factor changes and by how much. As will be discussed next, other design elements of the formulas also have an effect on grant allocations. These effects can be quite substantial for some states and LEAs. Under current law, all of the Title I-A formulas include both state minimum grant provisions and LEA hold harmless provisions. State minimum grant provisions increase the amount of funding provided to small states to enable them to operate more robust Title I-A programs. State minimum grant provisions are funded by reducing the amount of funding provided to all the other states in order to support the smaller states. LEA hold harmless provisions prevent LEAs from losing more than a certain percentage of funding from year-to-year to provide some stability in grant amounts, provided appropriations are sufficient to make hold harmless payments. As with the state minimum grant provisions, however, LEAs that receive grants in excess of their hold harmless amounts have their grant amounts reduced to provide other LEAs with a hold harmless grant amount. State minimum grant and LEA hold harmless provisions have also been included in formulas to mitigate losses to states and LEAs that may result from changes in the Title I-A formulas. The minimum grant and hold harmless provisions provide a relatively large increase in overall grant amounts and grant amounts per formula child to the states and LEAs receiving them but cause a relatively small decrease in the Title I-A grant amounts of other states and LEAs. To estimate the effect of these provisions, CRS compared Title I-A grant amounts and grant amounts per formula child with and without them. Table 1 provides summary statistics on the effect of the state minimum grant and LEA hold harmless provisions on overall Title I-A grant amounts. The estimated grant amounts for all states and the LEAs that would gain and lose the most funds when these provisions are removed are included in Appendix A . While approximately 1 in 10 LEAs are in states benefitting from the state minimum grant provisions, removing these provisions shifts less than 1% of Title I-A funds. That is, an estimated 11% of LEAs (1,456) are in states that receive a minimum grant under at least one of the four Title I-A formulas. If the minimum grant provisions were removed, an estimated 1,281 of these LEAs would see a decrease in their Title I-A grant amounts. The total decrease in funds for these LEAs would be an estimated $64.7 million, which is 0.44% of total Title I-A grant amounts. This indicates that state minimum grant provisions have a relatively small effect on overall Title I-A grant amounts. However, the LEAs that would lose funds when these provisions are removed would see an estimated average decrease of $51,000, or 15.03%. The losses for an individual LEA would range from approximately $10 to $4.3 million, while the average grant per formula child is estimated to decrease by about $210. It is also worth noting that while 11% of LEAs benefit from the state minimum grant provisions, less than 3% of all formula children (305,801) reside within these LEAs. Over half of all LEAs receiving Title I-A funds benefit from the hold harmless provisions, but removing these provisions is estimated to shift less than 2% of funds. More specifically, an estimated 64% of LEAs (8,327), within which approximately one-third (4.2 million) of all formula children reside, received a hold harmless amount in FY2016. If the hold harmless provisions were removed, 4,317 of these LEAs are estimated to see a decrease in their Title I-A grant amounts, averaging $66,000, or 17.43%, per LEA. However, losses for an individual LEA would range from less than $10 to $19.1 million, while the average grant per formula child is estimated to decrease by about $60. The total decrease in funds for these LEAs would be an estimated $283.8 million, which is 1.92% of overall Title I-A funds. This indicates that while a large percentage of LEAs benefit from the hold harmless provisions, they have a relatively small effect on overall Title I-A grant amounts. If both the state minimum grant and LEA hold harmless provisions were removed, 5,000 of the 8,749 LEAs benefitting from either or both of these provisions would see a decrease in their grant amounts. These LEAs would see an estimated average decrease of $73,000, or 20.98%, of funding per LEA. Losses for an individual LEA would range from less than $10 to $16.0 million, while the average grant per formula child is estimated to decrease by about $70. The total decrease in funds for these LEAs would be an estimated $366.7 million, which is 2.49% of total grant amounts. This indicates that while the elimination of both state minimum grant provisions and LEA hold harmless provisions is estimated to have a relatively small effect on overall Title I-A grant allocations, the effect on locales that would lose funds without them could be substantial. Although state minimum grant and LEA hold harmless provisions have a relatively small effect on overall grant allocations, they can have a more pronounced effect on grants per formula child. The estimated average national grant per formula child is $1,300. Under current law, LEAs in states receiving a minimum grant amount have above average grants per formula child. LEAs benefitting from the state minimum grant provisions receive, on average, an estimated $450 more per formula child ($1,750 compared to $1,300 for all LEAs). On the other hand, LEAs receiving hold harmless provisions (but not in states receiving a minimum grant) receive, on average, an estimated $30 less per formula child ($1,270 compared to $1,300 for all LEAs). LEAs in states receiving the minimum grant provision, receiving a hold harmless provision, or both receive, on average, an estimated $10 less per formula child ($1,290 compared to $1,300 for all LEAs). Removing the state minimum grant provision, the hold harmless provision, or both, however, would reduce estimated per formula grant amounts for LEAs that benefit from one or both of the provisions. For LEAs in states that currently receive the minimum grant amount, it is estimated that average grants per formula child would be reduced by $210 with the removal of the provision. Average grants per formula child in these LEAs would still be $240 over the $1,300 per formula child for all LEAs as these LEAs could benefit from the hold harmless provisions, partially mitigating their losses from the removal of the state minimum grant provisions. If the hold harmless provisions were removed, estimated average grants per formula child in LEAs that receive the benefit under current law are estimated to be reduced by $60 to $1,210. If both provisions were removed, estimated average grants per formula child in LEAs that are currently in states receiving a state minimum grant, receiving an LEA hold harmless, or both are estimated to fall by $70 to $1,220. There is a similar pattern at the state level with respect to the state minimum grant provisions. For example, for FY2016 Wyoming (which receives a minimum grant under all four formulas) is estimated to have the highest grant per formula child under current law ($2,650). If the minimum grant provisions were removed, Wyoming's estimated grant per formula child would decrease to $2,030. If the minimum grant and hold harmless provisions were removed, Wyoming's estimated grant per formula child would decrease to $1,410. It is worth noting that the effect of the hold harmless provisions depends on the appropriations level for Title I-A. Because an LEA's hold harmless level is based on its prior-year Title I-A grant amount and not the Title I-A appropriations level for the current fiscal year, the hold harmless provisions will have a larger effect on grant amounts in years where the Title I-A appropriations level decreases. Since the initial enactment of Title I-A in 1965, the formulas have been criticized for being more favorable to more densely populated and typically urban areas due to how formula child counts are calculated, and for being more favorable to wealthier states due to the inclusion of factors based on education expenditures. To address these concerns, Congress has made changes to formula child counts and the expenditure factor over time. With these tensions in mind, this section of the report examines Title I-A allocation patterns to LEAs and states and discusses how these patterns have changed over time. There has been an ongoing debate about whether the Title I-A formulas are more favorable to densely populated or less densely populated areas. For example, changes made to the count of children in families receiving Aid to Families with Dependent Children (AFDC) used in the determination of the number of formula children in the 1970s were a direct response to this debate. When AFDC children were first included in formula child counts in 1965, they were counted in full. During the 1970s, the inclusion of eligible AFDC children in formula child counts was viewed as favoring urban areas, resulting in changes to the Title I-A formulas to include only two-thirds of the actual number of eligible AFDC children in the formula child counts. This new approach was subsequently viewed as being unfavorable to urban areas, so the formula was changed once again to include the full count of eligible AFDC children. A debate over the relative emphasis that should be placed on the percentage versus the count of formula children in an LEA has also been consistently present and continues to exist regarding the current law formulas. Under current law, the debate is reflected in two formula child weighting scales used in the determination of grants under the Targeted Grant and EFIG formulas, the newer Title I-A formulas that were introduced to enhance targeting to LEAs serving concentrations of low-income students. These scales have not been changed since the Targeted Grant and EFIG formulas were first funded in FY2002. One scale is based on formula child rates (determined by dividing an LEA's number of formula children by the number of children ages 5-17 residing in the LEA); the other is based on formula child counts. The weights under both scales are applied in a stepwise manner, rather than the highest relevant weight being applied to all formula children in the LEA. More specifically, there are five sets of weights that apply to an LEA's formula child count and the LEA's percentage of formula children. These weights correspond to five ranges of formula child counts and five ranges of formula child rates. The ranges and associated weights under the Targeted Grant formula are shown in Table 2 . The smallest weight is applied to formula children falling within the first range; a larger weight is applied to all remaining formula children falling within the second range, and so on. Two weighted formula child counts are calculated, one based on numbers and the other on percentages of formula children. The larger of the two weighted formula child counts is then used to determine grant amounts. For example, assume an LEA has 2,000 formula children and the total school-age population is 10,000; the formula child rate is 20%. The following calculations demonstrate how an LEA's weighted child count would be calculated under number weighting and percentage weighting in this example: Numbers Scale: Step 1: 691 * 1.0 = 691 The first 691 formula children are weighted at 1.0. Step 2: (2,000 - 691) = 1,309 * 1.5 = 1,963 For an LEA with a total number of formula children falling within the second step of the numbers scale, the number of formula children above 691 (the maximum for the first step) is weighted at 1.5. Total (Numbers Scale) = 691 + 1,963.5 = 2,654.5 The weighted formula child counts from Steps 1 and 2 are combined. Percentage Scale: Step 1: 15.58% * 10,000 = 1,558 * 1.0 = 1,558 The number of formula children constituting up to 15.58% of the LEA's total school-age population is weighted at 1.0. Step 2: (20% - 15.58%) = 4.42% * 10,000 = 442 * 1.75 = 773.5 For an LEA with a formula child rate falling within the second step of the percentage scale, the number of formula children above 15.58% of the LEA's total school-age population (the maximum for the first step) is weighted at 1.75. Total (Percentage Scale) = 1,558 + 773.5 = 2,331.5 The weighted formula child counts from Steps 1 and 2 are combined. Because the numbers scale weighted count of 2,654.5 exceeds the percentage scale weighted count of 2,331.5, the numbers scale count would be used as the population factor for this LEA in the calculation of its Title I-A grant. Based on the statutorily specified weights used in determining weighted child counts, the weighting process might seem to favor less densely populated LEAs; however, in actuality it can often be more beneficial to more heavily populated LEAs. That is, under current law higher weights are applied to the LEAs with the highest formula child rates than are applied to the LEAs with the highest formula child counts ( Table 2 ). Thus, at first glance the weighting process would appear to favor LEAs with higher formula child rates (often rural LEAs) over LEAs with higher numbers of formula children (typically urban LEAs); however, it often does not. As shown above, the top category in each weighting scale is open-ended. Because of this, LEAs with large numbers of formula children are often able to apply the highest weights to larger proportions of their formula children than smaller LEAs with relatively high percentages of formula children can. As intended, the weights result in higher grants per formula child to LEAs with high numbers of formula children, high percentages of formula children, or both. However, LEAs with high numbers of formula children generally receive more per formula child than LEAs with high percentages of such children. The effect of the weighting scales on grants per formula child is illustrated in Table 3 below. Table 3 shows the estimated FY2016 Title I-A grants per formula child by weighting scale. Of the LEAs receiving a Title I-A grant that did not receive a hold harmless grant and were not located in a state receiving a minimum state grant amount, 82.2% had their Targeted Grant and EFIG amounts determined based on the percentage weighting scale. Thus, the majority of the LEAs included in the analysis have a higher weighted formula child count based on the percentage weighting scale versus the number weighting scale. However, in general, LEAs whose weighted formula child counts are calculated using the numbers scale received a higher grant per formula child than LEAs whose weighted formula child counts are calculated using the percentage scale. More specifically, LEAs using the numbers weighting scale to determine their formula child counts had an estimated average grant per formula child of $1,340 in FY2016, while LEAs using the percentage weighting scale had an estimated average grant per formula child of $1,220. Every Title I-A formula includes a factor that accounts for how much money states spend on public elementary and secondary education. From the start, proponents of including an expenditure factor argued that it was needed to compensate states where the cost of educating a child was higher. The expenditure factor was also intended to compensate states with a higher cost of living. Opponents argued that including an expenditure factor disproportionately benefitted wealthy states and counties. In part, the debate also focused on whether Title I-A funds should be spread broadly across the country or concentrated in the areas of greatest need. Additionally, it pitted the higher-spending states that argued their costs of education and living were higher against the lower-spending states that argued they could not afford to spend more on education and therefore needed more Title I-A funding. For the first two years of the Title I-A program, the expenditure factor was calculated as a percentage of state APPE. In the late 1960s, Congress added a minimum to the expenditure factor, which increased the expenditure factor used in grant determinations for low-spending states. More specifically, if a state's APPE was less than the national average then that state could use national APPE to determine its expenditure factor. In the mid-1970s, Congress put an upper bound on the expenditure factor, which reduced the expenditure factor used in grant determinations for high-spending states, and lowered the expenditure factor minimum. State APPE was subject to a minimum of 80% and a maximum of 120% of the national APPE. If a state's APPE was less than 80% of the national APPE, the state's APPE was automatically raised to 80% of the national APPE; if a state's APPE was more than 120% of the national APPE, the state's APPE was automatically reduced to 120% of the national APPE. The expenditure factor added in the mid-1970s is still used under current law to calculate grants. In addition to the debate over the bounds placed on the expenditure factor, there has been debate over the use of APPE as a measure of spending for public elementary and secondary education. In 1994, Congress created two additional Title I-A formulas (Targeted Grant and EFIG) that were intended to target Title I-A funds more effectively on LEAs with concentrations of poverty. When the EFIG formula was initially enacted, it did not include the same expenditure factor used in the other three formulas. Rather, the EFIG formula included two new factors to account for state spending on public education: an effort factor and an equity factor. The effort factor is based on a state's education spending relative to personal income, essentially considering the share of available resources a state is dedicating to public elementary and secondary education. The equity factor is based on variation in education spending among LEAs within a state. The more equitable spending is among LEAs in a given state, the higher a state's grant will be. These factors were included in the formulas due to concerns about disparities in funds and resources among LEAs in many states and to provide an incentive for states to reduce those disparities. The new EFIG formula was enacted in tandem with the new Targeted Grant formula, which included the same expenditure factor that was being used in the determination of Basic Grants and Concentration Grants. However, concerns were raised that the new EFIG formula compromise disadvantaged the southern states (traditionally lower-spending states). In addition, prior to funding of the Targeted Grant and EFIG formulas in FY2002, the EFIG formula was changed to include an expenditure factor similar to that used in the other three formulas. Thus, the EFIG formula incorporates state spending on public elementary and secondary education in three ways, while the other three formulas account for it only through an expenditure factor. While overall consideration of APPE in the formulas is more beneficial to higher-spending states than to lower-spending states, some of this benefit has been mitigated over time. Lower-spending states have generally benefitted from the changes to the expenditure factor over time. Adding upper and lower bounds to the expenditure factor effectively provided a beneficial adjustment to lower-spending states given that it raised their expenditure factor for purposes of grant determinations and capped the amount of spending that could be considered for higher-spending states (which meant that higher-spending states could not benefit from any spending in excess of the upper bound). Figure 3 shows the estimated FY2016 Title I-A state grants per formula child for select states assuming the expenditure factor was calculated (1) as 50% of state APPE; (2) as 50% of the larger of state or national APPE; and (3) as 40% of state APPE, subject to a minimum and maximum. These expenditure factors correspond to (1) the expenditure factor that was originally included in the Title I-A formulas, (2) the expenditure factor used to determine Title I-A grants for FY1968 through FY1974, and (3) the expenditure factor under current law. The states included in Figure 3 are (1) the two states with the lowest state APPE that are not receiving minimum grants (Arizona and Utah); (2) the two states with state APPE closest to the median state APPE that are not receiving minimum grants (Iowa and Washington); and (3) the two states with the highest state APPE that are not receiving minimum grants (Connecticut and New York). The grant per formula child is the lowest for lower-spending states (Utah and Arizona) when the expenditure factor is unbounded, as it was for FY1966 and FY1967. In states where the APPE is close to the national average (Iowa and Washington), the grant per formula child decreases when a lower bound is added to the expenditure factor (as was the case beginning in FY1968) but increases when an upper bound is added to the expenditure factor, as it is under current law. Conversely, the grant per formula child is the lowest for higher-spending states (Connecticut and New York) when the expenditure factor has both upper and lower bounds, as is the case under current law. The historical changes to the expenditure factors that tied them more closely to national APPE have benefitted any state with a state APPE that is less than the national APPE and not benefitted any state with a state APPE that exceeds the national APPE. Any change to the expenditure factor that allows it to vary more closely with state APPE only (e.g., no bounds) would favor states with relatively high APPEs and disadvantage those with relatively low APPEs. The current law expenditure factors are essentially a compromise between these two positions, providing an additional boost to lower-spending states while still allowing some variation in the expenditure factor based on state APPE. Since its initial enactment, the Title I-A program has been intended to address "the impact that concentrations of low-income families have on the ability of local educational agencies to support adequate educational programs." One issue that has attracted substantial attention is how to target Title I-A funds more effectively on LEAs with concentrations of poverty (either in terms of having a high number or a high percentage of formula children). While there are some concerns about whether having a high number or high percentage of formula children should result in larger LEA grants per formula child, as evidenced by the current debate among densely populated and less densely populated areas discussed above, there has also been a broader debate about how much to target Title I-A funds on areas with concentrations of poverty and how best to do so. This debate has played out over several decades through the addition of three formulas to the original Basic Grant formula. The Education Amendments of 1978 ( P.L. 95-561 ) added the Grants to LEAs in Counties with Especially High Concentrations of Children from Low Income Families. These grants are better known as Concentration Grants and were modeled on an earlier Title I-A grant program that essentially had the same purpose. As the title of the grants indicates, this formula was added to Title I-A to provide additional funding to areas with high concentrations of children from low-income families. In adding the formula, proponents argued that areas with concentrations of poverty needed "more intensive remedial effort than the average school district." Two additional formulas were added to the ESEA in 1994. The House Committee on Education and Labor added the Targeted Grant formula to target Title I-A funds more effectively on areas with concentrations of poverty, but it retained the Basic Grant and Concentration Grant formulas to continue to provide funding to "other less poor but still needy communities." The Senate Committee on Labor and Human Resources took a different approach, arguing that the Basic Grant and Concentration Grant formulas should be replaced by a new formula (EFIG) that would target funding more effectively on concentrations of poverty. Ultimately, both the Targeted Grant and EFIG formulas were added to the ESEA and the Basic Grant and Concentration Grant formulas were retained. The addition of Concentration Grants, Targeted Grants, and EFIG to Basic Grants has resulted in more effective targeting of Title I-A funds on concentrations of poverty. To examine this targeting, CRS analyzed the share of Title I-A funds allocated to LEAs by an LEA's formula child rate. CRS divided LEAs into five groups or ranges based on their formula child rates. Each range contains roughly 20% of the formula children used to determine FY2016 grant amounts (i.e., approximately the same number of formula children, but not necessarily the same number of LEAs, is included in each range). Thus, if an equal amount of funding were allocated per formula child, each range would receive 20% of funds. If there were targeting of Title I-A funds on concentrations of formula children, then ranges containing LEAs with higher formula child rates would receive a larger share of funding. Figure 4 shows the targeting of Title I-A funds under current law compared to the targeting of Title I-A funds assuming funds are allocated only via the Basic Grant formula (as was generally the case prior to FY1989) and assuming funds are allocated only via the Basic Grant and Concentration Grant formulas (as was the case between FY1989 and FY2002). When all FY2016 Title I-A funds are allocated via the Basic Grant formula, LEAs with the highest formula child rates would receive the largest share of funds. LEAs with the highest formula child rates (4 th and 5 th ranges) would receive 42.47% of funds while LEAs with the lowest formula child rates (1 st and 2 nd ranges) would receive 39.10% of funds. However, LEAs in the 3 rd range would receive the smallest share of funds (18.43%). The share of funds allocated to LEAs in a given range does not necessarily increase as the percentage of formula children increases. This distribution of funds indicates that there is some targeting of Basic Grants to LEAs with higher formula child rates. When all FY2016 Title I-A funds are allocated via both the Basic Grant and Concentration Grant formulas, the targeting of Title I-A funds is improved. LEAs with the lowest formula child rates (1 st and 2 nd ranges) would receive 38.00% of funds and LEAs with the highest formula child rates (4 th and 5 th ranges) would receive 43.00% of funds. While this distribution indicates that the targeting of Title I-A funds is improved by the addition of Concentration Grants, it should be noted that LEAs in the 3 rd range would receive a smaller share of funding than LEAs in the 2 nd range, which have lower formula child rates (18.99% of funds compared to 19.42% of funds). Thus, targeting is improved only slightly with the addition of Concentration Grants. Under current law, when FY2016 Title I-A funds are allocated under all four Title I-A formulas, the overall percentage of Title I-A funds provided to LEAs in a given range increases as the percentage of formula children increases. In FY2016, the estimated percentage share of total Title I-A funds spanned from 17.20% in range 1 to 18.82% in range 3 to 23.13% in range 5. Overall, LEAs with the lowest formula child rates (1 st and 2 nd ranges) received 35.92% of Title I-A funds while LEAs with the highest formula child rates (4 th and 5 th ranges) received 45.26% of Title I-A funds. This distribution indicates that Title I-A funds are targeted more to LEAs with higher formula child rates when funds are allocated via the Basic Grant, Concentration Grant, Targeted Grant, and EFIG formulas than when funds are allocated under just the Basic Grant formula or just the Basic Grant and Concentration Grant formulas. The reason that the current four formula strategy renders better targeting of Title I-A funds is because the Targeted Grant and EFIG formulas are more effective than the Basic Grant and Concentration Grant formulas at targeting funds to areas with concentrations of formula children, due in part to the use of the formula child weighting scales used in determining Targeted Grant and EFIG formula grant amounts. Figure 5 shows the targeting of FY2016 Title I-A funds under current law to LEAs for each of the four Title I-A formulas using the five formula child rate ranges described above. The Basic Grant formula is the least effective at targeting funds on concentrations of poverty. In FY2016, LEAs with the lowest formula child rates (1 st and 2 nd ranges) received 40.56% of funds while LEAs with the highest formula child rates (4 th and 5 th ranges) received 40.51% of funds. LEAs in the 3 rd range received the smallest share of Title I-A funds (18.92%). This distribution indicates that there is little targeting of Basic Grants to LEAs with higher formula child rates. Unlike Basic Grants, the distribution of funds under Concentration Grants indicates that there is some targeting of funds to LEAs with concentrations of poverty. LEAs with the lowest formula child rates (1 st and 2 nd ranges) received 32.41% of funds while LEAs with the highest formula child rates (4 th and 5 th ranges) received 46.18% of funds. The relatively small share of Concentration Grants in the 1 st range (10.46% of funds) is due, in part, to the high eligibility thresholds under this formula, which limit the number of LEAs in the 1 st range receiving grants. It is worth noting, however, that LEAs in the 3 rd range received a smaller share of funding than the LEAs in the 2 nd range, which have lower formula child rates (21.96% of funds compared to 21.40% of funds). The distribution of funds under the Targeted Grant and EFIG formulas is somewhat different than under Basic Grants and Concentration Grants. Under each of these formulas, the share of funding increases as formula child rates increase. Under Targeted Grants, the share of FY2016 funds spanned from 15.22% for LEAs in the 1 st range to 24.46% for LEAs in the 5 th range. Similarly, for EFIG, LEAs in the 1 st range received 14.56% of funds while LEAs in the 5 th range received 26.47% of funds. LEAs with the lowest formula child rates (1 st and 2 nd ranges) received 33.32% and 31.42% of Targeted Grants and EFIG funds, respectively. LEAs with the highest formula child rates (4 th and 5 th ranges) received 48.09% and 50.73% of Targeted Grants and EFIG funds, respectively. This indicates that Targeted Grants and EFIG are more effective than Basic Grants and Concentration Grants at targeting funds to areas with concentrations of formula children, which, as noted, is a proxy for concentrations of poverty. These distributions of funds also indicate that the targeting of Title I-A funds on concentrations of poverty has increased over time. The addition of Concentration Grants, Targeted Grants, and EFIG to Title I-A did, to some extent, improve the targeting of funds to LEAs with higher formula child rates. Furthermore, the newest formulas (Targeted Grants and EFIG) are the most effective at targeting funds and, as exemplified in Figure 6 , the share of Title I-A funds allocated via the Targeted Grant and EFIG formulas has generally increased since they were first funded in FY2002. If this funding trend continues, the overall targeting of Title I-A funds on LEAs with higher formula child rates would increase, as a larger share of Title I-A funds would be allocated through the more-targeted formulas. State minimum grant and LEA hold harmless provisions were added to the Title I-A formula over time. The first hold harmless provision was added to the Basic Grant formula through the 1974 amendments, specifically to mitigate any losses that LEAs might experience due to the implementation of a new expenditure factor. When Concentration Grants were added to Title I-A in the 1978 amendments, the Senate Committee on Human Resources added a requirement that no state receive less than 0.25% of the amount appropriated for Concentration Grants to protect the amount of funding received by rural districts. By shifting the distribution of funds under the formulas, especially under the Concentration Grant, Targeted Grant, and EFIG formulas, the inclusion of state minimum grant and LEA hold harmless provisions may reduce the targeting of funds on LEAs with higher concentrations of poverty by reducing grant amounts to LEAs that would have otherwise received more funding. That is, state minimum grant provisions and LEA hold harmless provisions may disrupt the formula provisions enacted to target funds on LEAs with higher concentrations of poverty. At the same time, however, these provisions may serve other purposes valued by Congress, including providing small states with a larger grant than they would have otherwise received to run their Title I-A programs and providing LEAs with some stability in their grant amounts from year-to-year. In addition, both types of provisions have been used to gain support for changes to the Title I-A formulas by helping to mitigate any losses that may result from those changes. Figure 7 shows the targeting of estimated FY2016 Title I-A funds to LEAs based on formula child rates under four funding scenarios: (1) current law, (2) assuming no state minimum grant provisions are applied, (3) assuming no LEA hold harmless provisions are applied, and (4) assuming no state minimum grant or LEA hold harmless provisions are applied. Figure 7 groups LEAs into the five formula child rate ranges described above and indicates the share of Title I-A funds provided to each range under each funding scenario. If state minimum grant provisions were not applied, the targeting of Title I-A funds would slightly increase. LEAs with the lowest formula child rates (1 st and 2 nd ranges) would receive a slightly smaller share of Title I-A funds (35.76% compared to 35.92% under current law) and the LEAs with the highest formula child rates (4 th and 5 th ranges) would receive a slightly larger share of Title I-A funds (45.37% compared to 45.26% under current law). Although this distribution indicates that the removal of the state minimum grant provisions would increase the targeting of Title I-A funds, the change is minimal. One reason state minimum grants do not play a large role in the targeting of Title I-A funds is that only five states received a minimum grant amount under all four formulas in FY2016. Conversely, if the LEA hold harmless provisions were removed, the targeting of Title I-A funds would decrease. LEAs with the lowest formula child rates (1 st and 2 nd ranges) would receive a larger share of Title I-A funds (36.09% compared to 35.92% under current law) and the LEAs with the highest formula child rates (4 th and 5 th ranges) would receive a smaller share of Title I-A funds (44.86% compared to 45.26% under current law). One reason why the removal of the hold harmless provisions may hinder the targeting of Title I-A funds is that, as previously discussed, LEAs with higher formula child rates receive higher hold harmless rates; thus, the hold harmless provisions may actually help to target Title I-A funds to areas with concentrations of formula children. However, the effect of removing the hold harmless provisions on the targeting of funds is relatively small, indicating that, like the minimum grant provisions, hold harmless provisions do not play a large role in it. When both state minimum grant and LEA hold harmless provisions are removed, the targeting of Title I-A funds on areas with concentrations of poverty does not seem to improve. While LEAs with the lowest formula child rates (1 st and 2 nd ranges) would receive a smaller share of Title I-A funds (35.81% compared to 35.92% under current law), LEAs with the highest formula child rates (4 th and 5 th ranges) also would receive a smaller share of Title I-A funds (45.06% compared to 45.27% under current law). The reason that removing both provisions does not increase targeting is because, as discussed above, the hold harmless provisions slightly improve targeting and removing these provisions decreases the targeting of Title I-A funds. Again, however, the effect of removing both the minimum grant and hold harmless provisions on the targeting of funds is relatively small, indicating that these provisions do not play a large role in it. Appendix A. Estimated Title I-A Grants Table A-1 shows the estimated FY2016 Title I-A grants to states and state grants per child included in the determination of Title I-A grants (formula children) under four funding scenarios: (1) current law, (2) assuming no state minimum grant provisions are applied, (3) assuming no LEA hold harmless provisions are applied, and (4) assuming no state minimum grant or LEA hold harmless provisions are applied. The formula child population used to determine Title I-A grants for the 50 states, the District of Columbia, and Puerto Rico consists of children ages 5 to 17 (1) living in poor families, (2) in institutions for neglected or delinquent children or in foster homes, and (3) in families receiving Temporary Assistance for Needy Families (TANF) payments above the poverty income level for a family of four. Children in poor families account for about 98% of the total formula child count. For the purposes of this analysis, all formula children in the state were included regardless of whether they were in an LEA that received a Title I-A grant or not (some LEAs that have formula children do not receive Title I-A grants). Table A-2 and Table A-3 show the 10 LEAs estimated to see the largest losses and gains, respectively, assuming no hold harmless provisions are applied. Table A-4 and Table A-5 show the 10 LEAs estimated to see the largest losses and gains, respectively, assuming no minimum grant provisions are applied. Table A-6 shows the estimated FY2016 Title I-A grants to states assuming the expenditure factor was calculated (1) as 50% of state average per pupil expenditures (APPE); (2) as 50% of the larger of state or national APPE; and (3) as 40% of state APPE, subject to a minimum and maximum. These expenditure factors correspond to (1) the expenditure factor that was originally included in the Title I-A formulas, (2) the expenditure factor used to determine FY1968 through FY1974 Title I-A grants, and (3) the expenditure factor under current law. Table A-7 shows the estimated FY2016 Title I-A grants to states and state grants per formula child under current law, assuming all Title I-A funds are allocated only via the Basic Grant formula (as was generally the case prior to FY1989), and assuming all Title I-A funds are allocated only via the Basic Grant and Concentration Grant formulas (as was the case between FY1989 and FY2002). FY2016 Title I-A grants under current law were calculated by ED. All other estimates were calculated by CRS. The Title I-A grant per formula child was calculated by dividing the state or LEA's total estimated Title I-A grant amount by the aforementioned formula child population. All estimated grants are provided solely to assist in comparisons of the relative impact of various formula factors and provisions. They are not intended to predict specific amounts that states or LEAs will receive. In addition, while the elimination of a provision may not result in a large change in a state's grant amount, the change in an LEA's grant amount could be more substantial. Appendix B. Targeting of Title I-A Funds to Areas with High Numbers of Formula Children The targeting analysis included in this report focuses on the targeting of Title I-A funds to LEAs with high percentages of formula children. Examining the targeting of Title I-A funds to LEAs with relatively high numbers of formula children indicates a similar pattern: the addition of Concentration Grants, Targeted Grants, and EFIG to Basic Grants has resulted in more effective targeting of Title I-A funds on concentrations of formula children, a proxy for concentrations of poverty. Table B-1 shows the targeting of FY2016 Title I-A funds to LEAs under each of the four Title I-A formulas using five formula child count ranges. For each formula, Table B-1 indicates the share of Title I-A funds under current law provided to each formula child count range. The formula child count ranges were calculated in the same manner as the formula child rate ranges discussed previously: CRS divided LEAs into five groups or ranges based on their formula child counts. Each range contains 20% of the formula children used to determine FY2016 grant amounts (i.e., approximately the same number of formula children, but not necessarily the same number of LEAs, is included in each range). Thus, if an equal amount of funding were allocated per formula child, each range would receive 20% of funds. If there were targeting of Title I-A funds on concentrations of formula children then ranges containing LEAs with higher formula child counts would receive a larger share of funding. The Basic Grant formula is the least effective formula at targeting funds on concentrations of formula children. In FY2016, LEAs with the lowest formula child counts (1 st and 2 nd ranges) received 41.69% of funds while LEAs with the highest formula child counts (4 th and 5 th ranges) received 39.03% of funds. LEAs in the 4 th range received the smallest share of Title I-A funds (19.13%). This distribution indicates that there is little targeting of Basic Grants to LEAs on the basis of having higher formula child counts. The distribution of funds under the Concentration Grant, Targeted Grant, and EFIG formulas is somewhat different than Basic Grants. Under each of these formulas, the share of funding increases as formula child counts increase. Under Concentration Grants, the share of funds spanned from 17.32% for LEAs in the 1 st range to 22.72% for LEAs in the 5 th range. Under Targeted Grants, the share of funds spanned from 15.41% for LEAs in the 1 st range to 27.53% for LEAs in the 5 th range. Similarly, under EFIG LEAs in the 1 st range received 14.85% of funds while LEAs in the 5 th range received 27.98% of funds. While this distribution of funds indicates that the Concentration Grant, Targeted Grant, and EFIG formulas all target funds to LEAs with higher counts of formula children, the Targeted Grant and EFIG formulas appear to target funds more effectively than Concentration Grants. This is demonstrated in the distribution of funds across the ranges—LEAs with the highest formula child counts received a larger share of funds and LEAs with the lowest formula child counts received a smaller share of funds under Targeted Grants and EFIG as compared to Concentration Grants. Under Concentration Grants, LEAs with the lowest formula child counts (1 st and 2 nd ranges) received 36.16% of funds while LEAs with the highest formula child counts (4 th and 5 th ranges) received 44.34% of funds. Under Targeted Grants, LEAs with the lowest formula child counts (1 st and 2 nd ranges) received 31.87% of funds while LEAs with the highest formula child counts (4 th and 5 th ranges) received 49.69% of funds. Under EFIG, LEAs with the lowest formula child counts (1 st and 2 nd ranges) received 31.00% of funds while LEAs with the highest formula child counts (4 th and 5 th ranges) received 50.85% of funds. Appendix C. Title I-A Appropriations Annual appropriations bills specify portions of each year's Title I-A appropriation to be allocated to LEAs and states under each of the Title I-A formulas. In FY2017, about 42% of Title I-A appropriations will be allocated through the Basic Grant formula, 9% through the Concentration Grant formula, and 25% through each of the Targeted Grant and EFIG formulas. Once funds reach LEAs, the amounts allocated under the four formulas are combined and used jointly. Table C-1 provides the appropriations level for Title I-A in current and constant dollars since FY1980. Following a decrease in the early 1980s, there has generally been an upward trend in Title I-A appropriations. The largest percentage increases since FY1980 occurred in the early 1990s and 2000s. Table C-2 provides the appropriations level and share by Title I-A formula since FY1980. As previously discussed, all post-FY2001 increases in Title I-A appropriations have been divided between Targeted Grants and EFIG. Thus, the share of appropriations allocated via the Targeted Grant and EFIG formulas has been steadily increasing while the share of appropriations allocated via the Basic Grant and Concentration Grant formulas has been steadily decreasing. Appendix D. Impact of Different Formula Factors on Grant Amounts Table D-1 and Table D-2 show the variance in Title I-A grant amounts explained by the different Title I-A formula factors. More specifically, Table D-1 and Table D-2 present information from regression analyses but look at the R squared values for each factor individually. As previously discussed, under the Basic Grant, Concentration Grant, and Targeted Grant formulas, funds are initially calculated at the LEA level, and state total grants are the total of allocations for LEAs in the state, adjusted to apply state minimum grant provisions. Under the EFIG formula, allocations are first calculated for each state overall, with state totals subsequently suballocated to LEAs using a different formula. Thus, for the purposes of this analysis, grants under the EFIG formula are examined at the state level while grants under the other three formulas are examined at the LEA level. Table D-1 shows the R squared values for LEA grant amounts based on LEA formula child counts and the state expenditure factor for Basic Grants, Concentration Grants, and Targeted Grants, as well as for overall LEA Title I-A grant amounts. Table D-2 provides R squared values for state level grants under the EFIG formula based on state formula child counts, state APPE, the state effort factor, and the state equity factor. For each grant amount, each formula factor is examined individually. For example, the R squared values for formula child counts were determined by regressing Title I-A grant amounts on only formula child counts. Thus, the R squared value reflects the variance in Title I-A grant amounts explained solely by formula child counts. Appendix E. Selected Acronyms Used in This Report AFDC: Aid to Families with Dependent Children APPE: Average per pupil expenditures ARRA: American Recovery and Reinvestment Act BIA: Bureau of Indian Affairs BIE: Bureau of Indian Education ED: U.S. Department of Education EFIG: Education Finance Incentive Grants ESEA: Elementary and Secondary Education Act ESSA: Every Student Succeeds Act LEA: Local educational agency NCLB: No Child Left Behind Act NDEA: National Defense Education Act NIE: National Institute of Education SAIPE: Small Area Income and Poverty Estimates SEA: State educational agency TANF: Temporary Assistance to Needy Families
|
The Elementary and Secondary Education Act (ESEA) is the primary source of federal aid to elementary and secondary education. The ESEA was last reauthorized by the Every Student Succeeds Act (ESSA; P.L. 114-95) in 2015. The Title I-A program has always been the largest grant program authorized under the ESEA. 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. The U.S. Department of Education (ED) determines Title I-A grants to local educational agencies (LEAs) based on four separate funding formulas: Basic Grants, Concentration Grants, Targeted Grants, and Education Finance Incentive Grants (EFIG). The current four-formula strategy has evolved over time, beginning with the Basic Grant formula when the ESEA was originally enacted in 1965. The Concentration Grant formula was added in the 1970s in an attempt to provide additional funding for LEAs with concentrations of poverty. During consideration of ESEA reauthorization in the early 1990s, there was an attempt to replace the two existing formulas with a new formula that would target Title I-A funds more effectively to areas with concentrations of poverty. Both the House and the Senate developed formulas intended to accomplish this goal (Targeted Grants and EFIG, respectively). A compromise on a single new formula was not reached; nor was there agreement on eliminating the existing formulas. As a result, funds are allocated through four formulas under current law. Title I-A grant amounts are primarily driven by the number of "formula children"—principally children from low-income families—in an LEA, although all four formulas also include an expenditure factor based on education expenditures, minimum grant provisions, and hold harmless provisions. Since the initial enactment of Title I-A in 1965, the formula(s) have been criticized for being more favorable to more densely populated and typically urban areas due to how children from low-income families are counted, and for being more favorable to wealthier states due to the inclusion of factors based on education expenditures. This report analyzes issues related to three of the major debates surrounding the Title I-A formulas: (1) the effect of different formula factors and provisions on grant amounts, (2) whether the formulas are more favorable to certain types of LEAs and states, and (3) how effectively the Title I-A formulas target funds on concentrations of poverty. The report is intended to complement CRS Report R44898, History of the ESEA Title I-A Formulas, which provides a detailed examination of the history of the Title I-A formulas and of the underlying tensions in the policy debates about the design of the formulas from enactment of the original ESEA through enactment of the ESSA. Some of the themes highlighted in this report are as follows. All four Title I-A formulas include both formula child counts and state average per pupil expenditures (APPE) as factors used to determine LEA grant amounts. Based on regression analysis, formula child counts are estimated to explain 95% of the variance in overall LEA grant amounts, while APPE is estimated to explain less than 1% of it. A similar pattern is found for each of the individual formulas, with formula child counts estimated to explain between 90% and 98% of the variance in grant amounts under each formula. The state minimum grant and LEA hold harmless provisions that are included in each of the four formulas provide a relatively large increase in overall grant amounts and grant amounts per formula child to the states and LEAs benefitting from these provisions, but result in a relatively small decrease in the Title I-A grant amounts of other states and LEAs. There has been an ongoing debate about whether the Title I-A formulas are more favorable to densely or less densely populated areas. This debate has centered on the relative emphasis that should be placed on the percentage of formula children versus the count of formula children in an LEA. Under current law, the debate is reflected in the two formula child weighting scales used in the determination of grants under the Targeted Grant and EFIG formulas. An LEA's grant is calculated using whichever weighting scale is more favorable. Both formulas were introduced to enhance targeting toward concentrations of low-income students and both apply weights based on the number of formula children served by LEAs or the percentage of an LEA's students that formula children comprise. The percentage weighting scale (intended to be more favorable to less densely populated areas) applies larger weights than the numbers weighting scale (intended to be more favorable to densely populated areas). This has the appearance of being advantageous to less densely populated areas. However, because the top category in each weighting scale is open-ended, LEAs with large numbers of formula children are often able to apply the highest weights in the scale to larger proportions of formula children. As a result, in general, LEAs whose weighted formula child counts are calculated using the numbers scale receive a higher grant per formula child than LEAs whose grants are calculated using the percentage scale. The expenditure factor used in the Title I-A formulas to account for differences in cost of living has changed over time. Historical changes that have placed bounds on the extent to which variation across states' APPE can influence allocations have resulted in the expenditure factor being more closely tied to national APPE. These changes have generally benefitted states with a state APPE that is less than the national APPE and not benefitted states with a state APPE that exceeds the national APPE. When changes to the expenditure factor that would loosen or remove bounds are examined, such changes typically allow it to vary more closely with state APPE and would favor states with relatively high APPEs and be disadvantageous to those with relatively low APPEs. Current expenditure factors allow for some consideration of variation across states' APPE in allocations but also limit the effect of variation on allocations. Since its initial enactment, the Title I-A program has been intended to address the effects that concentrations of low-income families have on the ability of LEAs to provide "adequate" educational programs. While there are clearly some concerns about whether having a high number or high percentage of formula children should result in larger LEA grants per formula child, there has also been a broader debate about how much to target Title I-A funds on areas with concentrations of poverty and how best to do so. While Title I-A funds currently reach LEAs with varying concentrations of formula children, a proxy measure for concentrations of poverty, the targeting of Title I-A funds on the basis of higher concentrations of formula children has increased over time (measured by either numbers or percentage of such children in LEAs) . The addition of Concentration Grants, Targeted Grants, and EFIG to Title I-A did, to some extent, improve the targeting of funds to LEAs in this manner. Among the four Title I-A formulas, the newest formulas (Targeted Grants and EFIG), which are allocating growing shares of Title I-A funds in recent years, appear to be most effective at targeting funds toward higher concentrations of poverty.
|
Several actions occurred throughout the past year related to foreign aid reform, including: On December 15, 2010, Secretary of State Hillary Clinton released the Obama Administration's Quadrennial Diplomacy and Development Review (QDDR), outlining the direction for foreign aid reform and elevating as well as integrating diplomacy and development to be more effective and more on par with defense as foreign policy tools. On September 22, 2010, President Obama signed a Presidential Policy Directive (PPD) on Global Development emanating from the Presidential Study Directive on Global Development (PSD-7) to improve agency coordination and identify foreign aid with foreign investment. The directive places a premium on economic growth and democratic governance, uses a new business model to be a more effective development partner, and creates a new government architecture that elevates development as a key pillar of U.S. foreign policy. On June 29, 2010, House Foreign Affairs Committee Chairman Berman released a discussion draft, "Global Partnerships Act of 2010," which provided a preamble and first title of the House bill to revamp the Foreign Assistance Act of 1961. The discussion draft established a new framework for U.S. foreign aid; stated seven purposes of foreign assistance, placing "Reducing Global Poverty and Alleviating Human Suffering" as the number one purpose; and required the President to develop and implement rigorous monitoring and evaluation systems. It also provided authorization language to create a Development Support Fund to encourage long-term, sustainable development activities in developing countries. The President released the National Security Strategy in May 2010, providing a glimpse of some foreign aid priorities within the Administration's national security agenda. Among other things, the strategy included a "whole-of-government" approach to integrate all tools, including those in defense, diplomacy, and development, and to improve coordination of foreign assistance programs, as well as activities advancing democracy and human rights. It emphasized improved working relationships with allies and partners, expanding multilateral development institutions, engaging others to share the burden, and investing in long-term development activities. For years, many foreign aid experts have expressed concern about ongoing inefficiencies associated with the overall organization, effectiveness, and management of U.S. foreign aid. Specific problems most commonly cited include the lack of a national foreign assistance strategy; failure to elevate the importance and funding of foreign aid to be on par with diplomacy and defense as a foreign policy tool; lack of coordination among the large number of Cabinet-level departments and agencies involved in foreign aid, as well as fragmented foreign aid funding; a need to better leverage U.S. multilateral aid to influence country or program directions; and a lack of visibility at the Cabinet level for the U.S. Agency for International Development (USAID)—the primary administrator of aid programs. Also related is the debate among some lawmakers and policymakers about how to strengthen USAID's role in aid planning, decision making, and implementation, as well as whether to designate it as the lead coordinator of all entities involved with U.S. development and humanitarian assistance programs in Washington and in aid-recipient countries. Regarding aid programs, some cite a lack of flexibility and responsiveness of aid programs to react quickly to events and needs on the ground. Another criticism is a perceived lack of progress in some countries that have been aid recipients for decades. And a growing concern, especially on the part of the nongovernmental organization (NGO) community, is the increasing involvement of the Department of Defense (DOD) in disbursing foreign aid, rising from 29% in 2001 to 60% in 2007 (including aid to Iraq and Afghanistan). The Foreign Assistance Act of 1961 (FAA), as amended (P.L. 87-195; 22 U.S.C. 2151 and following, the main statutory basis for aid programs), is viewed by most development experts as being outdated and not reflecting current international conditions. It contains an emphasis on the Cold War and communism with a multitude of goals and outdated priorities and directives, many of which have been appended piecemeal to the original act. In addition, Congress has enacted over 20 other pieces of legislation establishing foreign aid authorities outside the FAA, adding to the diffusion of aid responsibility and initiatives within U.S. foreign policy overall. Many claim that the FAA needs to be rewritten in order to streamline and add coherence to a piece of legislation that has been amended frequently since its enactment nearly 50 years ago. Recommendations on rewriting the FAA include stripping foreign aid legislation of fragmentary earmarks, aid restrictions, and aid procurement rules; refocusing aid on the core mission of poverty reduction; and restructuring aid legislation to set development goals based not on outdated Cold War-era policy, but rather on the realities facing the United States in a post-9/11 environment. A number of nongovernmental organizations, development experts, and policy makers have pressed Congress and the Administration to take steps to reform the U.S. foreign aid program. Several actions occurred in 2009 and 2010, including introduction of legislation to reform certain aspects of foreign aid, a State Department announcement of a quadrennial review, and a Presidential Study Directive (PSD) on U.S. Global Development Policy. Over the years, interest in diplomacy and development as foreign policy tools has crossed the political spectrum. The terrorist attacks in 2001, however, highlighted a renewed interest in the benefits of diplomacy and development working more effectively along with defense toward U.S. national security goals. Both the Bush and the Obama Administrations, as well as Republican and Democratic Members of Congress, have expressed support for strengthening these tools. Soon after the 9/11 terrorist attacks, the George W. Bush Administration directly linked diplomacy and development to national security interests of the United States and stated the importance of elevating diplomacy and development to be more on par with defense. In its 2002 National Security Strategy the Bush Administration stated, "We will actively work to bring hope of democracy, development, free markets, and free trade to every corner of the world." Continuing that theme in the 2006 National Security Strategy, the Administration said, "Development reinforces diplomacy and defense, reducing long-term threats to our national security by helping to build stable, prosperous, and peaceful societies. Improving the way we use foreign assistance will make it more effective in strengthening responsible governments, responding to suffering, and improving people's lives." In the FY2007 foreign affairs budget request, the Bush Administration stated, "There are no hard lines between our security interests, our development interests, and our democratic goals." Many observers, however, have questioned whether the rhetoric has been matched by related policies. By the first term of the George W. Bush Administration, after years of declining aid funding, there was widespread agreement that foreign aid was an important U.S. foreign policy tool and reform of it would be necessary for aid to achieve optimal effectiveness in its contribution toward U.S. foreign policy and national security goals. In August 2003, then-Secretary of State Colin Powell and USAID Administrator Andrew Natsios released their Strategic Plan, Fiscal Years 2004-2009, Aligning Diplomacy and Development Assistance . Its mission statement said, "In the coming years, the principal aims of the Department of State and USAID are clear. These aims are anchored in the President's National Security Strategy and its three underlying and interdependent components—diplomacy, development, and defense." The Bush Administration made several changes to the foreign aid structure, in addition to significantly increasing its overall budget. The President's Emergency Plan for AIDS Relief, the largest program targeting a single disease, was announced in 2003. In 2004, the Administration established the Millennium Challenge Corporation, an independent government entity that provides aid to countries that demonstrate good governance practices, economic reforms, and the capability to use aid effectively. In 2005, then-Secretary of State Condoleezza Rice announced the concept of transformational diplomacy and development to "enhance the accountability, effectiveness, efficiency, and credibility of foreign assistance by introducing a system of coordinated planning, budgeting, and evaluation." Transformational development resulted in what was commonly referred to as the F process . In 2006, Secretary of State Condoleezza Rice created the Foreign Assistance (F) Bureau and a new position—Director of Foreign Assistance (DFA)—within the Department of State to more closely align the USAID budget and activities with the State Department's foreign policy objectives. The F process was to develop a coherent, coordinated foreign assistance strategy; provide multiyear country-specific assistance strategies; consolidate policy planning, budget, and implementation mechanisms to improve leadership in aid activities; and provide guidance for other government agencies involved in aid activities. The F Bureau developed a Strategic Framework for Foreign Assistance to align U.S. aid programs with strategic objectives. The Framework guided the writing of the FY2008 and FY2009 budgets under President Bush. During the Bush Administration an increasing portion of total aid was being delivered by DOD, largely due to the wars in Iraq and Afghanistan involving emergency humanitarian assistance, as well as reconstruction and stabilization activities. DOD's role in disbursing foreign aid has its advocates and detractors in State, DOD, and the NGO community. NGOs increasingly have voiced their concern about people in military uniforms handing out American aid. Secretary of Defense Robert Gates has stated in the past that DOD personnel do not have expertise or the mission for delivering aid. The Barack Obama Administration acknowledges the need to elevate diplomacy and development and, at the same time, acquire the right balance with defense. Transitioning into the Obama Administration, Secretary of Defense Robert Gates, a carryover member of the Bush Administration, stated in early 2009 that there needs to be a balance with development supporting diplomacy and working together with defense to achieve national security goals. Secretary of State Hillary Clinton spoke on several occasions about the importance of the diplomacy and development dimensions in executing "smart power" and outlined six steps the Administration has already taken to improve foreign aid, including partnering with aid-recipient countries rather than dictating uses of aid; seeking a "whole-of-government" approach to integrate more fully and coordinate development activities among all aid-implementing agencies, but particularly those involved with defense and diplomacy; and targeting investment and technical support in a few sectors, such as agriculture, health, security, education, energy, and local governance. She has emphasized that this does not mean the United States will give up long-term development goals for short-term objectives, or hand over more development work to diplomats and defense experts. For example, in one speech she stated, "What we will do is leverage the expertise of our diplomats and military on behalf of development, and vice versa. The three Ds (defense, diplomacy, development) must be mutually reinforcing." Some foreign aid and national security experts have suggested that interagency cooperation on foreign policy objectives and improvements in U.S. national security with a "whole-of-government approach" could emanate from a foreign affairs quadrennial review process similar to DOD's Quadrennial Defense Review (QDR), which assesses whether U.S. national defense strategy supports U.S. national security objectives. In 2007, for example, the HELP Commission recommended a Quadrennial Development and Humanitarian Assistance Review (QDHR) to require that U.S. development efforts be reviewed every four years to evaluate their effectiveness. According to the commission, this review should propose any needed changes to U.S. development objectives and how the government approaches them. The contents of this document should influence both the National Security Strategy (NSS) and the National International Affairs Strategy (NIAS) and should be modeled on the Quadrennial Defense Review. Reviews might also be conducted for other functions of civilian foreign affairs. Many in the 111 th Congress and the Obama Administration agreed on establishing a quadrennial review for the civilian foreign affairs agencies. While the President can establish a quadrennial review without congressional action, having it in statute would ensure that a review will take place every four years, regardless of future presidential priorities. On July 10, 2009, Secretary of State Clinton launched a new Quadrennial Diplomacy and Development Review (QDDR), modeled after the Pentagon's Quadrennial Defense Review. The primary goal of the QDDR, according to Department of State officials, was to strengthen the institutional capabilities of the civilian foreign affairs agencies to meet 21 st -century demands. The focus, they said, would be on the diplomacy and development tools that currently exist and how to make them more effective, agile, and complementary. The review would also consider what State and USAID capabilities will be needed in 10 years, and what needs to be done to achieve them. The intention, according to Secretary Clinton, was to elevate diplomacy and development as key pillars of our national security strategy. Initiating the QDDR was just the beginning of a longer-term process to institutionalize an ethic of review, analysis, and responsiveness, the Secretary said. The first ever Quadrennial Diplomacy and Development Review (QDDR), released December 2010, provides a road map for the direction the Obama Administration intends to go in adapting foreign policy agencies and personnel to the 21 st -century world, elevating civilian power alongside military power as co-equal tools in achieving U.S. foreign policy goals, reforming foreign aid, improving program coordination, and monitoring and assessing aid programs to promote performance-based resource allocations in the future. The QDDR provides both overarching and organizational recommendations. The QDDR contains a number of broad recommendations intended to create an atmosphere promoting accountability and coordination of foreign aid actors. These recommendations include the following: Holding Chiefs of Missions accountable as Chief Executive Officers of interagency missions and empowering the Chiefs of Missions with the authority to direct, supervise, and coordinate all civilian personnel at overseas posts. In addition, the Department of State will also seek input from other agencies in reviewing the performance of the Chiefs of Missions. Replacing the Civilian Reserve Corps with an Expert Corps to draw on expertise across the government agencies and in the private sector, but seeking expertise in other federal agencies when appropriate, before turning to private contractors. This will be more cost effective and will help federal agencies build lasting relationships and skills in the field. Embracing the latest technologies for global networking and collaboration and to improve availability of resources where they are most needed. Focusing on gender equality and incorporating women and girls into overseas investments and efforts. Making public diplomacy a key aspect of U.S. diplomacy by building regional media hubs staffed by skilled communications experts to allow the United States to participate in public dialogue anywhere and instantly. Creating a more balanced mix of direct-hire personnel and contractors to enable the U.S. government to be flexible, but also set priorities, make policy decisions, and properly oversee grants and contracts. Changing past practices of spreading aid too thin by focusing development efforts on six specific areas: sustainable economic growth, food security, global health, climate change, democracy and governance, and humanitarian assistance. Making USAID the lead agency for Food Security and Global Health. Ensuring that funding is linked to performance and strategic plans and making aid more transparent via USAID's "Dashboard." Monitoring and evaluating programs better to measure performance, stay with what works, and guide resource requests. Establishing multi-year strategic plans for State and USAID that guide resource requests and use, and better align budgets to transition to a multi-year budget formulation based on country and bureau strategies. As of FY2013, USAID will submit a comprehensive budget proposal, with the Secretary of State's approval, that will be included in the broader State-Foreign Operations request. The QDDR recommends numerous structural changes, primarily in the Department of State, to improve coordination of aid, but also to promote foreign aid activities of interest to the Obama Administration. Some will be accomplished by renaming and refocusing existing entities. Others may need new authorities. For example, it seeks to create an Under Secretary for Economic Growth, Energy and the Environment to enhance U.S. effectiveness on these global issues; establish a new Bureau for Energy Resources; elevate economic diplomacy as an essential strand of foreign policy and appointing a Chief Economist to create an early warning system to identify issues at the intersection of economics, security, and politics; create an Under Secretary for Civilian Security, Democracy and Human Rights to advance human security; expand the role of the Under Secretary for Arms Control and International Security Affairs by establishing a new Bureau for Arms Control, Verification, and Compliance; restructuring the Bureau of international Security and Nonproliferation; establish (with Congress) a Bureau for Counterterrorism; establish a Coordinator for Cyber Issues; make specific changes to regional bureaus and the Bureau of International Organization Affairs to integrate regional and multilateral institutions; and establish regional embassy hubs for experts in cross-cutting issues such as climate change, or conflict resolution. On August 31, 2009, President Obama authorized a Presidential Study Directive on U.S. Global Development Policy (PSD-7) to provide a U.S. government-wide review of global development policy ( http://www.modernizingforeignassistance.org/ blog/ 2009/ 09/ 02/ white-house-joins-the-party-on-development-policy/ ). This inter-agency review signaled an interest in a more coordinated and strategic approach to development policy. It evaluated existing U.S. development activities, going beyond the Department of State and USAID to include Departments of Defense, Treasury, Agriculture and others in seeking to meet the complex challenges of the day, including global poverty, hunger and disease, as well as conflicts in Iraq and Afghanistan. The PSD process was co-chaired by National Security Advisor James Jones and National Economic Council Director Lawrence Summers. An interagency committee representing 16 government departments and agencies conducted the study. The committee was chaired by the National Security Council Senior Director for Development and Democracy, Gayle Smith. The committee's work was reviewed by both the National Security Council and the National Economic Council. In addition, the PSD team consulted with House and Senate foreign affairs committee staff, according to an NSC official involved with the PSD. The PSD was conducted at the request of the President to formulate a global development policy for the entire executive branch, unlike the QDDR which was initiated by the Secretary of State and was conducted by the Department of State and USAID to improve their institutional capabilities and resources. According to Administration officials, the two processes were coordinated, complementary, and mutually reinforcing; senior officials leading the QDDR were also members of the committee carrying out the PSD. In early May 2010, a copy of a draft PSD report became available to the public. The draft, A New Way Forward on Global Development , established a deliberate development policy that would, among other things, foster emerging markets and democratic governance, leverage the power of research and development, invest in sustainable systems that promote development within countries such as health and food production, tailor development strategies to fit each country, and improve coordination between the Department of State and USAID. Similar to the National Security Strategy, the PSD draft emphasized elevating development as a central pillar of our national security strategy by including USAID in National Security Council meetings when appropriate. Previously referred to as the Presidential Study Directive on Global Development (PSD-7), President Obama signed the Presidential Policy Directive (PPD) on Global Development on September 22, 2010. The PPD underscores the need to elevate development as a pillar of U.S. national security policy and reestablish the United States as the global leader on international development. The intent is for development, diplomacy, and defense to be mutually reinforcing and complementary. Within the context of the PPD, the Administration names USAID as the lead agency on development and establishes a global development advisory committee. It also identifies three pillars of its global development policy: focusing on sustainable development outcomes, leveraging leadership while becoming a more effective partner, and harnessing development capabilities to support common objectives. In support of these three pillars, the Administration cites several new approaches: elevate broad-based economic growth as a top priority; seek increased use of new technologies in development, such as vaccines for neglected diseases, weather-resistant seed varieties, and clean energy innovations; balance use of military and civilian power in conflict and humanitarian crises; adopt metrics related to objectives to measure progress; be more selective on which countries and sectors get attention; seek to establish country ownership and responsibility where aid recipients show high standards of transparency, good governance, and accountability; establish a division of labor with other aid donors to avoid duplication of resources and efforts while filling gaps; strengthen U.S. support of multilateral development organizations; and increase resources and efforts to monitor and evaluate programs and reallocate aid resources accordingly. Within the context of the PPD, the Administration seeks a closer working relationship with Congress on global development, including getting greater flexibility and a reduction in aid funding directives. Three initiatives of the PPD include 1. Feed the Future (FTF), which promotes food security by collaborating with other donors and the private sector to chart country-owned strategies, including helping poor farmers increase production, market their goods, and earn a greater income; 2. Global Health Initiative (GHI), which builds on President George W. Bush's President's Emergency Program for AIDs Relief (PEPFAR) by implementing lessons learned over the past decade; and 3. Global Climate Change Initiative (GCCI), which will integrate climate change considerations into foreign assistance programs. Several foreign aid experts and organizations assert that before foreign aid reform can be successful, a national strategy should be in place to identify the goals for reform and to be able to determine if reform is moving aid in the direction of those goals. The HELP (Helping to Enhance the Livelihood of People around the Globe) Commission, a 21-member bipartisan commission established by Congress in the Consolidated Appropriations Act, 2004 ( P.L. 108-199 ), reported that civilian foreign affairs would be well-served by imposing the same rigor to U.S. foreign assistance planning that is required in formulating the nation's security and defense policies. These security policies are guided by long-term strategies, developed by the executive branch, and presented regularly to the legislative branch. The commission recommended requiring a National International Affairs Strategy to further elaborate U.S. international affairs objectives on both global and regional levels, as well as country-by-country. The proposed strategy would also outline government-wide capabilities and assistance needed to achieve these objectives. This strategy would cover all efforts funded by the International Affairs (150) budget function. The Government Accountability Office recommends that the Secretary of State work with all U.S. government entities involved in the delivery of foreign assistance to develop and implement a comprehensive, government-wide foreign assistance strategy, complete with time frames and measures for successful implementation. Involving other agencies in this effort could include adopting key practices that we have found to sustain and enhance interagency coordination and collaboration in addressing common goals. In May 2010, President Obama released his overall National Security Strategy. Chapters included "Invest in the Capacity of Strong and Capable Partners," "Accelerate Sustainable Development," and "Promote Democracy and Human Rights Abroad." The National Security Strategy emphasized a whole-of-government approach to integrating and coordinating agencies and tools, including those of development and diplomacy, to advance our 21 st century interests and security. While this was not the same as a national strategy on development, it gave a sense of some development priorities of this Administration, including working more effectively with aid recipients as partners, encouraging greater burden sharing among U.S. allies, investing in long-term development, and advancing democracy and human rights. Many in the 111 th Congress believed that mandating clear objectives for foreign aid, assessing whether or not aid is meeting those objectives, and then reporting on the findings are essential requirements for effective foreign aid reform. Establishing criteria and anticipated results for a more effective foreign aid program would result in elevating the status of development as a foreign policy tool, experts asserted. During the 111 th Congress, Chairman Berman stated on the House Foreign Affairs Committee website that foreign aid reform was a priority; Senator Kerry (chair) and Senator Lugar (ranking member) of the Senate Committee on Foreign Relations, in a dear colleague letter, said: "In order for foreign aid to play its critical role, we must ensure that it is both effective and efficient." Legislation considered by the 111 th Congress included some of those basic elements. Some praised the measures as good first steps in reforming foreign aid. At the same time, others criticized the legislation for not going far enough toward overhauling aid in order to elevate development's status to where it can help toward reaching U.S. foreign policy goals. Legislators in 2009 and 2010 held differing views on what was needed to adequately reform U.S. foreign aid, but many generally agreed that reform was needed. Representative Berman believed repealing the Foreign Assistance Act of 1961 and replacing it with a completely new act was necessary to achieve an aid program that reflects the challenges of the 21 st century rather than the old Cold War mentality. A new act could state the broad purposes of assistance, such as reducing poverty, advancing peace, supporting human rights and democracy, building strategic partnerships, combating transnational threats, sustaining the global environment, and expanding prosperity through trade and investment. Flexibility in Washington through broader aid waiver and transfer authorities and streamlined reporting requirements, as well as greater flexibility in providing aid to recipient countries, could also be desirable. Transparency for the American public to see how their tax dollars are being spent on foreign assistance was another goal. Additionally, Representative Berman supported elevating and strengthening USAID to play a greater global development leadership and coordination role. From July 2009 to May 2010, the chairman of the House Foreign Affairs Committee released a Concept Paper on Foreign Aid Reform and three discussion papers on Development Assistance Reforms , Peacebuilding (released jointly with the Senate Foreign Relations Committee majority), and Human Rights and Democracy . Released on June 29, 2010, was a discussion draft, "Global Partnerships Act of 2010," that provided the preamble and Title I of a foreign aid reform bill. It listed seven purposes of foreign aid, placing reducing global poverty and alleviating human suffering at the top of the list. It would have required the President to develop a rigorous evaluation and monitoring system and coordinate these activities among all agencies that implement foreign aid programs. The draft also encouraged private sector involvement in foreign aid and would have authorized Development Support Funds to encourage development of local capacity and sustainable institutions in the developing country. Senator Kerry, chairman of the Senate Foreign Relations Committee, generally concurred with the importance of development, stating in a Senate report that "development is a third pillar of U.S. national security, but in resources and stature, our assistance programs are poor cousins to diplomacy and defense. Bolstering USAID's relevance was contingent on three areas: (1) attendance at Cabinet meetings; (2) direct access to OMB on USAID's budget matters; and (3) attendance at all relevant National Security Council meetings." USAID also should take the lead in the field with the USAID mission director having primary responsibility for coordinating all U.S. development and humanitarian assistance activities in any recipient country, the report said. Senator Lugar, ranking minority member of the Senate Foreign Relations Committee, agreed that USAID should be the leading development agency and urged building USAID capacity by increasing its staffing and training. "To be a full partner in support of foreign policy objectives, USAID must have the capacity to participate in policy, planning, and budgeting." Both Senator Kerry and Senator Lugar supported creating an independent evaluation group to measure and evaluate the impact of all U.S. foreign aid programs across all government entities. In comparison, a 2010 House Foreign Affairs Committee concept paper from the Republican minority stated that comprehensive foreign aid reform should occur before increasing aid funding to avoid simply relabeling authorities without addressing the real challenges. Rewriting the Foreign Assistance Act of 1961 alone is not the answer, the paper stated. Also, it noted that U.S. foreign aid needs to end "top-down approaches," giving aid to foreign government ministries' budgets with little real benefit to the poorest in the country. The committee minority in FY2010 supported moving countries from aid toward trade and investment programs; efficiency and accountability should be required in determining the compensation of top staff of NGOs involved in foreign aid implementation; multilateral aid program reform should accompany U.S. foreign aid program reform; and objective criteria for assessing when aid recipient countries should graduate from U.S. programs should be included in any aid reform, it said. Legislation involving foreign aid reform provisions before the 111 th Congress included the following: On June 10, 2009, the House passed the Foreign Relations Authorization Act, Fiscal Years 2010 and 2011 ( H.R. 2410 ) that contained Sec. 302, Quadrennial Review of Diplomacy and Development (QRDD). This measure would have required the President to develop a national strategy on diplomacy and development by December 1, 2010, conduct a quadrennial review every four years, and consult with Congress on developing the national strategy. S. 1524 , the Foreign Assistance Revitalization and A ccountability Act of 2009 , was introduced by Senator Kerry, Senator Lugar and others on July 28, 2009. The Senate Foreign Relations Committee reported the bill on November 17, 2009. It would have re-established within USAID a Bureau for Policy and Strategic Planning (closed during the Bush Administration and replaced by F) to be responsible for developing and formulating development policy in support of U.S. policy objectives. The bureau would have ensured long-term strategic planning for development policy and programs across regions and sectors and would have integrated monitoring and evaluation into overall decision making and strategic planning. Within that bureau the bill would have established an Office for Learning, Evaluation, and Analysis in Development to develop, coordinate, and conduct the monitoring of resources and evaluation of programs. The legislation sought to strengthen and coordinate U.S. foreign aid overseas by directing USAID's mission director in each country to coordinate all U.S. development and humanitarian assistance there. Furthermore, the bill would have established an independent Council on Research and Evaluation of Foreign Assistance to objectively evaluate the impact and results of all development and foreign aid programs undertaken by the U.S. government; and it would have re-established a center in USAID to build on what works and learn from what does not. The bill would have improved USAID's human resources capacity with new hiring and training and, similar to H.R. 2139 (below), would have promoted transparency regarding U.S. aid by requiring the President to publish information, on a program-by-program basis and country-by-country basis, in the Federal Register , including what projects are being implemented, as well as their outcomes. This was to allow American taxpayers and recipients of U.S. foreign aid to have full access to information on foreign assistance expenditures. S. 1524 also urged the President to participate in multilateral efforts for international aid transparency, as established on September 4, 2008, at the Accra High Level Forum on Aid Effectiveness. H.R. 2139 , Initiating Foreign Assistance Reform Act of 2009 , introduced by Representatives Berman and Kirk on April 28, 2009 and referred to the House Committee on Foreign Affairs, would have: required the President to develop and implement, on an interagency basis, a "National Strategy for Global Development;" developed a monitoring and evaluation system; and established a foreign assistance evaluation advisory council. Like S. 1524 , the bill expressed the sense of Congress that American taxpayers and recipients of U.S. foreign aid should have full access to information on U.S. foreign assistance, and that the President would be required to publish on a program-by-program basis and country-by-country basis information in the Federal Register . The bill urged the President to participate in multilateral efforts to engage in international transparency, as agreed to on September 4, 2008, at the Accra High Level Forum on Aid Effectiveness. H.R. 2387 , Strategy and Effectiveness of Foreign Policy and Assistance Act of 2009, introduced by Representative Ros-Lehtinen and others on May 13, 2009, and referred to the House Committee on Foreign Affairs, stated the sense of Congress that (1) the Secretary of State and the USAID Administrator should make funding decisions on the basis of a long-term strategy that addresses national security, diplomatic and foreign assistance objectives, and the needs of the United States; and (2) foreign affairs agencies' budget requests should be more effectively integrated with national security objectives, program evaluation, and management. The legislation required reports for both. The 111 th Congress was ultimately unable to pass foreign aid reform legislation. Some suggest that foreign aid reform may be of interest to the 112 th Congress as a way to improve aid effectiveness and reduce costs. The QDDR and the PSD's resulting Presidential Policy Directive on Global Development may have funding implications for the FY2012 foreign affairs budget and may create a need for new authorizing legislation in the 112 th Congress. Possible passage of legislation by the 112 th Congress requiring a national strategy and putting in statute an ongoing four-year review could provide clarity on the value of diplomacy and development. Building on those efforts, congressional action on foreign aid reform, whether in the form of a "first step" measure or landmark legislation might, in the short run, improve the cost effectiveness of foreign aid (with better monitoring and assessment of what works and what does not) and provide more performance-related results in future years—efforts, perhaps, that American taxpayers, national security experts, and development proponents could mutually support.
|
Several development proponents, nongovernmental organizations (NGOs), and policymakers have pressed Congress to reform U.S. foreign aid capabilities to better address 21st century development needs and national security challenges. Over the past 50 years, the legislative foundation for U.S. foreign aid has evolved largely by amending the Foreign Assistance Act of 1961 (P.L. 87-195), the primary statutory basis for U.S. foreign aid programs, and enacting separate freestanding laws to reflect specific U.S. foreign policy interests. Many describe U.S. aid programs as fragmented, cumbersome, and not finely tuned to address overseas needs or U.S. national security interests. Lack of a comprehensive congressional reauthorization of foreign aid for half of those 50 years compounds the perceived weakness of U.S. aid programs and statutes. The structure of U.S. foreign aid entities, as well as implementation and follow-up monitoring of the effectiveness of aid programs, have come under increasing scrutiny in recent years. Criticisms include a lack of focus and coherence overall; too many agencies involved in delivering aid with inadequate coordination or leadership; lack of flexibility, responsiveness, and transparency of aid programs; and a perceived lack of progress in some countries that have been aid recipients for decades. Over the last decade a number of observers have expressed a growing concern about the increasing involvement of the Department of Defense in foreign aid activities. At issue, too, has been whether the U.S. Agency for International Development (USAID) or the Department of State should be designated as the lead agency in delivering, monitoring, and assessing aid, and what the relationship between the two should be. The Obama Administration, led by Secretary of State Hillary Clinton, Secretary of Defense Robert M. Gates, and USAID Administrator Rajiv Shah, announced action to seek solutions to the problems associated with foreign aid and begin the process of reform. Secretary Clinton announced in July 2009 that the Department of State would conduct a Quadrennial Diplomacy and Development Review (QDDR) to address issues involving State Department and USAID capabilities and resources to meet 21st century demands. In September 2010, the President signed a Presidential Study Directive (PSD) on U.S. Global Development Policy to address overarching government department and agency issues regarding foreign aid activities and coordination. Secretary Clinton presented the QDDR report in December 2010. Foreign aid reform was a key area of focus throughout the 111th Congress, although no comprehensive reform legislation was enacted. Representative Berman, then-chairman of the House Foreign Affairs Committee (HFAC) in the 111th Congress, stated on the committee website in 2009 and 2010 how foreign assistance reform was a top priority. In 2009, he introduced H.R. 2139, Initiating Foreign Assistance Reform Act of 2009. Between July 2009 and May 2010, Chairman Berman released several discussion papers on foreign aid reform, as well as a discussion draft of the first 55 pages of possible foreign aid reform legislation. In the Senate, Senator Kerry, chairman of the Senate Foreign Relations Committee (SFRC), Senator Lugar, ranking minority member, and others introduced a reform bill, S. 1524, the Foreign Assistance Revitalization and Accountability Act of 2009. The Senate did not consider H.R. 2410, the House-passed Foreign Relations Authorization Act of 2010 and 2011 requiring a national strategy for development and a quadrennial review of diplomacy and development. Foreign aid reform may continue to be a concern in the 112th Congress. This report addresses aid reform through early 2011 and will not be updated.
|
The Taxpayer Relief Act of 1997 ( P.L. 105-34 ) created a $500-per-child nonrefundable tax credit to help ease the financial burden that families incur when they have children. Since 2001, legislative changes, particularly those made by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16 ) and the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ), have altered the structure of this tax benefit. Specifically, the amount of the credit per child has increased and the credit has been made partially refundable, expanding the availability of the credit to some low-income families. The American Taxpayer Relief Act (ATRA; P.L. 112-240 ) made the EGTRRA changes to the child tax credit permanent. The Protecting Americans from Tax Hikes (PATH) Act (Division Q of P.L. 114-113 ) made the ARRA change to the child tax credit permanent. The goal of this report is to analyze the economic impact of the child tax credit. This report first provides a brief overview of the current structure of the credit, followed by an economic and distributional analysis of the credit. The economic analysis focuses on the equity (i.e., "fairness) of this tax provision, based on different definitions of equity, and examines the limited impact of the credit on taxpayer behavior. This report does not provide an in-depth examination of the history of the credit. Families with children may be eligible to claim a tax credit for each eligible child, subtracting the amount of the credit from their tax bill in order to reduce the taxes they owe. The child tax credit has three key features. Amount: The credit equals a maximum of $1,000 per child. Refundability: Families with little or no income tax liability may be able to claim the credit as a refund. The amount of the refund is equal to 15% of a taxpayer's earnings above $3,000, up to the maximum amount of credit for the family. This is referred to as the "earned income" refundability formula. Phase-out: The credit is phased out for higher-income taxpayers. Specifically, the credit is reduced by $50 for every $1,000 a family's modified adjusted gross income (AGI) exceeds specific income thresholds. The monetary parameters of the credit (credit amount, refundability threshold, and phase-out threshold) are not indexed for inflation. The child tax credit can also offset a taxpayer's alternative minimum tax (AMT) liability. The current structure of the child tax credit benefits taxpayers over a wide range of income, as illustrated by Table 1 . Roughly half (52.4%) of the child tax credit benefits go to taxpayers with cash incomes under $40,000, whereas the other half go to those making more than $40,000. Roughly the same proportion of the child tax credit goes to taxpayers with AGI between $10,000 and $20,000 ($18.0%) as goes to those with AGI between $50,000 and $75,000 (16.9%), underscoring the fact that this tax credit provides significant benefits to both low-income and middle-income families. Most taxpayers with incomes above $200,000 will be ineligible for the credit due to the phase-out thresholds. EGTRRA and ARRA, which first made the credit partially refundable and then expanded refundability respectively, expanded the credit's availability to lower-income Americans, especially those with incomes between $10,000 and $20,000. Prior to this expansion, the credit was largely available only to middle- and upper-middle-income taxpayers. As previously noted, the EGTRRA provisions were made permanent by ATRA, while the ARRA changes were made permanent by the PATH Act. Although the current credit is generally available to low-income taxpayers, it provides little benefit to extremely poor taxpayers. Taxpayers with incomes under $10,000 receive 3.6% of the child tax credit, even though they make up 16.8% of tax units. This suggests that this provision may not benefit the very poor in proportion to their population. Taxpayers with very low income (i.e., less than $10,000) do not benefit from the child tax credit (or receive a very small credit, less than $1,000 per child) for two reasons. First, taxpayers with very low income do not have any income tax liability and so cannot claim the nonrefundable portion of the child tax credit. Even if the taxpayer had one qualifying child—and so would be able to reduce their tax liability by $1,000—if they do not owe any federal income taxes, they cannot reduce their taxes by the credit amount. This is one rationale for making tax credits refundable (i.e., available to taxpayers with little or no tax liability). The child tax credit is refundable. However, the child tax credit is only refundable if taxpayers have earnings above $3,000, and the refund is calculated as 15 cents for every dollar of earnings above this $3,000 threshold. Hence, the second reason the very poor do not claim the credit, or claim less than the full value of the credit, is that their low income prevents them from fully benefiting from the refundable portion of the credit. For example, a taxpayer with two children and earnings of $10,000 would, based on the refundability formula, be eligible for $1,050 in child tax credits, as opposed to the maximum amount of $2,000. A taxpayer with two children needs $16,333 in earnings to be able to claim the full $2,000 of child tax credit. Generally, economists evaluate tax policy—like the child tax credit—through three different lenses: the equity (or fairness) of the provision (which necessitates defining fairness), how the tax provision affects taxpayers' behavior (again, the intended behavior must be specified), and the complexity of administering the tax provision. These three lenses are often referred to as equity, efficiency, and administration, respectively. A provision may be seen differently through these lenses. For example, a tax provision may simplify the tax code (improve administration), but result in an undesirable behavior (reduce efficiency). Hence economists tend to evaluate a tax provision using these three approaches to provide the most complete economic analysis of the provision. As with other tax provisions, this report will analyze the child tax credit through the lenses of equity, efficiency, and administration. Specifically: Equity: Economic theory suggests that there are two ways to analyze the fairness of a provision, vertical equity and horizontal equity. Vertical equity states that groups with more resources should pay more taxes, whereas horizontal equity states that families with the same circumstances should pay the same taxes. While the child tax credit is generally evaluated as vertically equitable, because it reinforces the progressivity of the current tax code, economists have differing views on whether it is horizontally equitable. Efficiency: When examining the efficiency of a tax provision, economists examine how a tax provision affects taxpayer behavior, in terms of encouraging a taxpayer to do more or less of a certain activity. Theoretically, the child tax credit may have effects on taxpayer behavior, in terms of encouraging taxpayers to work and to have children, but there is currently very little evidence to support or refute these theories. Administration: Tax policies—like the child tax credit—can be analyzed with respect to their effect on the complexity of the tax code. The administration of a tax provision can affect whether it ultimately achieves its economic or policy goals. There are a variety of tax benefits available to families with children, and the addition of the child tax credit, while beneficial to many families, has made the tax code potentially more complicated especially for lower-income taxpayers. The following section examines in detail the child tax credit in terms of its impact on equity, taxpayer behavior, and tax administration. There are several ways to assess the fairness or equity of a tax provision. Depending on the definition used, the child tax credit may or may not be equitable. The current federal income tax is progressive, meaning higher-income taxpayers pay a greater share of their income in taxes (and thus have a higher average income tax rate) than lower-income taxpayers. A progressive tax system reflects a standard of fairness called vertical equity (whether taxes should be progressive and how progressive is subject to some debate). The child tax credit is generally considered vertically equitable because it reinforces the progressivity of the current income tax structure. The credit is structured to lower the tax burden of families earning between $3,000 and the phase-out income level, generally $150,000 for a married couple with two children. As illustrated in Table 2 , the child tax credit reduces the average federal tax rate of taxpayers with cash income under $200,000, while having little impact on taxpayers with income greater than $200,000. In addition, the child tax credit tends to reduce lower-income taxpayers' average tax rates more than it reduces the average tax rate of higher-income taxpayers. The largest reduction occurs among those with income between $10,000 and $20,000. Another standard of fairness used by economists—referred to as horizontal equity—suggests that families with equal circumstances should pay equal taxes. The child tax credit's effect on horizontal equity ultimately depends on what are considered "equal circumstances." In other words, are taxpayers considered equal if they have the same income or are they considered equal if they have chosen to spend that income in the same way? Some economists interpret horizontal equity to mean that families with the same amount of financial resources (i.e., income) should pay the same amount in taxes (and thus have the same average tax rate), regardless of whether they use those resources to buy a house, go on a vacation, or have a child. If children are viewed as choices of how taxpayers use their resources, the credit would violate horizontal equity. Specifically, the child tax credit generally provides greater tax benefits to a family as the number of children increases, assuming their income remains unchanged. For example, in 2012 a married couple that has $50,000 in earnings and no children (and hence is ineligible for the child tax credit) would be expected to owe $3,634 (7.3% average tax rate) in taxes. If the same married couple had one child, they would be expected to owe $2,634 after applying the child tax credit (5.3% average tax rate). If they had an additional child, the credit would lower their tax liability to $1,634 (3.3% average tax rate). Other economists define horizontal equity to mean that families with the same "ability to pay" should pay the same in tax. Under this definition, families with more children should pay less in tax because additional children reduce their ability to pay. According to the "ability to pay" approach, the child tax credit does not generally violate horizontal equity. Congress used the "ability to pay" interpretation of horizontal equity to justify the structure of the child tax credit in 1997. According to the Joint Committee on Taxation, the main reason for the creation of a child tax credit was that Congress believed that [prior to the child tax credit] the individual income tax structure [did] not reduce tax liability by enough to reflect a family's reduced ability to pay taxes as family size increases.... The Congress believed that a tax credit for families with dependent children will reduce the individual income tax burden of those families, will better recognize the financial responsibilities of raising dependent children, and will promote family values. Policymakers may also be interested in evaluating child tax benefits like the child tax credit simultaneously with the other available tax benefits to get a holistic picture of the tax code's impact on equity. For example, as previously mentioned, the child tax credit when evaluated individually may not be horizontally equitable at low incomes. Based on this analysis, increasing refundability of the credit could make the credit more horizontally equitable for some low-income families. However, prior CRS analysis suggests that after making adjustments for a family's ability to pay based on family size, the totality of child tax benefits results in a tax system that is disproportionally generous at lower income levels to larger as opposed to smaller families. In this broader context, expanding refundability of the child tax credit could exacerbate horizontal inequities. Economists may also analyze tax provisions in terms of whether a tax provision results in more or less of a good being produced or consumed. Subsidies, which lower the prices of goods, theoretically result in more of a good being consumed and produced. The current structure of the child tax credit subsidizes both low-wage work (by the earned income formula) and children (by the $1,000 per child aspect of the provision). However, there is currently very little substantive research evaluating the impact of the child tax credit on taxpayer behavior. The child tax credit's current refundability structure creates a wage subsidy for some low-income families, suggesting it may affect work decisions. For eligible families with sufficiently low income, the child tax credit gives families 15 cents for every dollar of earnings above $3,000. Economic theory suggests that increasing the price of labor (the wage) among low-income workers will have the overall effect of encouraging them to work more. In practice, however, it is very difficult to isolate the labor market effects of the child tax credit from the similarly structured but larger subsidy provided by the EITC, since both credits simultaneously subsidize earnings over the same income range. The child tax credit is unlikely to have a significant impact on inducing families to have additional children. While the child tax credit reduces the cost of a child, the expenses incurred from having children greatly exceed the value of the credit for most taxpayers. A government report estimates that the annual cost of raising a child in a middle-income family ranged from $11,650 to $13,530. In addition, families choose to have children for a variety of factors that are not motivated by economics, including the happiness and fulfillment that children may bring them. In a 2010 report to Congress, the IRS Taxpayer Advocate identified the complexity of the current tax code as the most serious problem facing taxpayers. Tax policies, including those targeted toward families with children, are currently structured very differently, adding to the complexity of the tax code. For example, a single parent with a 16-year-old child and income of $20,000 in 2010 will be eligible for a $1,000 child tax credit, a $3,650 dependent exemption for that child (which lowers their tax liability by $548), and $2,487 of EITC. In 2011, when the child is 17, the single parent will be ineligible for the child tax credit, but remain eligible for the dependent exemption (which equals $3,700 in 2011 and will lower their tax bill by $555) and approximately $2,598 of EITC. The amount of these tax benefits will also change if the parent marries (which can change their tax liability), has an additional child, or their income changes (which changes the value of the child tax credit and EITC). Tax complexity associated with child-related tax provisions is particularly burdensome for lower-income families. Complexity reduces utilization rates among eligible populations and reduces the value of the benefits among those who do claim them, because they often rely on a paid preparer for assistance. Complexity can thus undermine the ultimate goal of policymakers, whether it be behavioral changes or increased equity. Policymakers may consider modifying the current parameters of the child tax credit. The impact of modifications will depend on a taxpayer's income. Modifications that benefit middle- and upper-middle-income taxpayers include increasing the amount of the credit per child and increasing the phase-out thresholds. Modifications that benefit lower-income taxpayers include reducing the refundability threshold or increasing the current refundability rate. These changes will likely have significant budgetary cost that policymakers may consider alongside policy goals they may achieve by increasing this tax benefit. Increasing the maximum amount of credit per child, either by a fixed amount or proportional to inflation, would be most valuable to families whose income does not exceed the phase-out limits. However, for lower-income families—those with income tax liability less than the value of their credit—increasing the maximum amount of the credit will be valuable insofar as they can claim it as a refund using the earned income formula. If their earnings are sufficiently low, they may not be able to benefit from increasing the maximum amount of the credit. For example, if the child tax credit was doubled to $2,000 per child, and all other aspects of the credit remained the same as current law, a family with two children would need earnings of at least $29,667 to claim the full credit if the maximum credit value doubled. Currently the minimum amount of earnings needed to claim the full credit for two children is $16,333. Policymakers could also choose to increase the value of the credit by indexing it to inflation. If the $500 per child tax credit in 1998 had been indexed for inflation using the Consumer Price Index (CPI), it would be $693.14 in 2011 dollars. If the $1,000 child tax credit in effect in 2003 were indexed to the CPI it would be $1,228.07 in 2011 dollars. Increasing the amount of the credit based on inflation will not benefit certain lower-income taxpayers whose earnings tend to grow more slowly than inflation. Among lower-income taxpayers, whose tax liability is less than the value of their child tax credit, the most relevant parameters of the child tax credits are those that affect refundability. Lowering the refundability threshold (currently set at $3,000) and increasing the refundability rate (currently 15%) would result in more families with low earnings being eligible to receive the credit or a larger credit. Under current law, a family with two children must earn $16,333 to be eligible to receive $2,000 in child tax credits as a refund. If the refundability threshold was lowered to zero (and all other parameters remained the same), this same family would need earnings of $13,333 to receive the full $2,000 in child tax credits as a refund. Economic modeling of this scenario indicates that roughly 95% of the benefit resulting from reducing the child tax credit refundability threshold to zero would go to taxpayers with cash income levels below $30,000. Nearly half of the benefit, 46%, would go to taxpayers with cash income below $10,000. On the other hand, if the refundability rate were increased to 100% (meaning for every dollar a family earned above the $3,000 threshold, they received $1 of refundable credit), this same family would need earnings of $5,000 to receive the full $2,000 in child tax credits. Alternatively, if the refundability rate were the same as the refundability rate of the EITC for a family with two children (40%), this family would need earnings of $8,000 to receive the full value of the child tax credit. Increasing the refundability rate and keeping the refundability threshold the same as current law would result in certain low-income households that already receive the child tax credit being eligible for a larger refundable credit. However, it would not provide any benefit to households with earnings below the refundability threshold. Economic modeling of a 40% refundability rate suggests that approximately 94% of the tax benefits associated with increasing the refundability rate would benefit taxpayers with cash income levels under $30,000. The greatest share of the tax benefit would go to taxpayers with cash income between $10,000 and $20,000, because their income level is significantly above the $3,000 refundability threshold such that they can benefit from the increased refundability rate. Changing the refundable portion of the credit by changing the refundability threshold or refundability rate primarily affects lower-income families for whom the refundable portion is often the key component of the credit. Approximately 80% of the benefit that arises from reducing the refundability threshold to zero or raising the refundability rate to 40% would go to families making less than $20,000. Since the child tax credit was created in 1997, the credit has phased out for married taxpayers filing joint returns whose income exceeds $110,000 ($55,000 for married couples filing separately) and for head of household filers with income above $75,000. These phase-out thresholds are not indexed for inflation. If they had been indexed for inflation, they would have been 41% higher in 2012 than they were in 1998. Over the years, the real value of these thresholds has decreased due to inflation, pushing more taxpayers into the phase-out range and reducing the amount of the child tax credit these taxpayers are eligible for. One policy option would be a one-time increase in the phase-out limits. Another policy option would be indexing the amounts in accordance with established procedures applied to other elements of the tax system, such as personal exemption and the standard deduction. Finally, some combination of the two approaches is also possible. Increasing the AGI phase-out limits for the child tax credit would significantly expand the number of taxpayers who would be eligible to receive the child tax credit. Such a change may be particularly important for taxpayers who live in areas with a high cost of living, where both incomes and costs of rearing children may be correspondingly higher. It would also increase the budgetary cost of the program. Critics of this change may question the necessity of such relief. The empirical evidence suggests that the overall federal tax burden, as well as the federal individual income tax burden, fell for most households with children between 1979 and 2007. Legislation enacted since 2007 to address economic insecurity resulting from the recent recession, including ARRA and the 2010 Tax Act, has further reduced taxes for many Americans through the enactment of new provisions like the Making Work Pay tax credit (which expired at the end of 2010), payroll tax reduction, and the extension of EGTRRA's individual income tax provisions. Tax benefits compose a substantial proportion of the federal benefits that go to families with children. According to one study, of the five largest spending and tax programs on children, three are tax provisions—the child tax credit (number two), the EITC (number three), and the exemption for dependents (number four). Only Medicaid spending on children is higher. The refundable portions of the EITC and child tax credit are structured to direct assistance to low-income families, and could reflect an increased interest by Congress in providing financial assistance to low-income workers through the tax code as opposed to transfer payments. In fact, the refundable portion of the EITC and child tax credit ranked fourth and sixth respectively in outlays among programs targeted toward low-income populations. Some experts believe that the different eligibility rules for different child-related tax benefits make it increasingly difficult for taxpayers to claim these benefits. This complexity results in direct financial costs for taxpayers, who may choose to use paid preparers instead of preparing their returns themselves. According to IRS data, more than half of taxpayers with income below $50,000 use paid tax preparers. President Bush's 2005 Presidential Panel on Federal Tax Reform summarized the complexity of claiming the child tax credit, "Figuring out whether you can claim the child tax credit ... requires the skills of a professional sleuth: You need to complete eight lines on a tax form, perform up to five calculations, and fill out as many as three other forms or schedules." Much of the complexity in child-related tax benefits is related to differing definitions of what constitutes an eligible child, specifically the different age limits of qualifying children among the different tax benefits. The child tax credit is limited to children under 17 years old, unlike other tax benefits, such as the dependent exemption, that can be claimed by taxpayers with children as old as 23. Increasing the age of eligible children would have significant budgetary costs. One study estimated that expanding the child tax credit to 17- and 18-year-olds would reduce revenues by $6.1 billion in 2011. Beyond the differing eligibility definitions used for different child tax benefits, the tax benefits themselves are structured differently. The interaction of these different structures has led to middle-income families receiving a smaller total benefit than some higher-income taxpayers, as illustrated in the Figure 1 . President Bush's 2005 Panel on Federal Tax Reform recommended simplifying the tax code, including child tax benefits, but to date these proposals have not been adopted. Specifically, the panel recommended consolidating the standard deduction, personal exemption, and child tax credit into one tax benefit, a family tax credit. More than five years later, some experts have again proposed reducing the complexity of these provisions and making their benefits more transparent by combining child tax benefits into a uniform child credit. While such a proposal could significantly simplify eligibility rules as well as the calculation of the benefit, policymakers would need to consider the competing functions of current tax benefits as they create a uniform benefit. For example, some benefits like the EITC and refundable portion of the child tax credit subsidize earnings, whereas the nonrefundable portion of the child tax credit provides a uniform benefit per child for taxpayers with sufficient earnings that do not exceed the phase-out level. Because of this distinction, policymakers might consider creating different uniform credits based on the purpose of the credit, whether the purpose of the credit is to subsidize earnings of low-income taxpayers or provide a benefit for having children. The most recent changes to the child tax credit were made by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16 ) and the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ). These changes, while once temporary, are now permanent. Policymakers interested in potentially modifying the child tax credit in the future may be interested in understanding the economic impact of these past legislative changes. The data indicate that while the ARRA modifications did provide relatively more benefit to lower-income taxpayers, the EGTRRA changes benefited more children. The analysis will then turn to the implications of extending the ARRA modifications, both on the number of children who will be affected as well as the budgetary cost, with similar data on the impact of the EGTRRA changes provided for comparison. Impact of EGTRRA Versus ARRA Modifications to the Credit EGTRRA and ARRA substantially changed the structure of the child tax credit. EGTRRA increased the value of the credit from $500 per child to $1,000 per child and made the credit partially refundable using the earned income formula. At the end of 2012, ATRA made these changes permanent. ARRA expanded upon EGTRRA's changes to refundability by lowering the earnings threshold of the earned income formula to $3,000. The Protecting Americans from Tax Hikes (PATH) Act (Division Q of P.L. 114-113 ) made the $3,000 threshold permanent. Distributional Impact A distributional impact of a tax benefit indicates the share of a tax benefit received by taxpayers at different income levels. Table A-1 illustrates the different impacts of the EGTRRA and ARRA provisions on taxpayers based on cash income. Overall, approximately 60% of the child tax benefits from EGTRRA went to taxpayers with cash income above $50,000. By contrast, 70.5% of child tax benefits under ARRA went to taxpayers with cash income of less than $20,000. In addition, after the EGTRRA modification went into effect, research indicates that qualifying Hispanic and African American households were less likely to receive the full value of the child tax credit then qualifying white households. Specifically, in 2005, when all the child tax credit provisions of EGTRRA were effective, 49.5% of households with qualifying African American children and 46.0% of households with qualifying Hispanic children were ineligible to receive the full credit due to low incomes, in contrast to 18.1% of households with white children. Estimates of the distributional impact on tax filers of the EGTRRA and ARRA provisions are currently unavailable, but can reasonably be expected to approximate the distribution in Table A-1 . Recent data (provided in Figure A-1 ) do, however, provide information on the impact in 2013 of these modifications in terms of the number of children who benefit. (Although the data are presented in terms of the number of children who benefit, the tax credit is actually claimed by their parents, ostensibly for children's benefit.) These data provide another way to analyze the impact of the EGTRRA and ARRA changes to the credit. Number of Children Affected by EGTRRA Versus ARRA Changes According to estimates provided by the Tax Policy Center, both the EGTRRA and ARRA changes to the child tax credit are estimated to have a significant impact on the benefits received by millions of children, as illustrated in Figure A-1 . In 2013, the EGTRRA provisions are estimated to result in 18.6 million children being eligible for the credit who otherwise would not receive this tax benefit if the EGTRRA changes had expired. In addition, 3.4 million children in 2013 are estimated receive a larger credit as a result of the EGTRRA provisions. The extension of the ARRA modifications is estimated to have a lower overall benefit in terms of the impact on children. Approximately 17.1 million children in 2013 will benefit from the extension of ARRA child tax credit provisions as opposed to 22 million children that benefit from the EGTRRA provisions. The majority of children who will benefit from the ARRA modification would receive a larger credit (10.2 million children), while fewer will be newly eligible (6.9 million children). Cost of Extending EGTRRA and ARRA Modifications to the Credit Historical data provide estimates of the comparative costs associated with the EGTRRA and ARRA modifications, indicating that a majority of the cost is due to the EGTRRA provisions. The Joint Committee on Taxation's revenue estimates for the 2010 Tax Act isolated the costs of extending the EGTRRA and ARRA provisions for two years (2011 and 2012) and indicated that 78% of the cost of these policies was associated with the extension of the EGTRRA provisions. Specifically, the cost of the two-year extension of EGTRRA child tax credit provisions was $71.7 billion over 10 years (2011-2020), whereas the cost of extending the ARRA provisions was $19.7 billion over the same period. Of the total annual cost of the child tax credit in 2012, approximately 60% was a result of the EGTRRA changes, 16% was a result of ARRA modification, and 24% was a result of the underlying parameters of the pre-EGTRRA and ARRA credit.
|
The child tax credit is currently structured as a $1,000-per-child credit that is partially refundable for lower-income families with more than $3,000 in earnings. Prior to 2001, the child tax credit was a $500-per-child nonrefundable tax credit which generally benefited middle- and upper-middle-income taxpayers. Since 2001, legislative changes, particularly those made by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16) and the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5), have altered the structure of this tax benefit. Specifically, the amount of the credit per child has increased and the credit has been made partially refundable, expanding the availability of the credit to some low-income families. The American Taxpayer Relief Act (ATRA; P.L. 112-240) made the EGTRRA changes to the child tax credit permanent. The Protecting Americans from Tax Hikes (PATH) Act (Division Q of P.L. 114-113) made the ARRA change to the child tax credit permanent. In light of these recent changes to the structure of the child tax credit, this report provides an economic analysis of the current credit, focusing on the credit's impact on fairness (also referred to as "equity"). The report then explores how the credit has affected taxpayers' behavior about working and having children. Finally, this report examines the complexity of administering this tax provision in the context of other child-related tax benefits. This report concludes with an overview of possible modifications to the child tax credit. The impact of these modifications will depend on a taxpayer's income. Modifications that benefit middle- and upper-middle-income taxpayers include increasing the amount of the credit per child and increasing the phase-out thresholds. Modifications that benefit lower-income taxpayers include reducing the refundability threshold or increasing the current refundability rate. These changes will likely have significant budgetary cost that policymakers may consider alongside their policy goals. This report does not provide an in-depth examination of the history of the credit. For more information on the legislative history of the credit, see CRS Report R41873, The Child Tax Credit: Current Law and Legislative History, by [author name scrubbed].
|
Ten years have passed since the establishment of the Hong Kong Special Administrative Region, or the HKSAR, on July 1, 1997. The event, commonly referred to as the Handover, marked the end of 155 years of British colonial rule and China's resumption of full sovereignty over Hong Kong. During the last 10 years, there have been modest changes in Hong Kong's political situation and more significant changes in its economy. These political and economic changes have had an impact on Hong Kong's social and cultural identity. Despite some political and economic setbacks, the HKSAR remains a vibrant international trade hub in Asia. The actual transferral of sovereignty over Hong Kong was governed by the "Joint Declaration of the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People's Republic of China on the Question of Hong Kong" (commonly referred to simply as the "Joint Declaration") signed on December 19, 1984 in Beijing. Under the terms of the Joint Declaration, China promised that Hong Kong would "enjoy a high degree of autonomy" and "the current social and economic systems in Hong Kong will remain unchanged" for 50 years. The Joint Declaration also required China's National People's Congress (NPC) to pass "a Basic Law of the Hong Kong Special Administrative Region" (generally referred to as the "Basic Law") stipulating China's policies on Hong Kong that are consistent with the terms of the Joint Declaration. The National People's Congress passed the Basic Law on April 4, 1990. Hong Kong has long been important to the United States in several ways. First, Hong Kong is a major entrepôt in Asia, especially for trade with China. Second, Hong Kong's longstanding open trade policy has made it a major ally for U.S. efforts to liberalize international trade. Third, Hong Kong's Common Law legal system and its respect for civil liberties are a bellwether in Asia for human rights. Congressional interest in Hong Kong was demonstrated by the passage the United States-Hong Kong Policy Act of 1992 ( P.L. 102-383 ). The act commits the United States to treating the HKSAR as a separate entity from the rest of China in a variety of political, economic, trade and other areas so long as the HKSAR remains "sufficiently autonomous" to warrant special treatment. Section 202 of the United States-Hong Kong Policy Act empowers the President to make the determination of the status of Hong Kong's autonomy, specifying the factors for consideration to be "the terms, obligations, and expectations expressed in the Joint Declaration with respect to Hong Kong." The United States-Hong Kong Policy Act makes no mention of the Basic Law. In addition, the United States-Hong Kong Policy Act states that "Hong Kong plays an important role in today's regional and world economy" and that the United States has a strong interest in the continued "vitality, prosperity, and stability of Hong Kong." The act also stipulates that the "support for democratization is a fundamental principle of United States foreign policy," which "naturally applies to United States policy toward Hong Kong." Plus, the act states that "the human rights of the people of Hong Kong are of great importance to the United States" and "also serve as a basis for Hong Kong's continued economic prosperity." Title III of the United States-Hong Kong Policy Act required the Secretary of State to transmit to the Speaker of the House of Representatives and the chairman of the Committee on Foreign Relations of the Senate an annual report by March 31 (through the year 2000) on the conditions in Hong Kong "of interest to the United States." The act was amended in subsequent years to require this report each year through 2006. No report is required from 2007 onward. On Hong Kong's political front, there has been little progress in the democratization of the selection of the HKSAR's Chief Executive and Legislative Council (Legco) and towards the goal of universal suffrage in Hong Kong. In the area of civil liberties, the freedoms enjoyed under British rule have continued since the Handover virtually unchanged, with the notable exception of the controversy surrounding the proposed anti-sedition legislation in 2003. The freedoms of speech and assembly appear to have been largely respected by the Chinese and HKSAR governments, but there is concern about self-censorship by some in the Hong Kong media. After 1997, Hong Kong's economy was subject to a series of external shocks that precipitated and prolonged a recession. The Asian Financial Crisis of 1997, which began almost concurrently with the Handover, had a ripple effect on Hong Kong, resulting in a major asset value realignment, commodity price and wage deflation, and a decline in the city's gross domestic product (GDP). Hong Kong's economic recovery was then delayed by the outbreak of Severe Acute Respiratory Syndrome, or SARS, in the beginning of 2003. However, since the end of the SARS outbreak, Hong Kong's economy has rebounded, in part due to its deepening trade relations with the Chinese mainland. In addition to Hong Kong's extended recession and recent recovery, the last 10 years have witnessed a deepening and broadening of its economic and trade ties with the Chinese mainland. This has occurred in part due to global market conditions, but also due to the Closer Economic Partnership Arrangement (CEPA) between Hong Kong and the Chinese mainland, and the Individual Visit Scheme, a new tourism policy for mainland visitors to Hong Kong, introduced by the Chinese government on July 28, 2003. According to some observers, Hong Kong has become the hub of a pan-Pearl River Delta economic region that is one of the major engines of China's high economic and trade growth rates. The last 10 years have also seen changes in Hong Kong society and its culture. Hong Kong has experienced a significant decline in the size of its "ex-pat" population and a concurrent rise in its "mainland" population. In addition, Hong Kong's "middle class" has endured declining incomes and a loss of economic security. Also, there is a growing interest and concern about the preservation of "Hong Kong culture," best exemplified by a popular movement to preserve "historic buildings," such as the old railroad clock tower in Tsim Sha Tsui. These social and cultural changes have raised the issue of a "Hong Kong identity" that is distinct and separable from a "Chinese identity." At present, these political, economic and cultural changes do not appear sufficient to erode Hong Kong separateness from the Chinese mainland. However, there are aspects to these changes that warrant monitoring. The economic changes appear to be blurring the existing border between Hong Kong and the Chinese mainland, while the social changes may be blurring the difference between being Chinese and being a "Hong Konger." Over time, if the separation between the Chinese mainland and Hong Kong effectively disappears for all practical purposes, then the United States and Congress may choose to revisit the decision to extend Hong Kong special treatment. The HKSAR is an executive-led government, with much of the power in the hands of the Chief Executive and his or her appointed department secretaries. The two most important department secretaries are the Chief Secretary for Administration and the Financial Secretary. Hong Kong's legislature, Legco, has comparatively limited powers; it can effectively veto legislation proposed by the Chief Executive, approves or disapproves of the annual budget, and has some oversight over the operations of the executive branch. Hong Kong's courts have the exclusive power to adjudicate HKSAR legal cases, with the exception of matters related to national defense, foreign policy and the interpretation of the Basic Law. Legal cases involving these three topics are handled by the Standing Committee of China's NPC. Since the Handover, there has been serious political debate over the details of Hong Kong's independent executive, legislative, and judicial powers. There have been controversies over the selection process for the chief executive, as well as the chief executive's term in office. Regarding the HKSAR's legislative powers, the key issues have centered about the composition of Legco and the manner by which its members are selected. As for Hong Kong's judicial powers, the main area of concern has been the scope of its powers, particularly with respect to the interpretation of the Basic Law, Hong Kong's de facto constitution. Besides these general "constitutional" issues, there also has been a notable change in Hong Kong's political parties and the level of political involvement of the Hong Kong people. Hong Kong's political parties have changed in both name and character over the last 10 years, indicating the possible development of broad-based parties. Concurrent with the change in the political parties, the people of Hong Kong appear more interested, informed and involved in politics than before the Handover. The politicization of the Hong Kong population in part can be attributed to an increase in their opportunities to be involved in political activities, such as elections. It is also in part due to a widely-held perception that the HKSAR government was somewhat dysfunctional during the first few years after the Handover, forcing people to pay more attention to political issues than they did when Hong Kong was a British colony. The Basic Law fleshes out the process by which the HKSAR's Chief Executive is to be selected. Article 45 stipulates that the Chief Executive "shall be selected by election or through consultations held locally and be appointed by the Central People's Government." The article continues by stating "the method for selecting the Chief Executive shall be specified in the light of the actual situation in the Hong Kong Special Administrative Region and in accordance with the principle of gradual and orderly progress." It also indicates that "(t)he ultimate aim is the selection of the Chief Executive by universal suffrage upon nomination by a broadly representative nominating committee in accordance with democratic procedures." Annex I of the Basic Law provides the specifics on how the Chief Executive, who serves a five-year term, is to be selected. It stipulates that a "broadly representative Election Committee" of 800 people select the Chief Executive. To be nominated, a person must receive at least 100 votes from the Election Committee. The selection of the Chief Executive is based a "secret ballot on a one-person-one-vote basis." However, Annex I is not specific about how to choose the Chief Executive after 2007, saying only that "(i)f there is a need to amend the method for selecting the Chief Executives for the terms subsequent to the year 2007, such amendments must be made with the endorsement of a two-thirds majority of all the members of the Legislative Council and the consent of the Chief Executive, and they shall be reported to the Standing Committee of the National People's Congress for approval." Ambiguity in the language in the Basic Law and historical circumstances have led to two specific controversies about the selection and term of office of the Chief Executive. Hong Kong's first Chief Executive, Tung Chee Hwa, was selected by the first Election Committee in December 1996 and was selected for a second term in March 2002. However, Tung proved to be a very unpopular chief executive, and resigned for health reasons in March 2005, part way through his second term. Tung's Chief Secretary for Administration, Donald Tsang Yam Kuen, was appointed acting Chief Executive. Tung's resignation raised the first controversy, which was about the length of the term of his replacement. According to some legal scholars, the Basic Law only provides for the Chief Executive to serve a five-year term, so the replacement should serve a full five-year term. To others, the replacement should only serve out the last two years of Tung's term, with a new selection taking place in 2007. In April 2005, Tsang requested a binding legal decision from Beijing on the duration of the replacement's term in office, arguing that a legal review in Hong Kong independent judiciary would take too long. The Standing Committee of the NPC decided that the replacement should finish out Tung's term, and the next selection should take place as scheduled in 2007. Members of Hong Kong's "pro-democracy" political parties and the Hong Kong Bar Association objected to Tsang's request for a decision from Beijing, as well as to the actual decision, on the grounds that it violated the Basic Law and undermined Hong Kong's autonomy. Tsang was selected to fill out the balance on Tung's term in July 2005. Following the selection of Tsang in 2005, the second controversy almost immediately emerged in the form of a campaign to change the selection process for the Chief Executive in 2007. Prior to the resignation of Tung in 2005, the Standing Committee of the NPC announced in April 2004 that the selection of the Chief Executive by universal suffrage in 2007 "shall not be applied," but that the specific method of selection could be "appropriately modified." A proposal from Tsang to make incremental modifications in the selection process for Chief Executive in 2007 (as well as the Legislative Council in 2008) was defeated by the Legislative Council in December 2005. As a result, no changes were made in the 2007 selection process. Although there was no progress towards universal suffrage for the 2007 Chief Executive selection, Tsang's bid for reelection by the Election Committee did not go unchallenged. Despite Tsang's strong backing by the Chinese government, Alan Leong Kah Kit of the newly-formed Civic Party, ran against Tsang. Leong was able to secure 132 votes in the Election Committee's nomination ballot, making him an official candidate for Chief Executive. During the campaign, Tsang and Leong held two public debates that were broadcast live on television and radio, an unprecedented event for Hong Kong. Although Leong lost the election to Tsang, he did secure 123 votes in the Election Committee. Tsang won with 649 votes. Supporters of direct popular election of the Chief Executive point to the precedents set by the 2007 selection process (contested election, public debates, split vote in the Election Committee) as evidence of modest progress. Pro-democracy advocates also point to the ratings for the two debates—surveys show nearly one quarter of Hong Kong's population watched—as evidence that Hong Kong is ready for democratic elections. However, the Chinese government maintains that it is too early to introduce direct election of the Chief Executive. During the summer of 2007, the Commission on Strategic Development's Committee on Governance and Political Development, an advisory body to the Chief Executive, is expected to release a legislative "Green Paper" examining possible "models, roadmaps and timetables for electing the Chief Executive by Universal Suffrage." The initial expectation was that the "Green Paper" would contain up to three specific proposals for Hong Kong's transition to universal suffrage. However, confidential sources report that the final "Green Paper" to be issued by the Hong Kong government will probably consist of a summary of the range of options for each of the main topics—models, roadmaps and timetables. For the Chief Executive selection process, among the elements to be discussed in the "Green Paper" are: (1) the number of people on the nominating committee; (2) how members of the nominating committee are selected; (3) number of votes required to be nominated; (4) limits on the number of candidates; and (5) transition process to universal suffrage. At present, there is no clear indication how soon Hong Kong's Chief Executive will be selected by universal suffrage. The earliest possible date is 2012, but few believe that the Chinese government will approve such a direct transition. Instead, analysts believe the Chinese government will endorse an interim measure that expands the number of people on the Election Committee from 800 to either 1,200 or 1,600 people. According to Cherry Tse Kit Ching Ling of Hong Kong's Department of Constitutional Affairs, the resolution of the model and roadmap will come before the decision on when to have direct election of the Chief Executive by universal suffrage. According to Legco member Leung Kwok Hung, the soonest the Chinese government would consider the direct popular election of the Chief Executive is 2022. However, some observers are concerned that delaying universal suffrage for the selection of the Chief Executive until 2022—half way through the 50 year guarantee stipulated in the Joint Declaration—is altogether part of a Chinese mainland strategy to block democratization in Hong Kong. The post-Handover story of Hong Kong's legislature, the Legislative Council (Legco), is rather complicated. For most of its history under British rule, Legco consisted of members appointed by the British Governor to represent the interests of Hong Kong's business community. The first time members of Legco were "elected" was in 1985, when 12 members were elected by "functional constituencies" based on Hong Kong's most important business and economic sectors, 10 were elected by members of Hong Kong's district boards, one from among the members of Hong Kong's Urban Council, and one from among the members of Hong Kong's Regional Council. After the signing of the Joint Declaration, the last British Governor, Chris Patten, implemented a series of reforms reconstituting Legco into a more democratic institution. In 1995, the last Legco under British rule was selected with 20 of the 60 seats selected in geographical elections with universal suffrage, 30 seats selected by functional constituencies in which 1.1 million people were eligible to vote, and 10 selected by members of a special Election Committee. In addition, the voting age was lowered from 21 to 18. The stated goal of the Patten reforms was to broaden participating in the election, and to select a Legco that would serve both before and after the Handover. This so-called "through train" Legco would provide some additional stability to Hong Kong's government during the transition, according to Patten. However, the Chinese government objected to Patten's Legco reforms (except for the lowering of the voting age to 18), stating that they violated the terms of both the Joint Declaration and the Basic Law. On August 31, 1994, the NPC ruled Patten's Legco incompatible with the Basic Law, and passed legislation stipulating how a "Provisional Legislative Council" would be created to take office after the Handover. On December 21, 1996, China's Election Committee selected the members of the Provisional Legislative Council, which met in Shenzhen until the Handover, and replaced the reformed Legco after the Handover. The Provisional Legislative Council remained in office until 1998, when the first post-Handover Legco elections were held. In 1998, Hong Kong selected a new Legco to serve a two-year term, as stipulated in Article 69 of the Basic Law. The 60 members of the Legco were divided into 20 members from geographical constituencies, 30 members from functional constituencies, and 10 from the Election Committee—a return to the Patten seat formula of 1995, but without the broader voting base for the functional constituencies. Nearly 1.5 million people voted for the geographical constituency seats in 1998, a turnout of about 53% of the eligible voters. In 2000, Hong Kong's third post-Handover Legco was selected, this time with 24 members elected by geographical constituencies, 30 from functional constituencies, and six by the Election Committee to serve a four-year term. Turnout for the 2000 Legco geographical elections was down from 1998—about 43% of the eligible voters participated. The elections of September 2004 saw of a 30-30 split of Legco members between geographical and functional constituencies. The seats reserved for Election Committee were eliminated. The turnout rate for the geographical constituencies rose in 2004 to over 55%—12% higher than in 2000 and 2% higher than in 1998. Paralleling the push for universal suffrage for the election of Chief Executive, there was increased discussion about the democratization of Legco following the 2004 election. As was previously stated, in April 2004, five months prior to the 2004 Legco elections, the Chinese government announced that while it was open to reforms in the selection of Legco members in 2008, it opposed a direct move to universal suffrage for all Legco seats. This discussion was complicated because it involved not only the issues of universal suffrage and "one person, one vote," but also how Legco was to be constituted and the process of its transformation. Tsang's proposed 2005 reforms also included changes in the size and constitution of Legco for the next election in 2008. The number of seats would be increased to 70, equally divided between geographical and functional constituency seats. The five additional functional constituency seats would be filled by increasing the number of Legco members selected by the District Councils from one to six. To some observers, Tsang's proposal would have been a first-step along the path towards universal suffrage and democratization. It would have increased the number of Legco members directly elected by popular vote, plus have added five functional constituency members who were to be selected by District Council members, three-quarters of whom were elected by popular vote. Also, it was thought that most of the newly-added Legco members would be "pro-democracy," increasing the likelihood of additional reforms in the future. Opponents to Tsang's proposal countered that it would have increased the number of functional constituency seats without expanding the number of people eligible to vote for those seats. For some "pro-democracy" advocates, the goal is to eliminate the functional constituency seats, not expand them. For others, the goal is to create a system in which every eligible voter in Hong Kong can vote in one geographical district and in one functional constituency. Neither group saw Tsang's reforms as a positive step towards their respective goal. In December 2005, Legco voted against Tsang's incremental reforms. In response, Tsang authorized the Committee on Governance and Political Development to investigate alternative models, roadmaps and timetables for implementing universal suffrage for Legco. When compared to universal suffrage for the selection of the Chief Executive, the democratization of the Legco elections is relatively complex, particularly because of the functional constituencies. According to Annex II of the Basic Law, any change in the formation of Legco requires the approval of two-thirds of the current Legco, the consent of the Chief Executive and "shall be reported to the Standing Committee of the National People's Congress for the record." Because of the two-thirds requirement, there is concern that the current functional constituency members can effectively block any proposal that dilutes or eliminates their power. Also, in light of previous decisions by the Chinese government on the interpretation of the Basic Law (see below), some observers believe the language of Annex III will be used to argue that any changes made must be approved by the Standing Committee of the NPC. In general, the operations and authority of Hong Kong's independent judicial system have remained intact since the Handover. The most important exception has involved legal issues regarding the interpretation of the Basic Law. In particular, there have been three high profile cases where the Chinese government has made decisions on the meaning of the Basic Law that were seen by some as eroding the independence of Hong Kong's courts and the legal protections provided by the Basic Law itself. Another interesting post-Handover development is the significant increase in the number of civil cases. To some, there is ambiguity about legal cases involving the interpretation of the Basic Law. Article 2 of the Basic Law grants the HKSAR "independent judicial power, including that of final adjudication, in accordance with the provisions of this Law." Article 82 vests the power of final adjudication in the newly-created Hong Kong Court of Final Appeal. Article 85 reiterates the independence of the Hong Kong courts, stating that they should be "free from interference." However, Chapter VIII of the Basic Law, entitled "Interpretation and Amendment of the Basic Law," vests the power to interpret the Basic Law in the Standing Committee of the NPC. In turn, Article 158 stipulates that the Standing Committee "shall authorize the courts of the [HKSAR] to interpret on their own, in adjudicating cases, the provisions of this Law that are within the limits of the autonomy of the Region." Article 158 also states that the HKSAR courts "may also interpret other provisions of this Law in adjudicating cases." However, if these are not appealable decisions "concerning the relationship between the Central Authorities [the Chinese government] and the Region" or "affairs which are the responsibility of the Central People's Government," then the HKSAR courts are to seek an "interpretation" from the Standing Committee via the Court of Final Appeal prior to rendering a decision. Since 1997, there have been three high profile cases where the Chinese government has announced decisions regarding the interpretation of the Basic Law that to some people circumvent or supercede the provisions of the Basic Law. Two of those cases—the April 2005 decision on the length of Tsang's term in office and the April 2004 announcement that there would not be universal suffrage for the 2007 and 2008 elections—were discussed earlier in this report. The third case arose in 1999 and involved the interpretation of Articles 22 and 24 of the Basic Law. Article 24 defines who will be considered a "permanent resident" of Hong Kong and who has a "right of abode" in Hong Kong. The first two categories of people eligible for "permanent resident" status are: (1) Chinese citizens born in the HKSAR before or after the Handover; and (2) Chinese citizens who have resided in Hong Kong for seven continuous years either before or after the Handover. In addition, Article 24 describes a third category as "Persons of Chinese nationality born outside of Hong Kong of those residents listed in categories (1) and (2)." Article 24 also grants all permanent residents the "right of abode"—the right to live in Hong Kong. However, Article 22 stipulates that "people from other parts of China must apply for approval" for entry into the HKSAR. This includes "the number of persons who enter the Region for the purpose of settlement." Following the Handover, a suit was filed in Hong Kong courts on behalf of children born in the Chinese mainland who had at least one parent eligible for permanent resident status in Hong Kong. The suit claimed that these children had the right of abode in Hong Kong under the third category of Article 24, and should be allowed to reside in Hong Kong. The Hong Kong government argued that under the terms of Article 22, these children must obtain the approval of the Chinese government. The court case created some apprehension about the number of children that would be eligible move to Hong Kong if the courts ruled in their favor. According to one Hong Kong government study, 1.6 million children in China—nearly a quarter of Hong Kong's population—were potentially eligible to immigrate into Hong Kong. The Hong Kong government, and many Hong Kong residents, feared that the influx of so many children would greatly overburden schools, housing and other social services of Hong Kong. As a result, there was a strong desire to see the courts rule against such a broad definition of eligibility for permanent resident status. On January 29, 1999, Hong Kong's Court of Final Appeal ruled in favor of the broad definition. In response, then Chief Executive Tung went to Beijing to ask the Standing Committee of the NPC for its interpretation of the Basic Law as it applies to this case. Some legal scholars in Hong Kong protested that Tung's request violated Article 158 of the Basic Law, which states that such a request should come from the Court of Final Appeal before it rendered its final decision. On June 26, 1999, the Standing Committee announced its decision, siding with the Hong Kong government in favor of a more restrictive interpretation of the Basic Law. In its decision, the Standing Committee stated that children could emigrate to Hong Kong only if one of their parents was already a permanent resident of Hong Kong at the time of their birth and if they obtained approval, as required under Article 22 of the Basic Law. Some commentators were highly critical of the NPC decision, terming it not an "interpretation" of the Basic Law, but a "reinterpretation." There continue to be periodic protests in Hong Kong on behalf of the mainland children being kept out of Hong Kong under the restrictive interpretation. Although the "right of abode" issue has become less prominent over time, when combined with the NPC decisions on Tsang's term and universal suffrage in the 2007 and 2008 elections, the "right of abode" issue has brought into question the independence of Hong Kong's courts and the degree of protection the Basic Law provides to the people of Hong Kong. Another major development in Hong Kong's judicial system is the rapid increase in the number of civil cases. The number of civil cases rose from 8,161 in 1996 to 17,270 in 2006, more than doubling in 10 years. According to a representative of Hong Kong's Department of Justice, the rise in civil cases is in part due to the greater use of the Chinese language in post-Handover Hong Kong courts. Under the Basic Law, all legal proceedings can be held in either English or Chinese. In addition, all of Hong Kong's laws are available in both Chinese and English. As a result, more people in Hong Kong have access to the laws and may feel more comfortable bringing disputes to court. In addition, there is a view that the rise in civil cases also reflects increased awareness and concern among Hong Kong people about their legal rights. In this view, the economic downturn from 1998 to 2003, and the perceived incompetence of the Tung administration (see below), forced people to become more attentive to politics and to Hong Kong's legal system. Also, as people's economic circumstances became difficult, they turned to civil suits to protect themselves—an alternative made easier because of greater access to Chinese language versions of Hong Kong's laws. Prior to 1997, what political parties existed in Hong Kong were generally small in size, and often associated with one prominent person. Since the Handover, there has been a trend towards the creation of larger political parties (although still small by U.S. standards), organized around shared political perspectives. In addition, some of the older political parties are going through a generational shift, as past leaders move towards retirement and new leaders emerge. However, people in Hong Kong generally vote based on their opinion or the politician, not based on loyalty to a political party. In the local parlance, Hong Kong parties are generally referred to as being either "pro-democracy" or "pro-Beijing." The leading "pro-democracy" parties are the Democratic Party, the Frontier Party, the relatively new Civic Party, and the newly-created League of Social Democrats. The main "pro-Beijing" parties are the Liberal Party and the Democratic Alliance for the Betterment and Progress of Hong Kong, or DAB. The common view in Hong Kong is that the current Legco consists of 25 "pro-democracy" members and 35 "pro-Beijing" members. Below is brief description of each of the major Hong Kong political parties. Hong Kong's Democratic Party was founded on October 2, 1994; it currently has over 600 members. Prior to 1997, it was one of Hong Kong's most popular pro-democracy parties, winning 19 of the 60 seats in the 1995 Legco elections. However, since the Handover, its political fortunes have suffered, in part due to internal disagreements on the party's position on various political and economic issues, including its opposition to a minimum wage law. In 2002, some members left the party because of its stance on economic issues, and joined the Frontier Party. In the 2004 Legco elections, the Democrats won nine seats—10 less than they held in 1995—of which seven were in geographical constituencies . The party's current chairman is Albert Ho Chun Yat. One of the party's best known leaders, Martin Lee Chu Ming, stepped down as party chairman in 2001. The Frontier Party is closely associated with Emily Lau Wai Hing. In 2002, the Frontier Party benefitted from the arrival of some ex-Democratic Party members. The Frontier Party did relatively well in the 1998 and 2000 Legco elections, winning five seats in the geographical constituencies. However, in the 2004 elections, the party won only one geographical seat, held by Lau. The Frontier Party supports the enactment of a minimum wage law and anti-trust legislation. One of Hong Kong's newer "pro-democracy" parties, the Civic Party emerged from the protests surrounding the proposed enactment of anti-sedition legislation. After its founding on March 19, 2006, six members of Legco joined the Civic Party, making it the second largest "pro-democracy" party in Legco. One of the party's Legco members, Alan Leong Kah Kit, ran against Tsang in the 2007 Chief Executive election, but lost (see above). According to Leong, the party has about 700 members, consisting mostly of lawyers and professionals. The newest (founded in October 2006) and most radical of the "pro-democracy" parties, the LSD is closely associated with long-time political activist, Leung Kwok Hung, commonly referred to by his nickname, "Cheung Mo," or "Long Hair." The party states as its purpose to "take a clear-cut stand to defend the interests of the grassroots." It also supports the passage of minimum wage and anti-trust legislation. The LSD has two members in Legco—Leung and Albert Chan Wai Yip. Another of Hong Kong's older parties, the Liberal Party is closely associated with Hong Kong's business community. Founded in 1993, the Liberal Party holds a conservative stance on most political and economic issues. It opposes the passage of minimum wage and anti-trust legislation. The Liberal Party has 10 Legco members, with two—James Tien Pei Chun and Selina Chow Liang Shuk Yee—elected in geographical constituencies. Founded in 1992, the DAB is the oldest of major political parties in Hong Kong. In contrast to most of the other political parties, DAB relies heavily on grassroots organizing for its political support. As a result, DAB has over 10,000 members—significantly more than the other major parties. DAB also has the most Legco seats of any political party—nine by geographical constituencies and three by functional constituencies. Its chairman, Ma Lik, recently caused a controversy in Hong Kong by questioning the severity of the events in Tiananmen in 1989. The party has since apologized for Ma's comments. According to various experts, several factors have combined over the last 10 years to raise the political awareness and involvement of the people of Hong Kong. First, the perceived failure of the Tung administration to respond adequately to several economic and social problems pushed people to pay more attention to politics than they did under British rule. Second, the Hong Kong media—television, radio and newspapers—became more political and more critical of local politics and politicians. Third, changes in Hong Kong's government have altered the relationship between the government and the Hong Kong population, making it more acceptable for people to express their views about government officials. China's selection of Tung Chee Hwa to be the first HKSAR Chief Executive was not surprising, but it did not instill people with great confidence. Tung was a businessman with little political experience, known for his conservative economic and perceived close ties with some top government officials in Beijing. Almost immediately after assuming office, Tung faced a series of crises—including the Asian Financial Crisis, a speculative run against the Hong Kong dollar, Avian Flu, and the problem-plagued opening of the new Chek Lap Kok Airport—to which his administration responded in what was widely regarded as a faltering and ineffective fashion. In response to the shortcomings of the Tung administration, people in Hong Kong became more politically aware and at times critical of the Hong Kong government. At the same time, the Hong Kong media also increased the political content of its coverage. In particular, talk radio stations began to feature more hosts who emphasized local politics and government shortcomings in their shows. Some of these talk show hosts have themselves been subject to sharp criticism—as well as threats of physical harm—but the shows have become very popular. Finally, the shift from British colony to "highly autonomous" region has also altered the nature of Hong Kong's top government officials, especially in the executive branch. When Hong Kong was a colony, the Governor and the department secretaries were generally British civil servants appointed by the British government. Similarly, for most of Hong Kong's colonial era, Legco members were appointed by the Governor. Given that the key political figures were foreigners chosen by foreigners, there were few incentives for Hong Kong residents to engage in politics. Since the Handover, the selection of the Chief Executive and the members of Legco is done locally, and the top government officials are generally born and raised in Hong Kong. According to a member of the current Legco, the fact that the government leadership is now local means that Hong Kong people have different expectations of the officials and are more comfortable expressing their opinions about the officials. Under the terms of both the Joint Declaration and the Basic Law, Hong Kong residents are supposed to continue to enjoy the same civil liberties they did prior to the Handover. According to the Joint Declaration, "Rights and freedoms, including those of the person, of speech, of the press, of assembly, of association, of travel, of movement, of correspondence, of strike, of choice of occupation, of academic research and of religious belief will be ensured by law in the Hong Kong Special Administrative Region." In turn, these rights are enumerated in detail in Chapter III (Articles 25 to 42) of the Basic Law. Since the Handover, there have been relatively few instances where either the Chinese or Hong Kong governments have threatened or undermined the civil liberties of Hong Kong residents. However, there have been perceived threats of the freedom of speech and assembly, and erosion of press freedoms from non-governmental sources. Under Article 27 of the Basic Law, Hong Kong residents have freedom of speech and freedom of assembly. Since 1997, these freedoms have been generally upheld by the Chinese and Hong Kong governments. Political demonstrations occur on a regular basis, with minimal interference by the authorities. In the few cases where there were questions about the behavior of the Hong Kong police at these demonstrations, the Hong Kong courts have upheld the rights of Hong Kong residents. However, in the summer of 2003, an estimated 500,000 Hong Kong residents—roughly one in every 14 people in Hong Kong—attended a rally to protest the so-called "Article 23" legislation introduced in Legco by the Chief Executive that arguably would have undermined the freedom of speech and assembly. By the same token, the Hong Kong government has done very little to prevent or infringe upon protests organized by the Falun Gong and other dissident groups since the Handover, often in contrast to the actions of the Chinese government. Article 23 of the Basic Law requires that the HKSAR enact legislation to "prohibit any act of treason, secession, sedition, subversion against the Central People's Government." On September 23, 2002, then Chief Executive Tung released his proposed legislation to comply with the requirements of Article 23. The proposed legislation was met with immediate widespread opposition, a smaller number of voices of support, and a growing wave of demonstrations. Lawyers, journalists, religious leaders, and others argued that the proposed legislation could be used by the Hong Kong government to ban or prosecute organizations or individuals for political purposes. In addition, the proposed legislation seemed to extend authority of some mainland laws into Hong Kong, diminishing the autonomy of Hong Kong's legal and judicial systems. Supporters rejected these claims, arguing that it had been five years since the Handover and it was time for Hong Kong to comply with the requirements of Article 23. While the verbal debate on the merits and demerits of the proposed legislation continued, public demonstrations grew in number and size. On December 12, 2002, thousands of Hong Kong residents held a protest rally. Then, on July 1, 2003, over half a million people—the second largest demonstration in Hong Kong history —marched from Victoria Park to the Central Government Offices on Hong Kong Island in protest of the Article 23 proposals. The rally lasted well into the night and included people of all ages, ethnic backgrounds and economic classes in Hong Kong. The size and depth of the public opposition to the Article 23 proposals apparently surprised Tung and his senior advisors. Meanwhile, initial support for the legislation from the "pro-Beijing" Liberal Party weakened. On July 6, 2003, Liberal Party leader and Legco member James Tien Pei Chun announced that he was resigning from the Executive Council and that he would advise Liberal Party Legco members to vote for a postponement of consideration of the proposed legislation. Ten days later, Secretary of Security Regina Ip Lau Suk Yee and Financial Secretary Anthony Leung Kam Chung resigned, citing personal reasons. However, most observers believe they were asked to resign in light of the massive protest and widespread opposition to the Article 23 proposals. On September 5, 2003, Tung withdrew the proposed legislation. Besides fending off a perceived threat to civil liberties in Hong Kong, the public outcry and demonstrations against the Article 23 proposals had several lasting political effects. First, many people saw the events as proof that the people of Hong Kong could directly affect government policy. Second, some of the organizers of the 2003 protests went on to form the "pro-democracy" Civic Party (see above). Third, the perceived "unrest" in Hong Kong may have contributed to the eventual stepping down of Tung. While some people point to the Article 23 proposals as a threat to civil liberties in Hong Kong, others cite the ongoing and regular demonstrations by the Falun Gong—a group outlawed on the Chinese mainland—and other groups as evidence that the Hong Kong government is continuing to protect the rights of Hong Kong residents. Although there have been occasional arrests of Falun Gong supporters and others at various demonstrations since the Handover, the Hong Kong courts have regularly upheld the rights of free speech and assembly of Hong Kong residents. Every year since the Handover, there are public rallies on June 4 (the anniversary of the Tiananmen Incident) and on July 1 (the anniversary of the Handover) in support of the human rights of the residents of Hong Kong and the Chinese mainland. In addition, Falun Gong supporters are maintaining a continuous protest near the Hong Kong pier of the Star Ferry. This protest is treated by many people as a "fact of life," and since the dismissal of cases by the Hong Kong courts, the protesters are largely left alone by the Hong Kong police. Much as is the case with the freedom of speech and assembly, there is little evidence of significant change in press freedom in Hong Kong since the Handover. However, in addition to the concerns raised about the Article 23 proposals of 2003, there are three areas frequently mentioned as possible threats to press freedom in Hong Kong. There are frequent allegations of an increase in self-censorship by the local Hong Kong media since the Handover. As evidence of this self-censorship, people point to the dismissals and resignations of several journalists and radio announcers who were critical of the Chinese and Hong Kong governments. While there are some who maintain that these dismissals were quietly orchestrated by Chinese officials, the more common explanation is that the owners of the newspapers, magazines and radio stations were fearful that the opinions expressed by the journalists would hurt advertising revenues, especially from mainland companies. In January 2006, the Hong Kong government announced that it had set up the Committee on Review of Public Service Broadcasting. While the members of the committee include representatives of the privately-owned media in Hong Kong, it does not include someone from Radio Television Hong Kong (RTHK), Hong Kong's sole public broadcaster. In its 2006 annual report, entitled "RTHK Under Siege," the Hong Kong Journalists Association treats Tsang's decision to form the committee with some suspicion, pointing to past attempts by both the Chinese and Hong Kong government to influence program content at RTHK. On March 28, 2007, the committee submitted its final report to the Chief Executive, recommending the creation of a new public broadcasting entity in Hong Kong. In the second half of 2007, the Hong Kong government will issue a "public consultation document which will set out the Government's views on the way forward." In addition to the committee's recommendation to for a new public broadcaster, several proposals about the future of public broadcasting in Hong Kong are being publicly discussed, ranging from making RTHK into an information agency to "comprehensively introduce and promote to the public the various public policies of the government" to transforming RTHK into a not-for-profit entity that is provided substantial financial support by the Hong Kong government. There is also consideration of selling RTHK to private investors. In July 2004, Hong Kong's Independent Commission Against Corruption (ICAC) searched the offices of seven Hong Kong newspapers as part of its investigation of the disclosure of the name of a person being protected under Hong Kong's witness protection program. Under Hong Kong law, the disclosure of the witness' name is punishable by up to 10 years in jail. According to the ICAC, the commission was not investigating the newspapers, but trying to find evidence that a lawyer had disclosed the name of the witness to the newspapers. While one of the journalists involved in the story later revealed the source of the witness' name, a Hong Kong court in August 2004 set aside the warrant, stating that the ICAC could have used "less intrusive measures" in its investigations. However, the ICAC raids have raised concerns about the maintenance of the freedom of the press in Hong Kong. The history of Hong Kong's economy is replete with examples of major restructuring and transformation, especially in the face of unanticipated challenges. The last 10 years are yet another example of Hong Kong's ability to recreate itself following severe economic shocks. As a result, Hong Kong's economy in 2007 is significantly different than it was in 1997. While most of the changes appear to be for the better, there are some developments that may portend future problems. In the months prior to the Handover, most analysts anticipated that the greatest challenges facing the new HKSAR were political, not economic. It seemed that no one foresaw the impending external economic shock, the Asian Financial Crisis, which would push Hong Kong into an extended recession. Nor could anyone predict the arrival of Severe Acute Respiratory Syndrome (SARS) and its ability to derail Hong Kong's economic recovery. Almost simultaneously with the Handover ceremony held in the Hong Kong Convention and Exhibition Centre, the Asian Financial Crisis struck many of the economies of Southeast Asia. The crisis quickly spread across most of East Asia and by the end of 1997, most of the Asian currencies had experienced significant losses in value with respect to the U.S. dollar, ranging from a 13% decline for the Japanese yen to a 55% decline for the Indonesian rupiah. However, two Asian currencies—the Chinese renminbi and the Hong Kong dollar—did not experience the same decline in value due to their link to the U.S. dollar. The Hong Kong dollar's linked exchange rate did not completely insulate the Hong Kong economy from the effects of the Asian Financial Crisis. A speculative attack on the Hong Kong dollar in August 1998 to force a de-linking was successfully fought off to a large part by the $15 billion intervention of the Hong Kong government in the Hong Kong stock market, orchestrated by then Financial Secretary and future HKSAR Chief Executive Tsang and HKMA Chief Executive Joseph Yam Chi Kwong, and by the HKMA's decision to raise the overnight rate from 8% to 19%. While these interventions saved the linked exchange rate, it forced Hong Kong's economy to adjust by prompting a sharp decline in the domestic prices of real estate, stocks, consumer goods, as well as major wage cuts. For a period of time, then Chief Executive Tung made a short-term effort to fend off the decline in real estate values—an action for which he was widely criticized as being more concerned about protecting his tycoon friends than helping the average Hong Konger—but in the end, property prices fell nearly 40% in value in the third quarter of 1998. Hong Kong soon found itself in a deflationary recession with rising unemployment (see Table 1 ). However, there were indications of a recovery developing by 1999 and building steam in 2000. Another set of external shocks struck just as Hong Kong's recovery began. A "dot.com" speculative bubble burst in Hong Kong Stock Exchange in the later half of 2000, leading to a loss in investor confidence. Plus, the September 11, 2001 attacks on the World Trade Center and the Pentagon led to a decline in Hong Kong's tourism industry, among other things. Hong Kong's recovery from the second set of external shocks was slower and weaker than its rebound from the Asian Financial Crisis. Although the HKSAR experienced real economic growth between 2001 and 2003, domestic prices continued to fall and the unemployment rate continued to rise. A lack of confidence in the Hong Kong business community and tourists in the streets resulted in the closing of many companies and retail stores across Hong Kong. The city had seemingly lost its well-known resilience. Hong Kong was then struck by a third external shock—Severe Acute Respiratory Syndrome, or SARS. Between November 2002 and July 2003, 299 people in Hong Kong died of SARS. For Hong Kong, SARS had a double impact on the economy. First, it significantly reduced tourism, particularly arrivals from the United States and western Europe. Second, many Hong Kong residents were afraid to leave their homes for fear of infection. As a result, Hong Kong restaurants, hotels, retail stores and other local service industries experienced a sharp decline in business. As the outbreak of SARS subsided, Hong Kong businesses and residents began to recover, but the economy remained weak. There were calls for leadership from Tung, but the Chief Executive seemed more interested in promoting his unpopular Article 23 proposals than facilitating Hong Kong's economic recovery. In the end, it was arguably the actions of the government in Beijing that provided the confidence boost that expedited the return of economic growth to Hong Kong. On July 28, 2003, the Chinese government announced a new travel policy for mainland residents visiting Hong Kong. Under the old policy, mainland residents could only travel to Hong Kong on a business visa or as part of a group tour. Under the new policy, dubbed the Individual Visit Scheme (IVS), individual mainland tourists could obtain a seven-day visa to Hong Kong, subject to the approval of China's Public Security Bureau. The IVS proved to be very popular; about 600,000 mainland residents applied for a visa over the next four months, and more than 450,000 were granted visas. Between 2001 and 2006, the annual number of mainland visitors—including business travelers and tourists—to Hong Kong jumped from 4.4 million to 13.6 million people, accounting for over half of Hong Kong's visitors in 2006. In addition, starting on January 1, 2004, a mini free trade agreement between the Chinese mainland and Hong Kong went into effect. "The Closer Economic Partnership Arrangement," or CEPA, provides Hong Kong companies preferential access to the markets of the Chinese mainland. CEPA eliminates import tariffs for over 1,400 types of Hong Kong products, representing about 90% of Hong Kong's domestic exports to China. CEPA also provides Hong Kong service providers easier access to the mainland market. The impact of the IVS and CEPA on Hong Kong was strong, but not without its unexpected consequences. The presence of mainland tourists in Hong Kong brought welcome relief to Hong Kong's ailing hotel, retail, restaurant, and manufacturing industries. Many of the mainland tourists were from China's nouveau riche , spending money at top quality hotels, restaurants and retail stores. However, the influx of mainland tourists meant also the influx of large quantities of renminbi and pressure on Hong Kong's services sectors to learn a third business language— Putonghua , or Mandarin Chinese. As a result, Hong Kong became more accustomed to conducting business in renminbi and in Mandarin. Following the end of the SARS outbreak and the introduction of the IVS, Hong Kong's economy has experienced several years of strong economic growth (see Table 2 ). Hong Kong's real GDP is growing at rates comparable to its last expansionary period before the Handover. Six-years of price deflation came to an end in 2005. Furthermore, Hong Kong's unusually high unemployment rate—peaking at 7.9% in 2003—started a gradual decline of about 1% per year. As the economy recovered, the confidence of the people and businesses of Hong Kong also appeared to recover. When compared to the opinions expressed at the depths of the recession, people in Hong Kong now seem much more confident about their future. However, as will be described later in this report, there is an underlying uncertainty expressed by some Hong Kong residents about the HKSAR's relationship with the Chinese mainland. One of the largely unexpected effects of the Handover has been rapid increase in economic interaction between the economies of Hong Kong and the Chinese mainland. Prior to 1997, Hong Kong was generally viewed as the hub of a regional economic network, reaching from across Southeast Asia up into the Chinese mainland. However, due in part to the effects of the Asian Financial Crisis, Hong Kong's manufacturing and trading companies have reduced their investment flows and activities in Southeast Asia. Meanwhile, the comparatively fast growth of the Chinese economy—and its booming consumer market—have proven to be a more attractive alternative location for business expansion. As a result, the economic relationship between the Chinese mainland and Hong Kong has grown faster and deeper than expected prior to the Handover. Another factor driving the deepening of economic interaction between China and Hong Kong is CEPA. Because China and Hong Kong are separate customs territories, trade between the two effectively is treated as trade across an international border. Bilateral shipments of goods and materials must clear either Hong Kong or Chinese Customs, and people crossing the border must pass through either Hong Kong or Chinese immigration even though the Chinese mainland and Hong Kong are parts of the same country. In addition, under Chinese law, Hong Kong companies wishing to invest in the Chinese mainland are considered foreign companies, just like U.S. companies seeking entry into China. By negotiating a free trade agreement with China, Hong Kong has bolstered its competitive advantage on the Chinese mainland. Under the terms of CEPA, over 1,400 products of Hong Kong origin can be imported into China tariff-free. In addition, a wide variety of service sectors are provided greater access to the mainland market than stipulated in China's WTO accession agreement. For some service sectors, CEPA allows Hong Kong companies to establish wholly-owned subsidiaries in the Chinese mainland that can compete in the mainland markets. For many of the professional services (legal, accounting, etc.), Hong Kong practitioners are able to provide limited services in the Chinese mainland that are prohibited to other "foreign" practitioners. Finally, in the financial sector, Hong Kong banks are allowed to offer bank accounts, credit cards, and remittances denominated in renminbi, while Hong Kong residents are allowed to convert more currency into renminbi than other "foreigners" plus they are able to open renminbi checking accounts in banks in Guangdong Province. According to research done by the Hong Kong Trade Development Council (HKTDC), CEPA has led to an increase in Hong Kong's domestic exports to China, led by rapid growth in the tariff-free product categories. According to a report submitted to the Legco Panel on Commerce and Industry, by the end of 2006, 6.8 billion Hong Kong dollars ($870 million) worth of goods have been sent to the Chinese mainland under the tariff-free provisions of CEPA, plus 305 million Hong Kong dollars ($39 million) of net capital investment in Hong Kong manufacturing has been induced by CEPA. The report also states that CEPA has caused a net increase in net capital investment in the services sector of 4.8 billion Hong Kong dollars ($615 million). Both China and Hong Kong view CEPA as a "work in progress," with on-going discussions to expand the scope of the arrangement to include more products, more services, and to foster greater access for Hong Kong businesses and professionals to the Chinese mainland market. For Hong Kong manufacturers, one of the main appeals of CEPA is the ability to sell to mainland consumers, allowing a shift away from export-oriented operations. Similarly, for Hong Kong service providers, CEPA opens up new business prospects in a large and growing mainland market. Finally, for Hong Kong's financial sector, by granting renminbi-denominated transactions, Hong Kong banks and other finance companies have improved access to Chinese companies and consumers. In a sense, CEPA is part of the larger story of the economic development of the pan-Pearl River Delta. Over the last 10 years, a number of studies have been done on the economic relationship between Hong Kong and the Pearl River Delta in the Chinese mainland. According to one study, the "economic interaction between Hong Kong and the Pearl River Delta region has been critical to the development of both economies." According to these studies, Hong Kong serves as the business hub for the Pan-Pearl River Delta region, maintaining the high-value added administrative and financial activities in Hong Kong, while the Chinese mainland increasingly takes on the less technical operational and support activities in addition to the manufacturing activities. As a result, when taken as a whole the Hong Kong-Pearl River Delta economic region is comparable in GDP and trade volume to China's Yangtze River Delta region, utilizing about half the land mass and population of its northern competitor. However, a major difference between the Pan-Pearl River Delta region and the Yangtze River Delta region is the existence of the immigration and customs border within the former region, complicating economic and trade flows within the region. As a member of Legco recently described it, "The border was once seen as an assurance, but is now viewed as a hindrance." Some analysts believe economic pressures will push Hong Kong government officials to work more closely with their colleagues in southern China to find ways to reduce the complications created by and at the border. The first 10 years of the HKSAR have witnessed deepening economic interaction between the Chinese mainland and Hong Kong. As previously described, Hong Kong businesses continue to invest in mainland facilities and are transferring more of their operations into the Chinese mainland. Meanwhile, mainland companies are investing in Hong Kong. Hong Kong's total foreign direct investment in the Chinese mainland was worth nearly $190 billion at the end of 2005, and mainland investments in Hong Kong exceeded $163 billion. As of 2006, China-related companies accounted for nearly a third of the companies listed on the Hong Kong Stock Exchange, and had a market capitalization value of over $870 billion, up from just $67 billion in 1997. Possibly the most obvious evidence of the deepening economic relationship between the Chinese mainland and Hong Kong is the growth in bilateral trade. Total merchandise trade with China more than doubled in value between 1997 and 2006 (see Table 3 ). In 1997, 35% of Hong Kong's foreign trade was with China, but by 2006, 46% of its total trade was with China. By contrast, Hong Kong's trade with the United States increased by less than $4 billion over the last 10 years, and trade with the United States declined from 15% to 9% of Hong Kong's total trade. Hong Kong's trade in services with China has also increased substantially since the Handover. In 1997, Hong Kong's services exports to China equaled $6.8 billion and its import of services totaled 7.8 billion. In 2005, Hong Kong exported $16.4 billion in services to China and imported $9.1 billion in services from China. During that time period, China's share of Hong Kong's services exports rose from 19.4% to 26.3%, and its share of Hong Kong's services imports decreased from 31.1% to 27.0%. The growing economic ties between the Chinese mainland and Hong Kong also raise questions about the long-term status of the HKSAR as a "highly autonomous" economic entity. In many ways, the Chinese mainland is currently more important for Hong Kong's economy than Hong Kong is important for China's economy. At present, various institutions and structures—such as the Hong Kong dollar, the separate Customs and Immigration Departments, and compliance with the Joint Declaration and the Basic Law—permit the Hong Kong government to maintain a degree of economic separation from the Chinese mainland. As a result, it is possible to refer to the current economic dynamic between Hong Kong and the Chinese mainland as a synergetic relationship. However, there are elements in the current economic trends that could portend the eventual integration of Hong Kong into the Chinese mainland economy in the long run. Mainland companies are growing in influence in Hong Kong's stock exchange, inward investment flows, and other business activities. A rising share of Hong Kong business transactions are denominated in renminbi—rather than the Hong Kong or U.S. dollar—and Hong Kong's financial sector plans on introducing more renminbi -denominated financial services. At a recent presentation, a prominent Hong Kong professor suggested that the Hong Kong dollar may become a collector's item to show to one's grandchildren. To some observers, the level and nature of business activity between Hong Kong and the Chinese mainland may eventually supercede the ability of the structural institutions to maintain a viable degree of separation. According to this scenario, as more and more trade and financial flows in Hong Kong are conducted in renminbi rather than Hong Kong dollars, it will become increasingly difficult to support the current linked exchange rate with the U.S. dollar—or possibly maintain a separate Hong Kong currency. Similarly, it is argued that it will become hard to distinguish between a Hong Kong company that has most of its actual business activities taking place in the Chinese mainland from a mainland company that is listed on the Hong Kong stock exchange and operates mostly from its Hong Kong office. So too, the legal distinction between a product of Hong Kong and a product of China may become increasingly difficult to make as the flow of goods and services across the border grows, especially if the product in question makes multiple trips into and out of Hong Kong and the Chinese mainland. In short, there is a possibility—of unknowable likelihood at this time—that global market forces will push the economies of Hong Kong and the Chinese mainland to become fully integrated, which has implications for whether Hong Kong's economy is judged "highly autonomous" from the Chinese mainland. According to the U.S.-Hong Kong Policy Act, economic and trade relations between the United States and Hong Kong were to remain virtually unchanged after the Handover. Section 102 of the act supports Hong Kong remaining a separate customs territory from China and Hong Kong's separate party to the General Agreement on Tariffs and Trade (GATT). Section 103 states that the United States "should seek to maintain and expand economic and trade relations with Hong Kong and should continue to treat Hong Kong as a separate territory in economic and trade matters ... " The section also grants Hong Kong "most favored nation status" (now referred to as "normal trade relations" status), provides for the free exchange between the U.S. and Hong Kong dollars, allows for continued trade of "sensitive technologies" under U.S. export controls, and calls for the negotiation of a bilateral investment treaty (BIT) between Hong Kong and the United States, "in consultation with the Government of the People's Republic of China." Section 104 recognizes Hong Kong as "an international transport center," continues U.S. recognition of Hong Kong ship and airplane registrations, and calls for the direct negotiation of new air service agreements with Hong Kong. In general, there have been few changes in the institutional aspects of U.S.-Hong Kong economic and trade relations since the Handover. Hong Kong remains a separate member of the World Trade Organization (WTO), and often is a helpful ally in trade negotiations seeking to further international trade and investment liberalization. The United States and Hong Kong recognize each other as separate customs territories and their customs authorities enjoy a productive and generally friendly professional relationship. The exchange of products subject to U.S. export controls continues, without serious problems. The Hong Kong and U.S. dollars are both fully convertible and openly exchanged in international markets. The two governments successfully concluded a new air services agreement in 2002 that liberalized air services between the United States and Hong Kong. However, there has been no progress on the suggested U.S.-Hong Kong BIT. According to official U.S. statistics, U.S. trade with Hong Kong has experienced very little growth since the Handover (see Table 4 ). While there has been a modest increase in exports to Hong Kong, there has also been a slight decline in imports from Hong Kong. As a result, total merchandise trade between the United States and Hong Kong increased by about $300 million over the last 10 years, but the U.S. bilateral trade surplus with Hong Kong increased by $5.0 billion. Also, both exports to and imports from Hong Kong noticeably declined following the events of September 11, 2001. U.S. exports to Hong Kong have since recovered, but imports from Hong Kong have continued to decline, largely due to the relocation of Hong Kong's manufacturing into the Chinese mainland. U.S. service trade with Hong Kong totaled $8.6 billion in 2005 [latest available data], with U.S. exports of $3.7 billion and imports of $4.9 billion. In addition, majority U.S.-owned affiliates operating in Hong Kong provided $9.0 billion in services in 2004 [latest available data], and majority Hong Kong-owned affiliates operating in the United States provided $1.4 billion in services. As of the end of 2005, U.S. foreign direct investment in Hong Kong totaled $37.9 billion. While the formal aspects of U.S. economic and trade relations with Hong Kong remain intact, and bilateral trade and investment continues to flow, there are a few areas of long-term concern about U.S.-Hong Kong trade relations. In its most recent survey of its members, the American Chamber of Commerce in Hong Kong (AmCham HK) found that "98% of AmCham member companies indicated that they were satisfied with the overall business environment in Hong Kong," and half of the companies said they planned on expanding their business in the next three years. However, AmCham HK has also expressed concern about specific aspects of U.S. and Hong Kong policies that they see as hindering better economic and trade relations. One of the perennial issues for AmCham HK is the U.S. policy to tax overseas income. According to AmCham HK, the United States is one of only five nations that tax foreign earned income. While the U.S. tax code contains a relatively high exclusion ($82,400 in 2006) that is adjusted for inflation, recent changes in the U.S. tax code increased the effective tax rate by altering the treatment of housing and educational allowances and expenses. According to AmCham HK, the U.S. taxation of foreign earned income makes it nearly twice as expensive to hire U.S. nationals to work in Hong Kong as other "ex-pats," and is pushing U.S. companies in Hong Kong to hire foreign nationals from Australia, Britain, Canada, and New Zealand rather than hire U.S. citizens. Not surprisingly they have called on the United States to discontinue the taxation of overseas incomes, and see the raising of the income exclusion as a minimal step to reduce the negative impact on US. companies and individuals operating in Hong Kong. The second major concern of AmCham HK is the rising problem of air pollution in Hong Kong. During the month of May 2007, hourly air pollution readings conducted by the Hong Kong government at roadsides around the city were "high" more than two-thirds of the time. On particularly bad days, it is impossible to see across Victoria Harbour, a distance of little more than one kilometer. Air pollution is also a growing issue for the people of Hong Kong, and is a high priority of the Hong Kong government. Air quality in Hong Kong has been on the decline since the 1980s, following the opening of southern China to Hong Kong manufacturing facilities. Because the prevailing wind direction is from the Chinese mainland, much of the pollution emanating from Hong Kong-owned factories in Guangdong Province ends up drifting over Hong Kong. In addition, rising traffic congestion and the construction of taller buildings along the waterfront have been cited as contributing factors to Hong Kong's air pollution problem. The Hong Kong government is making a concerted effort to reduce the city's air pollution. In July 2006, Chief Executive Tsang announced the "Action Blue Sky" Campaign, designed to raise public awareness of air pollution. Hong Kong has already converted nearly all of its taxi cabs from diesel to liquified petroleum gas (LPG) to reduce emissions, and is pushing the private bus companies to convert their fleet of vehicles to LPG. The Hong Kong government is also working with utility companies in both Hong Kong and the Chinese mainland to find ways of reducing emissions at power generation facilities. Despite these and other actions, Hong Kong continues to have a significant air pollution problem. The third issue raised by AmCham HK is the quality of education available for the children of "ex-pats" in Hong Kong. Hong Kong has an extensive network of "international schools" that provide an education comparable to the curriculum offered back in the home country. However, the return of many Hong Kong residents to Hong Kong following the Handover has increased the demand for the limited number of openings at these schools. Whether it is for the reasons cited by AmCham HK or other causes, there has been a noticeable decline in the number of "ex-pats" in Hong Kong since the Handover, especially from Britain, Canada, and the United States (see Table 5 ). Between 1996 and 2001, the number of British "ex-pats" living in Hong Kong decreased by nearly 150,000 people. Much of this dramatic decline is attributable to the removal of British troops from Hong Kong following the Handover. However, there is no similar "troop withdrawal" to account for halving of U.S. ex-pats in Hong Kong between 1996 and 2001, or the 64% decline in the Canadian population. The "disappearance" of the Western "ex-pats" and the arrival of more mainland Chinese has had a subtle change in the look and feel of Hong Kong. According to some observers, its international quality has declined, while its Chinese cultural attributes are on the rise. In addition, a significant number of executive positions in the private sector that previously were filled by Western "ex-pats" are now being done by mainland immigrants. Meanwhile, at the other end of the income spectrum, many jobs previously done by Hong Kong Chinese are being taken by recent mainland immigrants as well. The perceived influx of mainland Chinese at both the top and bottom of the income distribution is causing some tensions within the Hong Kong Chinese population. Much as the United States experienced with its waves of immigrants, some people in Hong Kong view the "newcomers" with suspicion. This suspicious attitude towards mainland immigrants was reinforced by the Tung administration when it released rather dire predictions of the effects of the arrival of mainland children and their families during the "right of abode" controversy. It is not uncommon to hear claims in Hong Kong that mainland immigrants are responsible for a rise in crime, the decline in the quality of education, and a general loss of good manners in Hong Kong since the Handover. Along with the decline in its "ex-pat" population, there is a perception that Hong Kong may be losing its "middle class." With more and more of the middle management jobs being relocated into the Chinese mainland, analysts say Hong Kong residents are being forced to work harder for less pay. Recent income statistics show some evidence to support this claim. During the depths of Hong Kong's recession, nominal salaries and wages in the private sector declined every quarter from the beginning of 2002 to the end of 2004. In addition, the Hong Kong government recently announced that Hong Kong's Gini coefficient had risen from 0.518 in 1996 to 0.533 in 2006. By contrast, the U.S. Gini coefficient in 2005 was 0.469 and China's Gini coefficient in 2005 was 0.46. There are also indications that the Chinese government is concerned about the status of Hong Kong's middle class. During a May 2007 interview with Hong Kong Cable TV, Lu Ping, former director of the State Council's Hong Kong and Macau Affairs Office, stated that prior to the Handover, the Chinese government's "biggest concern was that big businesses, particularly the ones overseas, might pull out." In retrospect, Lu believes, "Although we had paid attention to people in the middle-class and the grassroots level, who make up the majority after all, it wasn't enough. More could have been done for them." Even before 1997, an undercurrent of nostalgia swept around Hong Kong. While there were very few public expressions of disapproval of Hong Kong's return to China, there were many private disclosures of sadness at seeing the departure of the photo of the Queen in government buildings and other attributes of Hong Kong's British heritage. In addition, musician Anthony Wong Yiu Ming performed a concert to sell-out crowds in 1997 entitled "People Mountain, People Sea" ( Yan San, Yan Hoi ) that featured a well-known love song in which one half of an ex-couple expresses his or her sorrow about the end of the relationship, as well as his or her appreciation for everything the other person taught the singer. During the concert, Wong performed the song while dressed up in an outfit patterned after the British Union Jack. The symbolism of Wong's clothing was not lost on the audience. Since the Handover, there continues to be an interest in preserving Hong Kong's distinct cultural heritage. The Hong Kong government has increased its efforts to preserve historical buildings, both of Chinese design (such as village temples) and colonial origin. An example of the Hong Kong government's efforts to preserve historical buildings is the reconstruction of Murray House in Stanley in 1999. More recently, the proposed demolition of the Railroad Clock Tower in Tsim Sha Tsui and the Queen's Pier on Hong Kong Island gave rise to series of public demonstrations and an occupation of the pier by more than 20 protesters, prolonged debates in Legco, and the advancement and withdrawal of proposals by Chief Executive Tsang to relocate and preserve these historic buildings. At the time this report was drafted the future of both structures was uncertain. Taken as a whole, the social and cultural developments mentioned above are indications of a general reevaluation and reexamination taking place in Hong Kong about its identity. One major aspect of this process is defining—or redefining—Hong Kong's relationship with China. An example of the redefinition of Hong Kong's relationship to China is how Hong Kong residents identify themselves. In a survey conducted just after the Handover, 35% of the respondents referred to themselves as "Hong Kong citizens" ( Heunggongyan ), 25% said they were "Chinese Hong Kong citizens" ( Chunggwok gei Heunggongyan ), 20% called themselves "Hong Kong Chinese citizens" ( Heunggong gei Chunggwokyan ), and a bit more than 18% used the term "Chinese citizens" ( Chunggwokyan ). In a December 2006 survey, 22% used the term "Hong Kong citizens," 32% preferred "Chinese Hong Kong citizens," 20% said "Hong Kong Chinese citizens," 24% answered with "Chinese citizens"—revealing a slight shift towards greater association among Hong Kong residents with their Chinese identity. Self-identification is not a trivial matter for today's Hong Kong citizen. To some pro-Beijing politicians, criticism of the Chinese government is viewed as being unpatriotic and disloyal. However, for pro-democracy politicians, the criticism may be considered an expression of patriotism if the goal is to make Hong Kong and/or China a better place. For typical Hong Kong citizens, the issue becomes one of resolving the tension between one's loyalty to Hong Kong and to China. Combining the social and cultural changes with the post-Handover economic dynamics, the issue of Hong Kong's long term ability to remain separate and distinct from the Chinese mainland resurfaces. At present, the Hong Kong government is emphasizing Hong Kong's identity as "Asia's World City," as well as the entryway into the emerging Chinese mainland market. The focus is on projecting Hong Kong as being an international and cosmopolitan city and the natural bridge into China. What cannot be determined at this time is if and for how long Hong Kong can remain both part of and separate from China. At present, most analysts believe there are very few issues that indicate a need for significant changes in U.S. policies about Hong Kong. By and large, the provisions of the U.S.- Hong Kong Policy Act are being met, and Hong Kong is fulfilling its obligations to the United States under the existing bilateral and multilateral treaties and agreements. There are, however, several areas that Congress may chose to consider that could have an impact on U.S.-Hong Kong relations. The support for the democratization of Hong Kong is written directly into the U.S.-Hong Kong Policy Act, and there appears to be strong and widespread support for democracy among the people of Hong Kong. In public opinion polls, Hong Kong residents routinely support the direct election of the Chief Executive by universal suffrage and to almost an equal extent, support the election of the members of Legco by universal suffrage. For example, in surveys conducted prior the Standing Committee of the NPC announcement of April 2004, between 70% and 80% of the respondents supported the direct election of Chief Executive in 2007. A similar set of surveys found that nearly three-quarters of the people supported direct election of Legco before the Standing Committee of the NPC stated its opposition to the direct elections, and nearly two-thirds continued to support direct elections afterwards. Two possible ways for Congress to promote Hong Kong's progress towards universal suffrage and democracy are: (1) closely monitor the work of the Committee on Governance and Political Development as it develops the "Green Paper" on "models, roadmaps and timetables for electing the Chief Executive by Universal Suffrage," as well as its Legco reform proposals; and (2) provide assistance to the current Legco in its ongoing research into the policies and practices of the U.S. Congress. In FY2006, the State Department's Human Rights and Democracy Fund allocated $450,000 to a project in Hong Kong designed to strengthen political parties and civil society organizations. Also, the State Department's Country Report on Human Rights Practices for China contains a separate section on Hong Kong, including analysis of its progress towards democracy. In addition to these programs, Congress may wish to provide information and resources to Hong Kong's political parties as they explore the possible creation of broader, grassroots-based parties. Outward indications seem to support the view that the civil liberties of the people of Hong Kong remain relatively unchanged since the Handover. Public opinion polls conducted regularly since the Handover reveal no perceived erosion in the freedoms of speech, press, or assembly among Hong Kong residents. At present, the only issue that clearly raised concerns about civil liberties in Hong Kong—the Article 23 proposals—is on hold until Chief Executive Tsang or the Chinese government decide to press the matter again with Legco and the people of Hong Kong. Beyond continuing to monitor civil liberties in Hong Kong, Congress might contemplate consultations with Legco about alternative legal options in drafting legislation on issues such as treason, sedition, and subversion. Economic and trade relations between Hong Kong and the United State are by most accounts strong, positive, and friendly. Both parties are reportedly fulfilling their bilateral and multilateral obligations under existing treaties and agreements. Trade and investment flows between the two economies have recovered from a recent downturn, but do not exhibit the same level of growth seen in trade relations with other economies. Also, the decline of U.S. nationals in Hong Kong, may indicate a reduction in U.S. influence in Hong Kong. Based on the comments of U.S. business representatives in Hong Kong, there are some actions Congress could consider taking to counter the possible decline in U.S. influence. Not surprisingly, the U.S. business community in Hong Kong favors a congressional re-examination of U.S. laws governing the taxation of foreign earned income and consideration of ways of balancing the revenue generated by the tax against the implicit cost it creates for U.S. companies wishing to hire U.S. nationals overseas. In addition, Congress may wish to support technical assistance to Hong Kong in its efforts to reduce air pollution. Also, Congress might choose to explore direct and indirect ways of fostering the creation of more international schools in Hong Kong with curriculum consistent with the U.S. educational system. Finally, Congress may include language in suitable legislation to reactivate the Section 301 provision of the U.S.-Hong Kong Policy Act that requires an annual report from the State Department to Congress on the status of Hong Kong. Much of the information and analysis contained in this report is based on a series of interviews conducted by the author in Hong Kong during the week of May 28 - June 1, 2007. Below is a list of the people interviewed (in alphabetical order); some of whom wished to remain anonymous. Anonymous Hong Kong business consultant Anonymous Hong Kong Customs official Anonymous Hong Kong physician Anonymous Hong Kong retiree Fred Armentrout, Communications Director, American Chamber of Commerce in Hong Kong Nicholas Chan Chun Tak, Senior Administrative Officer, Central Planning Unit, Hong Kong Government Philip Chan Kwan Yee, Research Director, Central Planning Unit, Hong Kong Government Watson Chan Li Wah, Research Department, Legislative Council Michael Degolyer, Professor of Government and International Studies, Hong Kong Baptist University Michael Enright, Professor of Business Administration, University of Hong Kong He Dong, Head of Economic Research Division, Hong Kong Monetary Authority Anthony Hutchinson, Director of Public Affairs, U.S. Consulate General in Hong Kong Linda Lai Wai Ming, Deputy Secretary, Hong Kong Department of Commerce, Industry, and Technology Emily Lau Wai Hing, Member of the Legislative Council Alan Leong Kah Kit, Member of the Legislative Council Leung Kwok Hung, Member of the Legislative Council Nancy W. Leou, Consul, Economic/Political Section, U.S. Consulate General in Hong Kong Edward Leung Hoi Kwok, Chief Economist, Hong Kong Trade Development Council Amelia Luk Siu Ping, S. P., Deputy Law Officer, Hong Kong Department of Justice Jack Maisano, President, American Chamber of Commerce in Hong Kong Julie Mu Fee Man, Assistant Director of Community Relations, Independent Commission Against Corruption Ng Chun Hung, Professor of Sociology, University of Hong Kong James Tang T. H., Professor of Politics and Public Administration, University of Hong Kong Cherry Tse Kit Ching Ling, Permanent Secretary, Hong Kong Department of Constitutional Affairs David Webb, Economist Pansy Yau Lai Ping, Assistant Chief Economist, Hong Kong Trade Development Council Yeung Yue Man, Director of Hong Kong Institute of Asia-Pacific Studies, Chinese University of Hong Kong
|
In the 10 years that have passed since the reversion of Hong Kong from British to Chinese sovereignty, much has changed and little has changed. On the political front, the Hong Kong Special Administrative Region (HKSAR) has selected its first Chief Executive, only to have him step down and be replaced in a process not without some controversy. Meanwhile, belated changes by the British in the makeup of Hong Kong's Legislative Council (Legco) were initially undone, but subsequent changes in the Legco selection process have brought things back nearly full circle to where they stood prior to the Handover. There is also unease about the independence of Hong Kong's judicial system and the protection provided by Hong Kong's Basic Law in light of decisions made by the Chinese government. Similarly, the civil liberties of the people of Hong Kong remain largely intact. In part, this can be attributed to the increased politicization of the people of Hong Kong. The freedom of the press in Hong Kong is still strong, but also faces challenges—both on the legal front and from allegations of self-censorship on the part of the media owners reluctant to antagonize the People's Republic of China. Yet, even with these challenges, many Hong Kong residents do not appear to perceive a decline in their civil liberties since 1997. Economically, Hong Kong is still a major international financial center and a leading gateway into China. However, Hong Kong's economic interaction with the Chinese mainland has grown deeper and broader over the last 10 years than was expected, increasing the city's economic connections with China. This closer tie to the mainland is being bolstered by the signing of a free trade agreement in 2003, called the "Closer Economic Partnership Arrangement," or CEPA, between China and Hong Kong. Current economic and trade dynamics have raised concerns that Hong Kong's relationship with China will shift in the long run from one of synergy to full integration, possibly undermining the HKSAR's "high degree of autonomy." Recent social and cultural trends appear to reflect some apprehension about the long-term implications of current economic and political trends. There has been a decline in Hong Kong's expatriate ("ex-pat") community, including U.S. nationals. Also, there is a perception that Hong Kong's "middle class" is disappearing. Underlying many of these social and cultural trends is a redefinition of Hong Kong by its residents, indicating a closer identification with China. At present, few of these long-term trends have had a significant effect on Hong Kong's political or economic situation and its relations with the United States. Under the U.S.-Hong Kong Policy Act of 1992 (P.L. 102-383), the United States treats Hong Kong as a separate entity in a variety of political and economic areas so long as the HKSAR remains "sufficiently autonomous" from China. While Hong Kong government continues to fulfill its obligations to the United States under existing bilateral and multilateral treaties and agreements, there are still some minor issues that might warrant action by Congress. This report will be revised as circumstances warrant.
|
The Sacramento-San Joaquin River Delta (the Delta) is formed by the confluence of the north-flowing San Joaquin River, the south-flowing Sacramento River, and the San Francisco Bay, to which the delta of the two rivers is linked. The 1,153-square-mile estuary is the hub of California's extensive water supply system. The Delta provides water to more than 25 million people and habitat for various species, including the threatened delta smelt and endangered chinook salmon. As such, the Delta has endured decades of competing water demands. During this time, the Delta ecosystem has experienced environmental degradation, increasing regional water demands, and a decrease in reliable water supplies for urban, agricultural, and natural areas. Numerous categories of stakeholders have an interest in water flowing through the Delta, including agricultural, urban, industrial, environmental, and recreational interests. In 2007, a federal court ordered flow restrictions on the Delta water projects to prevent the negative effect water diversions were having on species in the Delta ecosystem until the U.S. Fish and Wildlife Service completed consultations and issued a new biological opinion in late 2008. This decision required federal and state entities to reduce pumping water in two large water projects and therefore has had significant effects on the water supply of California. In a July 2008 decision, the same judge indicated that restrictive measures may also be necessary for another species. In 1959, the state enacted the Delta Protection Act, which provided a specific law to govern Delta waters based on the unique problems posed by the Delta. The Delta Protection Act provides for protections against the two major problems—salinity control and adequate supply. These problems stem from an "uneven distribution of water resources." Quantitatively, the areas in California in which demand for water is highest are also the areas in which the supply is lowest, causing shortages for users—largely south of the Delta. Qualitatively, the Delta is affected by saltwater intrusion, caused by the inflow of saline tidal waters and the diversion of fresh water that would normally counterbalance the inflow. The Delta and its ecosystem are also affected by contaminants from urban and agricultural runoff. California law provides for several limits on the use of the state's waters. Because the waters of California are considered to be "the property of the people of the State," anyone wishing to use those waters must acquire a right to do so. California follows a dual system of water rights, recognizing both the riparian and prior appropriation doctrines. Under the riparian doctrine, a person who owns land that borders a watercourse has the right to make reasonable use of the water on that land. Under the prior appropriation doctrine, a person who diverts water from a watercourse (regardless of his location relative thereto) and makes reasonable and beneficial use of the water acquires a right to that use of the water. Before exercising the right to use the water, appropriative users must obtain permission from the state through a permit system run by the State Water Resources Control Board (the Board). California law provides for a hierarchy of these rights for users sharing water that may not meet all users' needs. Because riparian users share the rights to the water with other riparians, no one riparian user's right is considered superior to another's riparian right. Therefore, riparian rights are reduced proportionally in times of shortage. With regard to appropriative rights, the person's right that was appropriated first is considered superior to later appropriators' rights to the water. Between the two types of rights, users with riparian rights generally have superior claims to those who have appropriative rights. That is, riparians generally may fill their needs before appropriators, and appropriators fill their needs according to the order in which they secured the right to the water. Water rights may be modified under certain circumstances. If a right is acquired by appropriation, it is approved for a specific place and purpose of use , which can be changed only with the Board's permission. Under what is known as the no injury rule, the Board cannot approve changes to water permits unless "the change will not operate to the injury of any legal user of the water involved." Under its constitutional and statutory rules, the state requires that water users, regardless of the manner by which they acquired their rights, are all limited to uses that are reasonable and for a beneficial purpose. Courts have upheld this limitation, known as the rule of reasonable use, as a valid exercise of the state's police power to regulate water for public benefit. The California Supreme Court recognized the public trust doctrine as a further limitation on water rights. The court held that the state acts as a trustee for the people of the state with a duty to protect the waters, which are held in a public trust, from harmful diversions by water rights users. Two major water projects transfer water throughout the state. The Central Valley Project (CVP) is a federal project run by the U.S. Bureau of Reclamation (Reclamation). The State Water Project (SWP) is run by the California Department of Water Resources (DWR). The projects "divert water from the rivers that flow into the Delta and store the water in reservoirs. Quantities of this stored water are periodically released into the Delta. Pumps situated at the southern edge of the Delta eventually lift the water into canals for transport south.... " Both projects acquired appropriative rights, receiving several permits at various points between 1927 and 1967. Section 8 of the Reclamation Act of 1902 requires Reclamation to comply with state law, including requiring Reclamation to acquire water rights for the CVP. If Reclamation found it necessary to take the water rights of other users, those users would be entitled to just compensation. In some cases, Reclamation found it necessary to enter into "settlement" or "exchange" contracts with water users who had rights pre-dating the CVP. In 1964, in order to avoid legal problems that might arise if the CVP could not operate without interfering with other users' water rights claims to the Sacramento River, Reclamation negotiated settlement contracts with users who held water rights predating the CVP (often referred to as Settlement Contractors). The settlement contracts provided an agreed upon allocation of water rights to the river. These contracts' initial term was 40 years and the contracts are currently in the process of renewal. Exchange contracts provide assurance that the needs of these users whose rights predated the CVP (often referred to as Exchange Contractors) would be satisfied. In entering these contracts, the Exchange Contractors sold their water rights on the San Joaquin River to the government, except for reserved water (water to which the Exchange Contractors held vested rights), and agreed not to exercise the reserved water rights in exchange for the government delivering specified amounts of substitute water. The terms of the contract are for "a conditional permanent substitution of water supply. The United States has a right to use the Exchange Contractors' water rights 'so long as, and only so long as, the United States does deliver ... substitute water in conformity with this contract.'" To date, Reclamation has met this obligation by delivering CVP water. The water is pumped from the Delta and delivered south via the Delta-Mendota Canal. Reclamation, therefore, holds legal water rights to the water in the CVP and enters contracts with other users for water supply. The water supplied to users under these contracts is determined by the terms of the contract, rather than the legal doctrines of water rights. These contracts incorporate the requirements of federal legislation and are made subject to federal Reclamation law. Specifically, the contracts typically include provisions that address the possibility of water shortages that may affect users' access to water provided under their contract. Generally, courts have allowed the government to reduce water allocations provided by contract if the reduction is made necessary by federal law, but the extent of liability depends on the terms of the specific contract used in each case. The State Water Resources Control Board (the Board) is the state agency charged with water supply and water quality issues. It is authorized to regulate water rights permits and to regulate water pollution and quality control. Although riparian rights are not a part of the state's permit system, the Board has the authority to regulate these rights to ensure beneficial use of the water through adjudications. The Board has two duties when issuing appropriation permits: to determine the availability of surplus water, and to protect the public interest. A person who seeks to appropriate water must apply to the Board for a permit. The Board's review of that application "must first determine whether surplus water is available, a decision requiring an examination of prior riparian and appropriative rights." Appropriation then may be made "for beneficial purposes of unappropriated water under such terms and conditions as in [the Board's] judgment will best develop, conserve, and utilize in the public interest the water sought to be appropriated." To determine whether an appropriation would be in the public interest, the Board must consider "any general or coordinated plan ... toward the control, protection, development, utilization, and conservation of the water resources of the State" and the relative benefit of "all beneficial uses of the water concerned." The Board also has responsibility to regulate water quality. Under the federal Clean Water Act (CWA), the states must adhere to certain federal standards regarding water quality. Although the federal law may not apply to salinity intrusion as a discharged pollutant, the law provides protections under water quality provisions. Specifically, the CWA recognizes saltwater intrusion as a form of pollution meant to be regulated by the states under the planning process and water quality standards. Each state is required to maintain a "continuing planning process" and once every three years each state pollution control agency must review its water quality standards, which are subject to EPA approval. Water quality standards provide the framework for specific pollution control requirements that are contained in CWA permits for individual dischargers. California's Porter-Cologne Water Quality Control Act (Porter-Cologne Act) provides for a statewide program for water quality control to implement the federal CWA, as well as additional state requirements. Under the Porter Cologne Act, nine regional boards formulate and adopt water quality plans across the state, which are subject to the Board's approval. The state Board sets the statewide policy for water quality control, and its authority to act in regard to the water control plan has been held to be very broad. The plan must be the best reasonable option considering all present and future demands made on the waters and the values and benefits involved. Over the decades since the construction of the water projects, there has been extensive litigation regarding water rights, Delta water management, and the regulation of permits and standards for water in the Delta. Some of the ensuing court decisions have affected the overall management of the Delta and are summarized in the following paragraphs. In 1978, in the first exercise of its dual authority to regulate water supply and quality, the Board adopted a water quality control plan that established new standards for salinity control and protection of fish and wildlife in the Delta, pursuant to obligations under the CWA. In adopting the new plan, "the Board reconsidered existing water quality standards in light of current data concerning the effects on the Delta of the operations of the two water projects—the users with the greatest impact." The Board also issued Water Right Decision 1485, which modified permits held by Reclamation and the DWR for the water projects to implement the new standards. In 1986, a state appellate court upheld the modification of the water rights permits, but held that the water quality standards were insufficient in light of the scope of the Board's duty to act in accordance with the Porter-Cologne Act. The court also held that the Board "has the power and duty to provide water quality protection to the fish and wildlife that make up the delicate ecosystem within the Delta." The court emphasized that under the CWA the Board is charged by law with protecting beneficial uses of state waters, not protecting water rights. The Board is obligated to establish standards that satisfy statewide interests and take account of the effects of all users. The court noted that the Board must not disregard the effects of other users and instead must look at the impacts to the system comprehensively, including "past, present, and probable future beneficial uses of water as well as water quality conditions that could reasonably be achieved through the coordinated control of all factors which affect water quality in the area." The Board's actions created a standard that was enforceable only against the projects rather than against all users, which the court held was an improperly narrow exercise of its authority. The court also noted that in addition to its authority to regulate the effect of consumptive uses of the water, the Board also has authority to regulate nonconsumptive instream uses, such as protection for fish and wildlife. In order to implement the state's water quality control plan, the Board must use its power to regulate "water rights to control diversions which cause degradation of water quality." Although the court held that the Board failed to properly take action in response to the quality control plan by modifying only two of the users' permits, it held that the Board has the authority to modify permits to meet its water quality standards. State law specifically authorizes the Board to reserve jurisdiction to modify the permits it issues, which the Board did in the case of the projects. The Board is also authorized to modify permits "under its power to prevent waste or unreasonable use or methods of diversion of water." The court noted that "determination of reasonable use depends upon the totality of the circumstances presented" and "varies as the current situation changes." The court held that the balancing of the considerations regarding the use of water is "one the Board is uniquely qualified to make." In 1995, the Board adopted a new water quality control plan that provided 17 beneficial uses in three categories (municipal and industrial, agricultural, and fish and wildlife) and permitted water flow to be regulated because of its impact on beneficial uses. The implementation of this plan led to another series of lawsuits. After setting flow objectives in the plan, the Board implemented alternate flow objectives upon which interested parties agreed instead. A state court held that it was improper for the Board to implement provisions not included in some provision of the plan it adopted. In other words, if the Board believed the alternate objectives were appropriate, it needed to account for those objectives in the plan, which is the guiding authority of water quality control for the Delta. Courts have allowed a reduction in the flows in some situations and mandated them in others ( e.g. , the 2007 Wanger decision). As discussed above, certain federal actions have led to decreased flows in the rivers of the Delta. For example, in the early 1990s, Endangered Species Act consultations regarding the newly threatened winter-run chinook salmon and delta smelt resulted in Reclamation pursuing alternative management of the CVP to avoid jeopardy to the species. At the same time, Congress enacted the Central Valley Project Improvement Act which amended the project's authorization to include consideration of fish and wildlife preservation and allocated 800,000 acre-feet of water for fish and wildlife purposes (sometimes referred to as "b2 water"). These events resulted in allocations being reduced by up to half in some years for some water contractors, which a federal court held was fair under the terms of the contract. Additionally, the question of how to account for the b2 water has been a recurring issue in litigation. In other cases, courts have addressed reductions due to environmental conditions. One federal district court held that Reclamation did not act in an arbitrary and capricious manner when it reduced the amount of water released in response to a drought. When Trinity County sued Reclamation in the late 1970s, it claimed that operation of the Trinity River Division of the CVP in response to drought conditions was in violation of federal Reclamation law, specifically that the reduced flows would not adequately preserve fish and wildlife. Noting that the decision to reduce flows could be overturned only if it was found to be arbitrary and capricious, the court held that Reclamation appeared to consider the relevant factors and made a decision that seemed reasonable given the context of the situation. Reclamation law required the Secretary of the Interior to adopt "'appropriate measures' for fish conservation," and the measures that had been adopted were appropriate in light of drought conditions, according to the court. The statutory provision requiring consideration of measures for the preservation of wildlife could not be interpreted "in isolation from the management practices of the CVP as a whole." In 2007, the federal district court for the Eastern District of California addressed the issue of threatened species in the Delta by issuing an interim order that required specified water flows for management of the Delta's resources to protect the delta smelt. That order (often referred to as the 2007 Wanger decision) placed limits on the amount of water that could be pumped out of the Delta, and thus would affect water users downstream. The restrictions imposed by the interim order remained in place until the U.S. Fish and Wildlife Service (FWS) completed new consultations in light of the decision and issued a new biological opinion. The new biological opinion issued in December 2008 effectively applies the same restrictions ordered by the court. In 2008, the same district court addressed the issue of another species in the Delta. In that case, which is ongoing, the court has indicated that restrictive measures may be imposed to protect another species in the Delta, but the court has not yet issued an order regarding what remedy might be appropriate. In times of water reductions, the Exchange Contractors are put in a unique situation. This is because their contracts differ from the general CVP contracts. As discussed above, because the Exchange Contractors had rights predating the CVP, their contracts provide a guarantee that they receive the entire share from Reclamation or that they could exercise their reserved rights to acquire that share. Therefore, it is possible that in times of shortage, though other users' access to water is diminished, the Settlement and Exchange Contractors may still receive their entire share of water. Although water law is traditionally a matter left to the states, Congress has taken a role in the regulation of waters under its constitutional authority to regulate channels of interstate commerce. For instance, Reclamation law typically regulates water supplied via federal Reclamation projects. The Rivers and Harbors Act of 1937 that reauthorized the CVP typically regulates navigation and flood control. As discussed above, application of federal legislation has led to federal action in recent decades to protect environmental interests in the Delta. Congress may take a role in the current situation to redirect Reclamation's authority in CVP operations or management. In May 2008, a House Natural Resources Committee subcommittee held a hearing on the management of salmon fisheries in the Delta. Court decisions, agency actions, and other recent events, including the Wanger decision, corresponding biological opinion, the statewide drought emergency, have brought heightened attention to the issues affecting water resources in California. These matters can be expected to remain of interest to Congress as new lawsuits arise over the management of the state's water resources and operations of the water projects. For instance, two environmental groups filed a lawsuit against the state water resources department, the SWRCB, and Reclamation in state court in December 2008, claiming that the water projects' diversions continue to cause environmental problems, both for fish and for the water itself. The groups claim that the diversions have violated of the public trust doctrine, the rule of reasonable use, and water quality requirements.
|
The Sacramento-San Joaquin River Delta (the Delta) is formed by the confluence of the north-flowing San Joaquin River, the south-flowing Sacramento River, and the San Francisco Bay, to which the delta of the two rivers is linked. The 1,153-square-mile estuary is the hub of California's extensive water supply system. The Delta provides water to more than 25 million people and habitat for various species, including the threatened delta smelt and endangered chinook salmon. As such, the Delta has endured decades of competing water demands. During this time, the Delta ecosystem has experienced environmental degradation, increasing regional water demands, and a decrease in reliable water supplies for urban, agricultural, and natural areas. The numerous stakeholders associated with the Delta include agricultural, urban, industrial, environmental, and recreational interests. In order to provide water to the various users, two major water projects were created: the federal Central Valley Project and the State Water Project. Concerns have been raised about the effectiveness of the regulation of these projects and the Delta waters generally, both to meet the needs of water users and to avoid environmental impacts to water quality and species. Specifically, in late 2007, a federal judge ordered a reduction in the amount of water pumped out of the Delta in order to preserve the habitat of endangered fish in the Delta, meaning less water would be available for areas that depend on the water projects for their water supply. In 2008, those restrictions were continued under a newly issued biological opinion, and another judicial decision was issued that indicates similar restrictions may be required for other species. Furthermore, Governor Schwarzenegger declared a state of drought for the entire State of California in June 2008 and declared a state of emergency in California due to drought in February 2009. These events pose significant impacts on California's water supply. As a matter of overseeing the impacts of water flow and water management in the Delta, the House Natural Resources Committee held a subcommittee hearing on the effect conditions in the Delta have on the endangered species there in 2008. This report provides a summary of California's dual system of water rights, which includes riparian and prior appropriation doctrines, and regulation of those rights by the state. In particular, the report discusses considerations used in the process of regulating water usage, including the public trust doctrine, the rule of beneficial use, and the no injury rule. The report discusses the California water projects, the projects' rights, and access to water by other users. Significant court decisions and relevant statutes that affect the Delta are explained as well.
|
On February 14, 2011, President Barack Obama submitted to Congress his request for military construction appropriations to support federal government operations during FY2012, which will begin on October 1, 2011. The House Committee on Appropriations introduced its Military Construction, Veterans Affairs, and Related Agencies Appropriations Act for 2012 ( H.R. 2055 ) on May 31. The House began debate on June 2 and passed the bill on June 14, 2011. Debate and amendment on the House floor encompassed several provisions that could affect the cost of and competition for military construction projects. One debate centered on Section 415, which was eventually stricken by recorded vote, 204-203 ( H.Amdt. 411 , Roll no. 413). The section would have barred the use of military construction funds to enforce Executive Order 13502 (41 U.S.C. 251 note). This order permits executive agencies to specify that "project labor agreements" (PLAs) be used on construction costing $25 million or more. These PLAs are pre-hire collective bargaining agreements with labor organizations that establish the terms and conditions of employment on specific construction projects. Another amendment, proposed on the floor, would have barred the imposition of Davis-Bacon prevailing wage standards on military construction projects. The motion was defeated in a recorded vote, 178-232 ( H.Amdt. 413 , Roll no. 414). H.R. 2055 was received in the Senate on June 15, 2011, and was referred to the Committee on Appropriations. On June 30, the committee reported the bill as an amendment in the form of a substitute ( S.Rept. 112-29 ). A motion to proceed to consideration of the measure was made on July 11 ( Congressional Record , S4478). Cloture on the motion to proceed was invoked on July 13 by yea-nay vote, 89-11 (Recorded Vote No. 109), and H.R. 2055 was laid before the Senate by unanimous consent on July 14. A number of additional amendments were considered during debate, and H.R. 2055 , as further amended was passed by yea-nay vote, 97-2 (Record Vote No. 115). The Senate insisted on its amendment and appointed conferees. Failing enactment of H.R. 2055 before the beginning of FY2012, Congress passed, and the President signed, a series of temporary funding bills the generally continued funding for military construction projects at levels consistent with those enacted for FY2011. Thus far, five continuing resolutions have been enacted, including the First FY2012 Continuing Resolution ( H.R. 2017 , P.L. 112-33 , through October 4, 2011), the Second FY2012 Continuing Resolution (the Continuing Appropriations Act, 2012, H.R. 2608 , P.L. 112-36 , through November 18, 2011), the Third FY2012 Continuing Resolution (the Consolidated and Further Continuing Appropriations Act, 2012, H.R. 2112 , P.L. 112-55 , through December 16, 2011), the Fourth Continuing Resolution ( H.J.Res. 94 , P.L. 112-67 , through December 17, 2011) and the Fifth Continuing Resolution ( H.J.Res. 95 , through December 23, 2011). The third act, because it funded the Agriculture, Commerce, Justice, and Science, and Transportation/HUD appropriations for the entire fiscal year, was commonly referred to as the "Minibus." Sections 102 and 110 of P.L. 112-33 stipulate, in part, that no appropriations or funds made available [to] ... the Department of Defense shall be used for ... the initiation, resumption, or continuation of any project ... for which appropriations, funds, or other authority were not available during fiscal year 2011.... This Act shall be implemented so that only the most limited funding action of that permitted in the Act shall be taken in order to provide for continuation of projects and activities. This language continued in effect through the subsequent four temporary funding acts, preventing the initiation of any new military construction project during the time that these statutes remained in effect. On December 7, 2011, Representative Hal Rogers, chair of the House Committee on Appropriations, asked unanimous consent that the House disagree with the Senate amendment to H.R. 2055 . The motion was accepted without objection, and the Speaker appointed conferees. The conference began on December 8, 2011, and in their opening statements, conferees Senator Daniel K. Inouye, chair of the Senate Committee on Appropriations, and Representative Harold Rogers, his contemporary on the House committee, noted that the conference intended to pull the nine FY2012 appropriations bills remaining to be enacted into an amended H.R. 2055 that would be reported to both chambers for passage. Press coverage of the bill's conference has used the term "Megabus" to describe the anticipated resulting appropriations bill. During the conference, the draft bills for the following regular annual appropriations were added to the text of H.R. 2055 as divisions within the basic bill: Division A: Defense Division B: Energy and Water Division C: Financial Services Division D: Department of Homeland Security Division E: Interior and Environment Division F: Labor, Health and Human Services, Department of Education Division G: Legislative Branch Division H: Military Construction, Veterans Affairs Division I: Department of State and Foreign Operations The conferees filed their report on December 15. The House agreed to the conference report by the Yeas and Nays (296-121, Roll No. 941) on December 16, 2011, and the Senate followed suit on December 17 by Yea-Nay vote (67-32, Record Vote No. 235) and sent a message of their action to the House on the same day. The bill was presented to the President on December 21, 2011. He signed it into law on December 23, whereupon it became P.L. 112-74 . Section 114 of Title 10, United States Code , requires that Congress authorize the appropriation of funding to the Department of Defense (DOD) for certain purposes, including military construction, as part of the annual appropriations cycle. This authorization is effected through the enactment of the annual National Defense Authorization Act (NDAA), of which one division constitutes the Military Construction Authorization Act. While appropriations bills fall within the jurisdiction of the two chambers' Committees on Appropriations, writing the NDAA is the responsibility of the Committees on Armed Services. The NDAA for FY2012 ( H.R. 1540 ) was introduced in the House on April 14, 2011. The House Committee on Armed Services reported its amendment of the bill on May 17 ( H.Rept. 112-78 , with a supplemental report, H.Rept. 112-78 , Part 2, submitted on May 23). The House passed the bill by recorded vote, 322-96 (Roll no. 375), on May 26, and the Senate received it on June 6, 2011. The Senate version of the NDAA ( S. 1253 ) was introduced to the Senate on June 22, 2011, accompanied by its report ( S.Rept. 112-26 ), and was placed on the legislative calendar under general orders (Calendar No. 80). A second Senate version was of the FY2012 NDAA ( S. 1867 ) was introduced by Senator Carl Levin, chair of the Senate Committee on Armed Services, was introduced without report on November 15. Taken up two days later, S. 1867 was debated on November 17 and 18 and again between November 28 and December 1, when its amended version was passed 93-7 (Record Vote No. 218). The Senate then incorporated S. 1867 into the House's bill as an amendment and passed the amended H.R. 1540 by Unanimous Consent. Insisting on its amendment, the Senate called for a conference and appointed conferees, informing the House of its actions on December 5. By unanimous consent, the House disagreed with the Senate amendment on December 7, agreed to a conference, and the Speaker subsequently appointed conferees. The conferees filed their report ( H.Rept. 112-329 ) on December 12. The House agreed to the report by recorded vote (283-136, Roll No. 932) on December 14, and the Senate did the same by Yea-Nay vote (86-13, Record Vote No. 230) the next day, sending a message on their action to the House. The bill was presented to the President on December 21, 2011. He signed it on December 31, whereupon it became P.L. 112-81 . The military construction appropriations account includes a number of appropriations subaccounts: Military Construction accounts provide funds for new construction, construction improvements, and facility planning and design in support of active and reserve military forces and DOD agencies. The North Atlantic Treaty Organization Security Investment Program (NSIP) is the U.S. contribution to a common fund in which all NATO members participate to defray the costs of construction (airfields, fuel pipelines, military headquarters, etc.) needed to support major NATO commands. Family housing accounts fund new construction, construction improvements, federal government costs for family housing privatization, maintenance and repair, furnishings, management, services, utilities, and other expenses incurred in providing suitable accommodation for military personnel and their families where needed. The DOD Housing Improvement Fund is the vehicle by which DOD provides the seed money, both directly appropriated and transferred from other accounts, needed to initiate public-private arrangements for the privatization of military housing. The Homeowners Assistance Fund aids federal personnel stationed at or near an installation scheduled for closure or realignment who are unable to sell their homes by allowing the Secretary of Defense to subsidize the sale or to purchase homes outright. The American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ), or ARRA (the Stimulus Bill), permanently expanded eligibility for the Homeowner Assistance Program to some classes of wounded and injured DOD and Coast Guard personnel or their surviving spouses. The Chemical Demilitarization Construction, Defense-Wide , account provides for the design and construction of disposal facilities required for the destruction of chemical weapons stockpiles, as required under international treaty. The Base Realignment and Closure Account 1990 funds the remaining environmental remediation requirements (including the disposal of unexploded ordnance) arising from the first four base realignment and closure (BRAC) rounds (1988, 1991, 1993, and 1995). The Base Realignment and Closure Account 2005 provides funding for the military construction, relocation, and environmental requirements of the implementation of both the 2005 BRAC round and the DOD Integrated Global Presence and Basing Strategy/Global Defense Posture Realignment (military construction only). Funding of the various accounts included under Title I (Department of Defense) is listed in the Appendix to this report. September 15, 2011, is the statutorily mandated completion date for implementing all of the recommendations made by the 2005 Defense Base Closure and Realignment Commission (also known as the BRAC Commission) and approved by President George W. Bush. Over the past six years, the defense agencies and military departments have carried out a highly complex—and often contentious—program of construction and movement to prepare new facilities at bases gaining military missions, to wind down operations and close facilities no longer needed by the military departments, and to transfer personnel and equipment to new locations. Though all implementation actions save for environmental cleanup and disposal of surplus real property were expected to be completed by the deadline, Congress has perceived that the military services may not be able to fully implement some of the more complex commission recommendations in time. Section 2704 of H.R. 1540 , the House version of the NDAA for 2012, would permit the Secretary of Defense to extend the completion of as many as seven recommendations for up to a year. The Senate versions of the NDAA do not provide for such an extension. In the detailed documentation submitted by DOD to accompany the President's FY2011 appropriations request, DOD estimated that its one-time implementation costs for BRAC 2005 will total $34.5 billion. These cost estimates have increased over time as the military departments and DOD have developed plans to carry out the various required BRAC actions. In requesting military construction funds for FY2007, the first submission after the list of BRAC recommendations was created, DOD estimated the total one-time implementation cost to implement the 2005 BRAC round (the realignment and closure of a number of military installations on U.S. territory) and to redeploy approximately 70,000 troops and their families from overseas garrisons to bases within the United States at $17.9 billion. Between the submission of the FY2007 request in February 2006 and the FY2008 request the next year, DOD estimates had matured considerably, causing the estimate of one-time implementation cost to rise to more than $30.7 billion. The same estimate made by DOD in February 2008 for the FY2009 appropriations request rose again, to $32.0 billion. DOD's FY2010 estimate for one-time implementation costs over the FY2006-FY2011 period reached $34.2 billion. Issues raised during the 2005 round of base closures and realignments have prompted the inclusion of several additional BRAC-related provisions in the FY2012 appropriations and authorization bills. Section 2505 of the House NDAA would heighten the emphasis on costs and benefits in the future selection of bases to be closed or realigned and would eliminate the exemption from congressional notification of closures for "reduction in force" that exists in current statute. Section 2706 would add a requirement for future recommendations to include among the evaluation criteria of future closures "the ability of the infrastructure (including transportation infrastructure) of both the existing and receiving communities" and "the costs associated with community transportation infrastructure improvements" needed to absorb projected increased populations. BRAC Commission Recommendation #160 provided for the closure of Umatilla Chemical Depot, OR. Umatilla is one of several defense installations that have been demilitarizing (rendering safe) chemical munitions in accordance with the Chemical Weapons Convention Treaty (CWCT). In 2005, the Secretary of Defense estimated that all work at Umatilla would be completed not later than the end of the second quarter of FY2011 and recommended that Umatilla be closed during the 2005 BRAC round. The commission, though, noting that international law in the form of the CWCT requires completion of the demilitarization mission prior to the closure of the depot, and anticipating slippage in the work schedule there, worded its recommendation to lend some flexibility to the date of closure, stating that "[o]n completion of the chemical demilitarization mission in accordance with Treaty obligations, close Umatilla Chemical Depot, OR." Nevertheless, with work at Umatilla now expected to continue beyond the September 15, 2011, statutory limit on BRAC closure authority, the Department of the Army indicated its intention to remove Umatilla from the BRAC closure process and transfer responsibility for disposal of the property to the General Services Administration. Section 127 of the Senate-engrossed version of H.R. 2055 would permit the Secretary of the Army to continue Umatilla's closure under BRAC authority. As the result of intergovernmental agreements, Japan has undertaken the construction of a new air facility in the Prefecture of Okinawa for the use of U.S. Marine Corps aviation units now operating from Marine Corps Air Station (MCAS) Futenma, near the prefecture capital of Naha. Upon completion of the new station, the existing facility is to be returned to Japanese control. The selection of a new site for the Futenma Replacement Facility (FRF) and other Japanese domestic political considerations have delayed initiation of construction of the new facility. Nevertheless, the Japanese press recently announced agreement between the two national governments on a potential site and runway configuration. These plans were formalized at a joint U.S.-Japan ministerial meeting on June 21, 2011, though both governments concluded that adherence to the original 2014 completion date would be impossible, announcing afterward that the FRF would be completed "at the earliest possible date after 2014." Nevertheless, the Senate Committee on Armed Services, in its report on the NDAA for 2012, has expressed considerable concern, stating that the "committee believes that the proposed plan for the relocation of Marine Corps Air Station (MCAS) Futenma, located on the island of Okinawa, has become untenable and must be resolved sooner and more economically than the current plan will allow," estimating that "even under the most reasonable circumstances, the FRF ... would likely take at least 7 to 10 years to complete at a cost to the Government of Japan of approximately $5.0–10.0 billion dollars." That committee would direct the Secretary of Defense to report on the feasibility of relocating Marine aviation assets from MCAS Futenma to the nearby Kadena Air Base instead of to the projected new facility. In addition, Section 1079 of S. 1253 , the Senate's version of the NDAA, would create an independent panel to assess U.S. force posture in East Asia and the Pacific Region, emphasizing examination of the current plans for force realignments on Okinawa and Guam. The two governments have also agreed to move approximately 8,000 Marines from their present garrisons in Okinawa to facilities in the U.S. Territory of Guam, approximately 1,400 miles to the east. Japan has pledged to provide approximately $6 billion of the estimated $10 billion needed for the relocation. Congress has criticized the pace of DOD planning for the move. During consideration of FY2011 appropriations, the Senate Committee on Appropriations recommended deferring $464.6 million in requested construction funding from overseas projects in Guam, Europe, Korea, and other locations pending the completion of a DOD review of its global posture. Nevertheless, the redeployment is inextricably linked to the FRF project. DOD is awaiting "tangible progress" on the part of the Japanese in constructing the FRF before commencing the construction necessary to house the Marines relocating from Okinawa. While noting that official DOD plans continued to adhere to a 2014 deadline for completion of the Guam redeployment, the House Committee on Appropriations stated, "The Committee remains supportive of the realignment of Marine Corps forces from Okinawa to Guam. At the same time, the Committee has serious concerns about the Department of Defense's (DOD) ability to adequately fund and complete construction on time and within budget." In its report on H.R. 2055 , the FY2012 military construction appropriation bill, the Senate Committee on Appropriations reiterated its concerns, stating that Due to the lack of verifiable cost estimates for the Guam buildup, the failure of DOD to submit to the congressional defense committees a comprehensive master plan for the initiative, and continuing uncertainty over the ability of the Government of Japan to fulfill its commitment to relocate United States troops on Okinawa, the Committee has deferred funding for fiscal year 2012 military construction projects associated with the relocation of United States Marines to Guam. This included two major Navy projects, a $77.2 million improvement of water utility services to the planned cantonment area at Finegayan and a $78.6 million increment for the development of utility services to the north ramp area on Andersen Air Force Base, a site used by the Navy and planned to host Marine aviation units moved from Japan. The Senate version of the NDAA would also strike the requested funding for these construction projects. The House version of the NDAA, H.R. 1540 , authorized full funding of both construction projects. Nevertheless, Section 2208 of S. 1253 , the Senate's version of the NDAA for 2012, would have barred the obligation or expenditure of any appropriated funds or funds provided to the United States by the government of Japan to implement the Marine relocation to Guam until the Commandant of the Marine Corps provided to the congressional defense committees his "preferred force lay-down" in the Pacific Region and the Secretary of Defense provided a master construction plan supporting that lay-down, certified that "tangible progress" had been made on the relocation of MCAS Futenma, and provided an interagency plan for the work necessary on Guam's non-military facilities to prepare for the relocation. This provision was carried into S. 1867 and the subsequent amendment of H.R. 1540 . At the end of bilateral consultations between the Secretary of State, the Secretary of Defense, and their Japanese counterparts on June 21, 2011, the Department of State issued a press release stating, in part, "The Ministers noted that completion of the FRF and the Marine relocation will not meet the previously targeted date of 2014 and confirmed their commitment to complete the above projects at the earliest possible date after 2014 in order to avoid the indefinite use of the Marine Corps Air Station (MCAS) Futenma, while maintaining Alliance capabilities." Since the Armistice on the Korean Peninsula ended combat in 1954, U.S. ground forces have been concentrated in a number of forward bases distributed along the demarcation line between South Korea and North Korea, with a major headquarters complex at Yongsan, adjacent to the capital of Seoul. Following agreements between South Korea and the United States, the headquarters of U.S. Forces, Korea (USFK) and U.S. Army and Air Force units are being concentrated into two large military communities centered on Osan Air Base and Camp Humphreys, south of the capital. Additionally, tours of duty for military personnel are being lengthened, and servicemembers will soon be permitted to bring their families with them, significantly increasing the size of those communities. In its May 2011 report on the military posture in Asia, the GAO noted that it obtained DOD cost estimates that total $17.6 billion through 2020 for initiatives in South Korea, but DOD cost estimates are incomplete. One initiative, to extend the tour length of military service members and move thousands of dependents to South Korea ... could cost DOD $5 billion by 2020 and $22 billion or more through 2050, but this initiative was not supported by a business case analysis that would have considered alternative courses of action and their associated costs and benefits. As a result, DOD is unable to demonstrate that tour normalization is the most cost-effective approach to meeting its strategic objectives. This omission raises concerns about the investments being made in a $13 billion construction program at Camp Humphreys, where tour normalization is largely being implemented. The House Committee on Appropriations expressed its views on the issue of "tour normalization" in its report on the military construction appropriations bill, stating The Department of Defense has taken on an arduous and expensive task to normalize deployments to Korea by establishing a two-year tour for single members of the service and three-year tours for married servicemembers to include their families. The task will require great investment in military construction for schools, family housing and child development centers just to name a few. The Committee is concerned that this investment may be an expense that the United States should not incur. The Committee directs the Secretary of Defense to report to the Committee on Appropriations within 60 days of enactment of this Act the total cost and plan for Tour Normalization in Korea. The Senate Committee on Appropriations voiced its concerns with both tour normalization and the redeployment of U.S. forces on the peninsula in its report on H.R. 2055 . This lack of a business case analysis ... raises concerns about the investments being made in a $13,000,000,000 construction program at Camp Humphreys, Korea, to accommodate the relocation of United States troops south of Seoul and the first phase of tour normalization. Full tour normalization would require additional land, housing, schools and other facilities at Camp Humphreys, which would require a revised master plan for the base and would likely require changes to the current construction program. Given the extent of construction currently underway at Camp Humphreys, any substantive change in the plan could impact efficiency and drive up costs considerably.... No funding was requested in the fiscal year 2012 budget for military construction related to tour normalization in Korea, but the Committee will expect detailed cost information and a completed business case analysis, approved by the Secretary of Defense, for the strategic objectives that to this point have driven the decision to implement tour normalization, before approving any funding requests in future years. This business case analysis should clearly articulate the strategic objectives, identify and evaluate alternative courses of action to achieve those objectives, and recommend the most cost-effective alternative. Finally, the Senate Committee on Armed Services included Section 2113 into S. 1253 , its version of the NDAA for FY2012, which would bar any funds from being obligated or expended in support of tour normalization until DOD's Director of Cost Assessment and Program Evaluation (CAPE) conducts an appropriate analysis of alternatives to the program being pursued by the Army, the Secretary of the Army submits a master plan detailing the schedule and costs for the needed facility and infrastructure construction, and subsequent legislation authorizes such obligation. This section was carried over into S. 1867 and thence into the Senate amendment to H.R. 1540 . Army and Air Force personnel in the Federal Republic of Germany are being consolidated into two large military communities centered at Kaiserslautern (known to many servicemembers as "K-Town") in the country's southwest near Frankfurt, and Grafenwöhr-Vilseck in eastern Bavaria near the Czech border. For the past several years, military construction supporting this relocation has been concentrated in these areas. A significant portion of the combat power remaining in the Army portion of EUCOM was scheduled to redeploy to new posts in the southwestern United States as part of an ongoing defense-wide reevaluation of troop garrisoning strategy, but the Secretary of Defense agreed to reconsider the movement of two brigade combat teams (BCT) from Germany to the United States after the most recent Quadrennial Defense Review reconsidered the U.S. interest in supporting NATO. The President's FY2012 request includes $563 million for construction in Germany. It includes $249 million for Army construction of the relocated European Army and Air Force Exchange Central Distribution Facility (later not funded in the House version of the appropriations bill), various training and communications facilities, barracks, and family housing. The DOD Education Agency (DODEA) is requesting $207 million to build, expand, or replace elementary, middle, and high schools at several locations. The Tricare Management Agency plans to replace the military medical center at Rhine Ordnance Barracks at a total cost of $1.2 billion and is requesting $71 million for the first increment of funding. The Air Force is asking for $35 million to build a new airman's dormitory at Ramstein Air Base, and the Defense Information Systems Agency (DISA) is asking for $2.4 million to upgrade its facility serving the U.S. Army headquarters near Stuttgart. The Senate Committee on Appropriations took note of the potential impact of efficiency initiatives announced by the Secretary of Defense during August of 2010 when it wrote, The Committee remains concerned with the United States Army transformation and realignment plans in Europe. This year, DOD announced the restructuring of headquarters commands in Europe from four-star to three-star staff billets to reduce overhead as part of the Secretary of Defense's efficiency initiative. Subsequently, the Army announced its decision to reduce Army Brigade Combat Teams [BCTs] in Europe from four to three after 2015. In light of these developments, the Army continues to have challenges articulating its long term plans and justification for its forces and installations in Europe. ... In order to better understand future requirements for military construction in Germany, the Committee directs that no later than 90 days after enactment of this act, the Army and European Command provide a report on installations and properties in Germany that they intend to return to the host nation. In passing H.R. 2055 , the Senate adopted an amendment (Section 129 of the bill as engrossed by the Senate) that prevents any military construction funding from being expended at the Army garrisons in Grafenwöhr or Baumholder, Germany, "until the Secretary of the Army submits to Congress, in writing, a report on installations and properties in Germany that the Army intends to return to the host nation" and identifies the BCT to be moved to the United States. The various Senate versions of the NDAA include a provision (Section 2802) that extends for a year the Secretary of Defense's authority to use up to $200 million in O&M funds from the defense appropriation for the construction of facilities in the geographic areas of responsibility of U.S. Central Command (USCENTCOM) and those areas on the continent of Africa formerly under CENTCOM responsibility. For construction in Afghanistan, the Secretary may use up to an additional $300 million in O&M funding for construction if he certifies the need. Congress originally granted this authority in FY2004 and has renewed it for each subsequent year. The Department of Veterans Affairs (VA) administers directly, or in conjunction with other federal agencies, programs that provide benefits and other services to veterans and their spouses, dependents, and beneficiaries. The VA has three primary organizations to provide these benefits: the Veterans Benefits Administration (VBA), the Veterans Health Administration (VHA), and the National Cemetery Administration (NCA). Benefits available to veterans include service-connected disability compensation; a pension for low-income veterans who are elderly or have a nonservice-connected disability; vocational rehabilitation for disabled veterans; medical care; life insurance; home loan guarantees; burial benefits; and educational and training benefits to help in the transition of active servicemembers to civilian life. As shown in Table 3 , VA appropriations for benefits and services have increased from $65.84 billion in FY2005 to $120.64 billion in FY2011. The FY2012 budget submitted by the Administration called for funding the VA at a level of $128.27 billion for FY2012 (see Table 4 ). This is an increase of $7.63 billion, or 6.3%, compared to the FY2011-enacted appropriation (including the 0.2% reductions required by P.L. 112-10 ). In addition to the request for FY2012, as required by law, the Administration requested $52.54 billion in advance FY2013 funding for VA medical care. H.R. 2055 , as passed by the House, provides total funding for the VA of $127.80 billion for FY2012 (of which $50.61 billion was advance funding), and advance funding for FY2013 of $52.54 billion. As passed by the Senate, H.R. 2055 provides total VA funding of $128.09 billion for FY2012 (of which $50.61 billion was advance funding), and advance funding for FY2013 of $52.54 billion. Both the House passed and Senate Appropriations Committee versions of H.R. 2055 provides lower administration funding than the Administration request for FY2012, and separated the General operating expenses category into two separate categories: General administration; and General operating expenses, VBA (Veterans Benefits Administration). The Conference Agreement for H.R. 2055 , as passed by both the House and Senate, provides $122.23 billion for FY2012 (of which $50.61 was advance funding), and advance funding for FY2013 of $52.54 billion. As shown in Table 5 , mandatory funding is higher than discretionary funding for the VA. In the FY2011 appropriation, mandatory funding was 53.3%, while for FY2012 mandatory funding is 54.4% of total funding for the VA in the House-passed version of H.R. 2055 , and 54.3% in the Senate-passed version of H.R. 2055 . For the Conference Agreement for H.R. 2055 , as passed by both the House and Senate, 52.2% of total funding for FY2012 is mandatory funding. For FY2013, all of the advance funding is discretionary funding. The American Battle Monuments Commission (ABMC) is responsible for the maintenance and construction of U.S. monuments and memorials commemorating the achievements in battle of U.S. Armed Forces since the nation's entry into World War I; the erection of monuments and markers by U.S. citizens and organizations in foreign countries; and the design, construction, and maintenance of permanent cemeteries and memorials in foreign countries. The commission maintains 24 cemeteries and 25 memorials in foreign countries and on U.S. soil. The U.S. Court of Appeals for Veterans Claims was established by the Veterans' Administration Adjudication Procedure and Judicial Review Act of 1988 ( P.L. 100-687 ). The court is an independent judicial tribunal with exclusive jurisdiction to review decisions of the Board of Veterans' Appeals. It has the authority to decide all relevant questions of law; interpret constitutional, statutory, and regulatory provisions; and determine the meaning or applicability of the terms of an action by the VA. It is authorized to compel action by the VA. It is authorized to hold unconstitutional or otherwise unlawful and set aside decisions, findings, conclusions, rules and regulations issued or adopted by the VA or the Board of Veterans' Appeals. The Secretary of the Army is responsible for the administration, operation, and maintenance of Arlington National Cemetery and the Soldiers' and Airmen's Home National Cemetery. In addition to its principal function as a national cemetery, Arlington is the site of approximately 3,100 non-funeral ceremonies each year and has approximately 4 million visitors annually. The Senate-passed version of H.R. 2055 requires that the executive director of Arlington Cemetery report to Congress within 90 days of enactment on the detailed plan, and timetable, for modernization of the information technology system, including burial records. The Armed Forces Retirement Home Trust Fund provides funds to operate and maintain the Armed Forces Retirement Home in Washington, DC (also known as the United States Soldiers' and Airmen's Home), and the Armed Forces Retirement Home in Gulfport, MS (originally located in Philadelphia, PA, and known as the United States Naval Home). These two facilities provide long-term housing and medical care for approximately 1,600 needy veterans. The Gulfport campus was severely damaged by Hurricane Katrina at the end of August 2005, and residents of the facility were transferred to the Washington, DC, location immediately after the storm. The rebuilding of the Gulfport facility was completed, with residents returning, on October 4, 2010. The appropriation for the AFRH facilities is normally all from the Armed Forces Retirement Home Trust Fund. The trust fund is maintained through gifts, bequests, and a $0.50 per month assessment on the pay of active duty enlisted military personnel and warrant officers. For FY2012, the Conference Agreement on H.R. 2055 includes $14.62 million (as a general fund transfer) for repairs to the Washington, DC campus as a result of damage incurred due to the earthquake on August 12, 2011. Table 6 shows the FY2011 enacted appropriations, the Administration request, and H.R. 2055 funding for FY2012 for each of the related agencies.
|
The Military Construction, Veterans Affairs, and Related Agencies appropriations bill provides funding for the planning, design, construction, alteration, and improvement of facilities used by active and reserve military components worldwide. It capitalizes military family housing and the U.S. share of the NATO Security Investment Program and finances the implementation of installation closures and realignments. It underwrites veterans benefit and health care programs administered by the Department of Veterans Affairs (VA), provides for the creation and maintenance of U.S. cemeteries and battlefield monuments within the United States and abroad, and supports the U.S. Court of Appeals for Veterans Claims, Armed Forces Retirement Homes, and Arlington National Cemetery. The bill also funds advance appropriations for veterans' medical services. President Barack Obama submitted his request to Congress for FY2012 appropriations on February 14, 2011. For the appropriations accounts included in this bill, his request totaled $145.2 billion in new budget authority, divided into three major categories: Title I (military construction and family housing) at $14.8 billion; Title II (veterans affairs) at $130.2 billion; and Title III (related agencies) at $246.4 million. Of the total, $75.7 billion (52.1%) would be discretionary appropriations, with the remainder considered mandatory. Congress passed less than the request, appropriating $13.6 billion for Title I (less $547 million in funds rescinded from prior years), $122.2 billion for Title II, and $236 million for Title III. Military construction funding amounts requested by the President and enacted by Congress have fallen off as the 2005 Defense Base Closure and Realignment (BRAC) round has reached completion. Funding support for military family housing construction has also declined as the military departments (Army, Navy, and Air Force) continue their efforts to privatize formerly government-owned accommodations. Funding for the VA between FY2011 and FY2012 in the Administration request, and both the House- and Senate-passed versions of H.R. 2055, reflects increases for veterans' benefits and health care and reductions in general administration. The largest percentage increases between FY2011 and FY2012 are for mandatory benefits—disability compensation and pension benefits, and readjustment benefits (where the largest component is for education benefits). The House Committee on Appropriations reported its FY2012 bill (H.R. 2055) on May 31, 2011 (H.Rept. 112-94), and the House passed it on June 14. The Senate referred the bill to its Appropriations Committee, which reported it with an amendment in the form of a substitute on June 30 (S.Rept. 112-29). The Senate began debate on July 14 and passed the bill on July 20, 2011. Failing enactment before the beginning of the fiscal year, military construction was funded in the interim by temporary appropriations, including the First (H.R. 2017, P.L. 112-33, through October 4, 2011), Second (H.R. 2608, P.L. 112-36, through November 18, 2011), Third (H.R. 2112, P.L. 112-55, through December 16, 2011), Fourth (H.J.Res. 94, P.L. 112-67, through December 17, 2011) and Fifth Continuing Resolutions (H.J.Res. 95, through December 23, 2011). H.R. 2055 became the vehicle for a number of unenacted appropriations, and the conference began on December 8, 2011. Conferees filed their report (H.Rept. 112-331) on what was now the "Consolidated Appropriations Act, 2012" on December 15, which was agreed to in the House on December 16 and in the Senate on December 17, 2011. The Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2012, formed Division H of the larger bill. The President signed the legislation on December 23, 2011, which subsequently became P.L. 112-74.
|
Communication between Members of Congress and their constituents has changed with the development of new online social networking services. Many Members now use e-mail, official websites, blogs, YouTube channels, Twitter, and Facebook pages to communicate with their constituents—technologies that were either non-existent or not widely available 20 years ago. These technologies have arguably served to enhance the ability of Members of Congress to fulfill their representational duties by providing greater opportunities for communication between the Member and individual constituents, supporting the fundamental democratic role of sharing information about public policy and government operations. Despite these advantages, electronic communications have raised some concerns. Existing law and chamber regulations on the use of communication media such as the franking privilege have proven difficult to adapt to the new electronic technologies. This report examines Member use of two electronic communication mediums: Twitter and Facebook. After providing an overview and background of each medium, the report analyzes patterns of Member use of Twitter and Facebook during a two-month period in 2011. This report is inherently a snapshot of a dynamic process. As with any new technology, the number of Members using Twitter and Facebook and the patterns of use may change rapidly. Thus, the conclusions drawn from these data cannot be easily generalized nor can these results be used to predict future behavior. Members of Congress have more choices and options available to communicate with constituents than they did 20 years ago. In addition to traditional modes of communication such as townhall meetings, telephone calls, and postal mail, Members can now reach their constituents via e-mail, websites, tele-townhalls, online videos, social networking sites, and other electronic-based communication applications. The rise of such electronic communication has altered the traditional patterns of communication between Members and constituents. Although virtually all Members continue to use traditional modes of constituent communication, use of new communications technology is increasing. For example, prior to 1995, there were virtually no e-mail exchanges between Members and constituents. In 2011, over 243 million e-mails were received by the House of Representatives. The Senate received 83 million emails in 2011. Member official websites, blogs, YouTube channels, and Facebook pages—all non-existent 20 years ago—also receive significant traffic. Conversely, the amount of postal mail sent to Congress has dropped by more than 50% during the same time period. In addition, electronic technology has reduced the marginal cost of constituent communications; unlike postal letters, Members can reach large numbers of constituents for a fixed cost. Created in 2006 by developer Jack Dorsey as a tool to keep in touch with friends, Twitter is a web-based social networking service that allows users to send and read short messages. Also considered a micro-blogging site, Twitter users send "Tweets" of up to 140 characters. These Tweets are displayed on an author's Twitter home page and on the pages of people subscribed to his or her RSS feed. Twitter enables individual users to post thoughts on any number of topics or activities. While Twitter use varies, it has been used by individuals and organizations to state opinions, promote events, and announce the release of products and services. Several legislative branch entities actively use Twitter to communicate with interested parties. These include the U.S. Government Accountability Office (GAO), the Library of Congress (LOC), and the Government Printing Office (GPO). In addition, Restaurant Associates, the House's food service vendor, uses Twitter to announce daily specials and events. Posting under the user name "@ushrcafes," a typical Tweet might look like this: Celebrate National Cupcake Day at Creamery and Capitol Market today! Because of the 140 character limit on Tweets, Twitter messages are necessarily short. The brevity of the messages highlights the ease in which Tweets can be quickly sent from mobile devices to followers around the world. The rapid transmission of information allows individuals and groups to communicate instantly without limitation of physical distance. Twitter allows individual users to "follow" other Twitter subscribers and read their Tweets from the Twitter homepage. Individuals may choose to follow another Twitter account if they are interested in the information provided, are friends with the Twitter account holder, or if they are a "fan" of an activity or place. Following another user's Twitter account allows for almost instant access to his or her Tweets. This can be useful if a follower is looking for a featured item or to better understand the activities of the person or group he or she is following. Individuals who "follow" an individual Twitter user can have instant access to Tweets through devices such as a Blackberry® , iPhone, or other similar mobile, Internet-ready devices. Launched in February 2004 by Mark Zuckerberg and several of his classmates at Harvard College, Facebook is the world's largest social networking service and website. Facebook provides "profiles" and "pages" for users, both of which are personalized websites within Facebook on which users can post pictures, videos, and messages, upon which other users may post comments. Users can limit the visibility of their profile posts to other users who they have personally approved ("friends"). A Facebook user can become a fan of a page, however, simply by clicking "like" on the Facebook page of interest; owner approval is not required. Once a Facebook user becomes a fan of a page, the activity of the "liked" page appears on the user's "newsfeed." A newsfeed contains activities by a user's friends, along with content generated by the pages of which the user is a fan. Thus, each Facebook user's newsfeed is personalized. Newsfeed content can include links to news stories, personal updates, videos, comments, and photographs. The profiles of individual Facebook users also contain a "timeline," which chronologically captures all of the user's posts. Other users may also post to someone's timeline, if the two users are "friends," and if the user permits such a post. This report analyzes the following questions related to Member use of Twitter and Facebook: What proportion of Members use Twitter and Facebook? How often do Members use Twitter and Facebook? What are Members Tweeting and posting about? For two consecutive months—August 25 to October 24, 2011—the Tweets and Facebook posts of Representatives and Senators who were registered to use Twitter and Facebook were collected. To collect these data, CRS partnered with graduate students at the Lyndon B. Johnson School of Public Affairs at the University of Texas. Custom programming scripts were developed that queried both Facebook and Twitter's Application Programming Interfaces (APIs) and pulled account-specific information from Members' official public accounts. A second dataset capturing Member adoption of Twitter and Facebook was collected in January 2012, reflecting the most recent Member additions to social media available in the data collection phase of the research project. These adoption data were used to analyze Member use of Twitter and Facebook. The unit of analysis is the individual Tweet or Facebook post. A total of 47,004 cases are included in the dataset—30,765 Tweets and 16,239 Facebook posts. Data collection was automated and characteristics, including the date, time, and content were captured. After an initial examination of the content and a review of established coding schemes used to catalog similar data, researchers devised a comprehensive set of coding categories. The research team then examined each Tweet or post and recorded the appropriate coding results. Coding was subjected to an internal reliability test to validate inter-coder consistency. Tweets or Facebook posts could be coded into more than one category. Several caveats accompany the results presented. First, the analysis treats all Member Tweets and Facebook posts as structurally identical, because each individual Tweet or post reveals no information about who physically typed the message. In some cases, Members might personally Tweet or post, whereas other Members may delegate these responsibilities to staff. CRS draws no distinction between the two. Second, the analysis covers only two months of Member activity. Therefore, it is inherently a snapshot in time of a dynamic process. As with any new technology, the number of Members using Twitter and the patterns of use may change rapidly in short periods of time. Thus, the conclusions drawn from these data cannot be easily generalized. Finally, these results cannot be used to predict future behavior. As of January 24, 2012, a total of 426 of 541 Members of Congress (78.7%) had an official congressional account registered with Twitter, and 472 Members (87.2%) had an official congressional account registered on Facebook. Figure 1 shows the proportion of Members in the House and Senate who had an official account with Twitter, Facebook, both, or neither, as of January 24, 2012, respectively. These numbers reflect an increase in adoption over the previous two years. As of September 2009, only 205 Members—39 Senators and 166 Representatives (a total of 38%)—had been registered with Twitter. Figure 2 shows the percentage of Members who have adopted Twitter and Facebook, by chamber and party affiliation, as of January 2012. As in 2009, a variation in adoption of social media continued to exist among parties, especially in the House of Representatives. The gap between parties remains similar for Twitter. Whereas in 2009, 60% of Twitter-registered Members were Republican and 40% were Democrats, in 2012, 56% of Twitter-registered Members were Republican and 44% were Democrats. Earlier studies of social media adoption showed that House Republicans were the most likely adopters of Twitter. That finding continues to be true for both Twitter and Facebook. For the 112 th Congress (2011-2012), House Republicans had the highest adoption rate for both platforms—87.3% for Twitter and 94.7% for Facebook. Senate Republicans also had higher adoption rates than their Democratic counterparts with 83% of Senate Republicans adopting Twitter and 80.9% adopting Facebook. In contrast, House Democrats had an 80% adoption rate for Twitter and a 90% adoption rate for Facebook and Senate Democrats had a 78% adoption rate for Twitter and a 77% adoption rate for Facebook. During the two-month study, the observed Members sent a total of 30,765 Tweets and posted 16,239 times on Facebook, for an average of over 504 Member Tweets and 266 Member Facebook posts per day. Senators averaged more Tweets and Facebook posts per day (1.51 and 0.68, respectively) than their House counterparts (1.18 and 0.61, respectively). House Republicans Tweeted a plurality of Tweets (48%) and a majority of Facebook posts (54%) over the study period. This was followed by House Democrats, who accounted for 29% of Tweets and 27% of Facebook posts. Senate Republicans Tweeted and issued Facebook posts more often than Senate Democrats. Senate Republicans accounted for 11% of Tweets (compared to 10% for Senate Democrats) and for 12% of Facebook posts (compared to 7% for Senate Democrats). Independent Senators accounted for 2% of Tweets and 1% of Facebook posts. While total percentage of Tweets and Facebook posts by chamber and party provides an interesting snapshot of congressional social media usage, the disparity in the number of Members in the Senate (100) vis-a-vis the House (441)—including the delegates and the Resident Commissioner—make for an uneven comparison. To normalize the analysis, Table 1 shows the average number of posts per day by chamber and party affiliation. Usage rates of both platforms varied significantly. The top 20% of Members who use Twitter (86 Members) accounted for over 56% of all Member Tweets. Similarly, the top 20% of Members who use Facebook (87 Members) accounted for over 53% of all Facebook posts. Conversely, the bottom 20% of Member users accounted for just 2% and 3% of Member Tweets and Facebook posts, respectively. Figure 3 shows the distribution of total posts by quintiles of users for both Twitter and Facebook. Figure 3 shows that the Members who use social media most often issue more than half of all congressional social media communications. In Congress, social media messaging is disproportionally utilized by a small group of Members. It also suggests that there is variation in how Members use social media as part of their overall public communications strategy. A Member who Tweets, on average, more than 10 times per day may not only be using Twitter for different purposes than a Member who only Tweets a few times each week, but also may view Twitter differently within the context of his or her overall communications style. To assess the content of Member Tweets and Facebook posts, seven major message categories were created following an examination of Tweets and Facebook posts sent by Members during the study: position taking, district or state, official congressional action, policy statement, media, personal, and other. Each observed Member Tweet and Facebook post was coded into as many categories as was appropriate. For example, a post could be categorized as both " Official Congressional Action " and " Position Taking " if the post mentioned a vote and a position on a bill or " Media ," " Position Taking ," and " District or State " if the post or Tweet mentioned media, a position, and a state or constituent service related issue. A Tweet or post, however, could not be categorized as both position-taking and a policy statement, as the categories are mutually exclusive. Position Taking and Official Congressional Action Last week, I spoke on the floor in support of H.R. 2218 , #edreform bill to improve #ESEA #NCLB. WATCH. Position Taking, District or State, and Media Continue to push Obama Administration on Arctic energy projects. Good talk today with EPA R-10 on OCS and NPR-A. The categories were defined as follows: Tweets or Facebook posts in which a Representative or Senator took a position on a policy or political issue. The expressed position could concern a specific bill under consideration or a general policy issue. In September, the Obama Administration rolled out 338 final rules of red tape at a cost of $10 billion. What happened to his promise to cut red tape? Finally, the misguided Don't Ask, Don't Tell officially ends today. In December 2010, while making the case to repeal DADT, I shared the story of a gay soldier ... who has had to hide who he is for more than 20 years. Tweets or Facebook posts in which a Representative or Senator discussed a trip, visit, or event in a home district or state. Tweets might include invitations for Tweet recipients to attend town hall meetings or events in the state or district. Delivering opening remarks for Tribal Unity Impact Week hosted by the National Congress of American Indians. Join me tomorrow at 6 PM in #Fairfield for a Town Hall focused on creating #JobsNow. Tweets or Facebook posts in which a Representative or Senator described or recounted an official congressional action. For example, a Member might Tweet about a roll call vote, or discuss participation in a committee hearing or recent trip abroad. Headed down to the House floor to speak about the need for #jobs in WNY. Watch LIVE: I attended the Unmanned Systems Caucus technology fair today. This is an industry with real potential in ... NY. Tweets or Facebook posts in which a Representative or Senator references a public policy without taking a position. In this context, public policy means any topic that would be of interest to Congress. Reports say the President is offering significant spending cuts, he should share the plan w/ the American people tinyurl.com/3vgsm94 The Washington Post has a chart illustrating how President Obama proposes to pay for the American Jobs Act. Tweets in which a Representative or Senator provided information about an upcoming media appearance or included a link to another website, such as a newspaper, blog, video, or official press release. All Tweets with a web-link were coded in this category. I'm quoted in a Portsmouth Daily Times news report on possible USEC layoffs if the Department of Energy doesn't OK a conditional loan. Check out my Labor Day op-ed piece on the need for new job creation efforts here at home. Tweets or Facebook posts in which a Representative or Senator discussed events in his or her personal life or provided opinions concerning matters that were explicitly unrelated to work in Congress. #Rangers start off strong in 5 th game of #ALSC playoff ! #BeatDET. Great meeting with the pres. of my alma mater. Go Cardinal! These are entries that do not adequately fit in the other seven categories. great to see everyone here! Happy Constitution Day! Figure 4 reports the number of Member Tweets and Facebook posts by category. As shown in Figure 4 , the most common Member Tweets and Facebook posts were "position-taking" posts. These comprised 41% of all Member Tweets and 39% of all Member Facebook posts. The next most common category was district or state Tweets and posts. These accounted for 26% of all Tweets and 32% of all Facebook posts. These were followed by official action (17% of Tweets and 21% of Facebook posts), and policy statements (16% of Tweets and 16% of Facebook posts). The use of Twitter and Facebook by Members of Congress is an evolving phenomenon. As Members continue to embrace new technologies, their use of Twitter, Facebook, and other forms of social media may increase. These mediums allow Members to communicate directly with constituents (and others) in a potentially interactive way that is not possible through mail or e-mail. For Members and their staff, the ability to collect and transmit real time information to and from constituents could be influential for issue prioritization, policy decisions, or voting behavior. Further research on how the adoption and use of social media platforms—such as Twitter and Facebook—could provide insight into changing approaches to representation, messaging to constituents, communications outside a Member's district or state, and potential regulation. Traditionally, Members represent a geographic constituency. Social media, however, provides Members with an "additional tool for contacting the geographic constituency, but ... also ... to reach groups outside of their official jurisdiction who share ideological goals and priorities." Subsequently, while Members represent a geographic district, social media could allow "surrogate representation" by Members of other non-geographic constituent groups. The consequences of such representation are not known, but could alter the representational strategies of individual Members within Congress. As part of representation, Members not only represent a geographic constituency, but they are also concerned with their personal message and how it impacts reelection efforts. While official Member communication cannot include campaign rhetoric, Members know that what they say on official social media channels can be used in elections. Subsequently, how Members use social media continues to evolve. Some reports have suggested that Members are dedicating additional staff (or hiring new staff) to handle social media as part of their messaging and communications strategy. In the current budget climate, how Members allocate staff is crucial. If Members are spending more resources on social media, it is possible that the priorities of other representational functions may change. Electronic communications have also raised some concerns. While a complete discussion of this is beyond the scope of this report, a few observations warrant mentioning. First, existing law and chamber regulations on the use of communication media such as the franking privilege have proven difficult to adapt to the new electronic technologies. Currently, House regulations treat social media communications similarly to solicited franked mail. But several key differences between electronic communications and franked mail—most notably the lack of marginal cost, the inability to differentiate between constituents and non-constituents, and the ability of campaign challengers to adopt identical applications—raise questions about both the suitability and necessity of applying the franking model to social media communications. Second, the use of electronic communications is rapidly changing, sometimes over the course of just months. Just 10 years ago, Facebook and Twitter did not exist. There is no way to predict whether they will continue to enjoy their current popularity 10 years from now, or what future communications tools and applications will exist. Policymakers thus may choose to seek general rather than specific structures when considering social media regulation, to avoid the need to revisit policies as new technologies are developed.
|
Communication between Members of Congress and their constituents has changed with the development of new online social networking services. Many Members now use e-mail, official websites, blogs, YouTube channels, Twitter, and Facebook pages to communicate with their constituents—technologies that were either non-existent or not widely available 20 years ago. Social networking services have arguably served to enhance the ability of Members of Congress to fulfill their representational duties by providing greater opportunities for communication between the Member and individual constituents. In addition, electronic communication technology has reduced the marginal cost of constituent communications; unlike postal letters, Members can reach large numbers of constituents for a fixed cost. This report examines Member adoption and use of two social networking services: Twitter and Facebook. The report analyzes data on Member use of Twitter and Facebook collected by an academic institution in collaboration with the Congressional Research Service during a two-month period between August and October 2011 and the adoption of both platforms as of January 2012. This report analyzes the following questions related to Member use of Twitter and Facebook: What proportion of Members use Twitter and Facebook? How often are Members using Twitter and Facebook? How widely are Member Tweets and posts being followed? What are Members Tweeting and posting about? This report provides a snapshot of a dynamic process. As with any new technology, the number of Members using Twitter and Facebook, and the patterns of use, may change rapidly in short periods of time. As a result, the conclusions drawn from these data cannot be easily generalized or used to predict future behavior. The data show that, at the time of the study, 451 (of 541) Representatives (including Delegates and the Resident Commissioner) and Senators were registered with Twitter (83.4%) and 487 (of 541) Representatives and Senators were registered with Facebook (90%). During the study period—August to October 2011—a total of 30,765 "Tweets" were sent and 16,261 Facebook posts were made. The data show that overall, registered Members sent an average of 1.24 Tweets and 0.63 Facebook posts per day; Senate Republicans sent the most Tweets per day (1.53 on average), followed by Senate Democrats (1.49), House Republicans (1.23), and House Democrats (1.09); for Facebook, Senate Republicans posted the most (0.84 on average), followed by House Republicans (0.71), Senate Democrats (0.53), and House Democrats (0.48); and the data also suggest that the top 20% of Twitter and Facebook users account for over 50% of the Tweets and posts during this study. Use of Twitter and Facebook was analyzed by coding Tweets and posts into seven categories: position taking, district or state, official congressional action, policy statement, media, personal, and other. The data suggest position taking is the most frequent type of Tweet (41%) and Facebook post (39%). This is followed by district or state (26% of Tweets and 32% of Facebook posts); official action (17% of Tweets and 21% of Facebook posts); and policy statements (16% of Tweets and 16% of Facebook posts).
|
In an effort to reduce and ultimately eliminate billions of dollars in improper payments made by federal agencies each year, Congress passed the Improper Payments Information Act (IPIA P.L. 107-300) in 2002. IPIA requires agencies to identify programs susceptible to improper payments through risk assessments, estimate the annual amount of improper payments related to those programs, and report to Congress on corrective actions planned to reduce improper payments. Under IPIA, an improper payment is defined as a payment that should not have been made or that was made in an incorrect amount, including both overpayments and underpayments. This definition includes payments made to ineligible recipients, duplicate payments, payments for a good or service not received, and payments that do not account for applicable discounts. The data reported between FY2004—the first year of improper payments reporting—and FY2009 showed that a small subset of programs accounted for 85% to 96% of the government's total improper payments each year. In November 2009, President Barack Obama signed Executive Order (E.O.) 13520, which required the Director of the Office of Management and Budget (OMB) to work with agencies to identify "high-priority" programs (those which account for the "highest dollar value or majority of improper payments" across the government), establish annual targets for reducing improper payments under high-priority programs, and submit a report to the agency's inspector general that detailed how the agency planned to meet those targets. The executive order also required agencies to publish data on improper payments estimates and targets for the high-priority programs they administer. In response to E.O. 13520, OMB created a central website, PaymentAccuracy.gov, which includes data for all high-priority programs, as the executive order required. OMB also revised OMB Circular A-123, Appendix C, to incorporate the new requirements for high-priority programs. Under the revised circular, a program is deemed high-priority if it has reported more than $750 million in improper payments in the most recent fiscal year; not reported an improper payments amount for the most recent fiscal year, but has reported more than $750 million in improper payments in a previous fiscal year; or not yet reported on improper payments for the program as a whole, but has determined that the total amount of improper payments for program components that have been measured exceeds $750 million. In FY2010, Congress passed the Improper Payments Elimination and Recovery Act (IPERA; P.L. 111-204 ), which amended IPIA to require improvements in agency risk assessments, improper payment estimation procedures, and corrective action plans. IPERA also requires agencies to establish recovery audit programs for the purpose of recapturing overpayments. In addition, IPERA requires the inspector general (IG) of each agency to determine whether the agency is in compliance with IPERA and report the findings to the head of the agency, the Comptroller General, the House Committee on Oversight and Government Reform, and the Senate Committee on Homeland Security and Governmental Affairs. An agency is deemed in compliance if it has published an annual financial statement; conducted risk assessments for each program or activity; published improper payment estimates, corrective action plans, and improper payment reduction targets for all risk-susceptible programs and activities; and reported no improper payment rate that met or exceeded 10%. In 2012, Congress passed the Improper Payments Elimination and Recovery Audit Improvement Act (IPERIA; P.L. 112-248 ). IPERIA codifies E.O. 13520. It requires that OMB identify a list of "high-priority" federal programs for greater levels of oversight. These programs must be chosen on the basis of the relatively high dollar value or error rate of improper payments, or because they are deemed more susceptible to improper payments when compared to other high-risk programs, regardless of size. IPERIA does not establish a dollar threshold for high-priority programs. IPERIA requires OMB to establish annual targets, as well as quarterly and semi-annual actions for reducing improper payments for the high-priority programs. In addition, each agency with a high-priority program is required to submit an annual report on the steps it has taken, and plans to take, to prevent and recover future improper payments. The report is to be submitted to the agency's IG and posted on a website accessible to the public. The IG, in turn, must submit a report to Congress that assesses the quality of the improper payment estimates for each high-priority program, determines whether proper controls are in place to identify and prevent future improper payments, and makes recommendations to Congress on how agency plans might be modified to improve their improper payment estimates and internal controls. IPERIA also requires agencies to verify recipient eligibility by reviewing available databases prior to issuing a payment or award. In 2015, Congress passed the Federal Improper Payment Coordination Act (FIPCA; P.L. 114-109) which amended IPERIA to expand access to federal agency data that could be used to verify payment eligibility of recipients and payment amounts. In 2016, Congress passed the Fraud Reduction and Data Analytics Act (P.L. 114-186) which requires agencies to implement financial and administrative controls related to fraud, including improper payments. Under IPIA, as amended, agencies are required to identify programs susceptible to significant improper payments, estimate the amount of improper payments issued under those programs, and notify Congress of the steps being taken to address the root causes of the improper payments. Generally, a program is deemed susceptible to "significant" improper payments if it has (1) improper payments that exceed both $10 million and 1.5% of total program payments, or (2) more than $100 million in total improper payments. For FY2017, agencies reported data on 91 risk-susceptible programs that issued more than $141 billion in improper payments that year. Since FY2004, when agencies first began reporting improper payments, the government has identified approximately $1.3 trillion in erroneous payments. Table 1 shows the total amount of annual improper payments reported from FY2004 through FY2017. The data in Table 1 show that the amount of improper payments reported was relatively flat from FY2004 through FY2007, after which it increased by 188% through FY2010, declined slightly from FY2011 to FY2013, and then increased again by 36% through FY2016, and declined slightly in FY2017. The increase in improper payments from the end of FY2007 to the end of FY2010 can be partially attributed to the inclusion of new programs. A number of programs with billions of dollars in annual outlays lacked valid improper payments estimates and did not begin reporting until FY2008. The Department of Health and Human Services (HHS) first reported on Medicaid and Medicare Part C, for example, in FY2008, estimating $25.4 billion in improper payments for the two programs combined that year. In addition, government expenditures for public assistance increased as the economy weakened, which further increased the amount of improper payments issued under many risk-susceptible programs. Expenditures increased by more than one-third, for example, under the Earned Income Tax Credit program (48%), Medicaid (34%), and Medicare Part C (33%), between FY2007 and FY2010. In some cases, increased expenditures corresponded with an increase in the error rate. The Medicare Fee-for-Service program, for example, saw its expenditures increase from $276 billion in FY2007 to $326 billion in FY2010, while the program's error rate rose from 3.9% to 9.1% in that same time period. The second period of increase, from FY2014 through FY2016, appears to have a similar set of dynamics. Improper payment estimates were reported for new programs after the end of FY2013, including two programs run by the Department of Veterans' Affairs that reported a combined total of $4.8 billion in improper payments in FY2016. Expenditures increased for many programs from FY2013 to FY2016, including Medicare Part C, where program outlays grew by 31% and the amount of improper payments increased by 37%, or $4.4 billion. Finally, growth in expenditures sometimes coincided with an increase in a program's error rate. The Medicaid program saw its expenditures increase from $247 billion in FY2013 to $346 billion in FY2016, and its error rate increased from 5.8% to 10.5% at the same time. As a consequence, the amount of improper payments reported for Medicaid increased by $22 billion in three years. As noted in the previous section, 20 programs have accounted for a significant portion of the government's total improper payments. OMB and federal agencies are required to establish annual targets for reducing improper payments under these high-priority programs and submit a report to the agency's IG that details how the agency plans to meet those targets. Table 2 identifies the amount of improper payments issued by each of these high-priority programs from FY2004 through FY2017. The data in Table 2 show that 20 high-priority programs issued more than $1.2 trillion in improper payments since FY2004. Overall, 18 of the 20 high-priority programs that have reported improper payments data so far have seen an increase in the amount of annual improper payments between their first year of reporting and FY2017. The data also show that a subgroup of four high-priority programs—Medicare Advantage, Medicaid, Medicare Fee-for-Service, and the Earned Income Tax Credit (EITC)—account for a large proportion of the government's total improper payments. In FY2017, those four programs accounted for $103 billion of the government's total improper payments of $141 billion. Restated, four programs accounted for an estimated 73% of all of the government's improper payments in the most recent fiscal year for which data are available. Taken as a whole, high-priority programs have accounted for a large percentage of the government's total annual improper payments each fiscal year. As Table 3 shows, high-priority programs accounted for 85% to 98% of the improper payments reported by agencies annually from FY2004 through FY2017. The data in Table 3 show that after some fluctuation during the first five years of reporting, high-priority programs have accounted for a relatively stable portion of the government's total improper payments. Between FY2004 and FY2008, high-priority programs accounted for as much as 98% and as little as 85% of the government's total improper payments, a variance of 13 percentage points. By comparison, between FY2009 and FY2017, high-priority programs accounted for as much as 98% and as little as 94% of the government's total improper payments—a variance of 4 percentage points. The first five years of reporting may have displayed greater variance because agencies were in the initial stages of developing improper payment estimates for their programs. This may have, in turn, increased year-to-year variations in total improper payments—variations that should theoretically diminish over time as agencies develop more accurate measures. Should the current trend continue into future fiscal years, high-priority programs would account for 9 out of every 10 dollars reported as improper payments. OMB's guidance on high-priority programs was intended to focus agency efforts on the subset of programs with the highest dollar amounts of improper payments. As the data in Table 4 show, the results have been mixed. While some high-priority programs have seen a steady decline in their improper payments error rates, others have shown little or no improvement—and some have seen their error rates increase over time. The data show that the government-wide error rate increased from 4.4% in FY2004 to its peak of 5.4% in FY2009, and then declined again to 4.5% in FY2017. While a number of factors likely contributed to this pattern, changes in the government-wide error rate mirrored changes in the error rates of several of the largest high-priority programs: Medicare Fee-for-Service, Earned Income Tax Credit, Medicare Part C, Supplemental Security Income (SSI), and the National School Lunch Program. These five programs have accounted for a majority of the government's total improper payments between FY2004 and FY2017, so changes in their error rates could drive changes in the government-wide error rate. During the period of FY2004 through FY2009, the error rates for all five programs increased, and during the period of FY2010 through FY2017 the error rates for all but Medicare Fee-for-Service decreased. Given that high-priority programs account for such a large percentage of the government's overall improper payments, reducing the amount of funds paid erroneously depends in large part on reducing the error rates of these 20 programs. The data show, however, that nearly half of the high-priority programs have shown no improvement. Specifically, the error rates for seven programs have increased since they first began reporting data, and the error rate for one program has remained unchanged. Moreover, while the error rates for twelve programs have decreased, the decline has been less than 10% for five programs. In some cases, program error rates have not improved despite having been subject to improper payments requirements for more than a decade. For example, EITC's error rate has remained virtually unchanged over 13 years of reporting. In FY2004, EITC's error rate stood at 24.5%, and at the end of FY2017 it stood at 23.9%. Moreover, the error rate for Unemployment Insurance increased from 10.3% to 12.5% during that same time frame. In sum, while the government-wide error rate has fallen from its peak of 5.4%, there has been little progress made reducing the error rates for a number of high-priority programs. As a consequence, 13 years after agencies first reported improper payment rates and amounts, the government still issues more than $100 billion a year in improper payments.
|
The Improper Payments Information Act (IPIA) of 2002 defines improper payments as payments that should not have been made or that were made in an incorrect amount, including both overpayments and underpayments. This definition includes payments made to ineligible recipients, duplicate payments, payments for a good or service not received, and payments that do not account for applicable discounts. Since FY2004, federal agencies have been required to report on the amount of improper payments they issue each year and take steps to address the root causes of the problem. The data show a significant increase in improper payments from FY2007 ($42 billion) to FY2010 ($121 billion), followed by a slight decrease through FY2013 ($106 billion), another increase through FY2016 ($144 billion), and a slight decrease in FY2017 ($141 billion). The data also show that a small subset of programs has accounted for 85% to 98% of the government's total improper payments each year. With this in mind, President Barack Obama signed Executive Order (E.O.) 13520 in 2009, which requires agencies to take additional measures to reduce the amount of improper payments associated with these "high-priority" programs. Notably, the executive order requires agencies to identify high-priority programs, develop detailed plans for reducing related improper payments, and establish annual goals against which progress could be measured. Agencies have identified 20 high-priority programs, all but one of which have been reporting data for several years. The data on high-priority programs present mixed results. Nine high-priority programs have showed improvement over time, as indicated by decreasing error rates, while three others have reported no improvement in their error rates. The error rates for the eight remaining high-priority programs have increased since they were first reported. Without further progress in reducing the error rates among high-priority programs the government's total amount of improper payments may continue to exceed $100 billion per fiscal year, as it has since FY2009. Over the period of FY2004 through FY2017, high-priority improper payments have totaled $1.2 trillion and total improper payments have totaled $1.3 trillion.
|
The 8 th Amendment, applicable to the federal government and to the states through the 14 th Amendment, bars the use of "excessive sanctions" in the criminal justice system. It states specifically that "[e]xcessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted." Underlying this provision is the fundamental "precept of justice that punishment for [a] crime should be graduated and proportioned to [the] offense." The U.S. Supreme Court has stated that only "the worst of the worst" may be executed for their crimes. However, the Court has provided minimal guidance for the "worst of the worst" category of offenders and/or offenses. The Court has held that the death penalty is a disproportionate, and therefore unconstitutional, punishment for some non-homicide crimes. In more recent cases, the Court reinforced and refined its proportionality analysis utilizing an "evolving standards of decency" standard. Using this standard, the Court found that the imposition of the death penalty on juvenile offenders and the mentally retarded is unconstitutional. In Coker v. Georgia , the Court held that the state may not impose a death sentence upon a rapist who does not take a human life. The Court announced that the standard under the 8 th Amendment was that punishments are barred when they are "excessive" in relation to the crime committed. A "punishment is 'excessive' and unconstitutional if it: (1) makes no measurable contribution to acceptable goals of punishment and hence is nothing more than the purposeless and needless imposition of pain and suffering; or (2) is grossly out of proportion to the severity of the crime." According to the Court, to ensure that applying these standards not be or appear to be the subjective conclusion of individual Justices, attention must be given to objective factors, predominantly "to the public attitudes concerning a particular sentence—history and precedent, legislative attitudes, and the response of juries reflected in their sentencing decisions...." While the Court thought that the death penalty for rape passed the first test, it felt it failed the second. Georgia was the sole state providing for death for the rape of an adult woman, and juries in at least nine out of 10 cases refused to impose death for rape. Aside from this view of public perception, the Court independently concluded that death is an excessive penalty for an offender who rapes but does not kill, stating that rape cannot compare with murder "in terms of moral depravity and of injury to the person and the public." Although the Court in Coker did not explicitly hold the death penalty unconstitutional for all crimes not involving homicide, many have read the decision as such, since the Court based its holding largely on the distinction between crimes that cause death and crimes that do not. The Court reasoned that because the crime of rape does not result in death, punishing rape by death would be unconstitutionally excessive. The Court utilized the same type of proportionality analysis in Enmund v. Florida by applying its reasoning from Coker to hold that the death penalty is a disproportionate punishment for the crime of felony/murder, imposed on the getaway driver in a robbery gone wrong, because robbery, like rape, "does not compare with murder, which does involve the unjustified taking of human life." The Court stated that "[a]s was said of the crime of rape in Coker , we have the abiding conviction that the death penalty, which is 'unique in its severity and irrevocability,' is an excessive penalty for the robber who, as such, does not take human life." Thus, the Court seemed to say that for a crime to be proportional to the punishment of death, the crime committed must cause death. Since Coker and Enmund , the Court has refined its proportionality analysis, first articulated in Weems v. United States , to determine which punishments are unconstitutionally excessive. In Weems , the Court explained that the cruel and unusual punishment clause is "progressive, and is not fastened to the obsolete, but may acquire meaning as public opinion becomes enlightened by a humane justice." As such, in determining what is constitutional under the 8 th Amendment, the Court generally looks to "evolving standards of decency that mark the progress of a maturing society." The "evolving standards of decency" principle appears to be a flexible rule of construction intended to evolve with societal norms as they develop so that the Court may reflect these norms in its constitutionality review. This principle now appears to be the primary framework within which the Court reviews constitutional claims challenging the application of the death penalty. The Court employed this framework in both Atkins v. Virginia and Roper v. Simmons , cases that narrowed the category of offenders eligible for capital punishment to exclude the mentally retarded and juvenile offenders. The Court's methodology in deciding these cases had a different focus from its prior jurisprudence regarding the constitutionality of capital statutes. In both Roper and Atkins , the Court examined objective indicia of national consensus to determine whether the "evolving standards of decency" demonstrated that the death penalty was unconstitutional under the circumstances. In Atkins and Roper , the Court employed a three-part analysis to determine whether, under "evolving standards of decency," imposing the death penalty would have been so disproportionate as to be "cruel and unusual" under the 8 th Amendment. In both cases, the Court first looked for a national consensus as evidenced by the acts of the state legislatures. The Court then assessed the proportionality of the punishment to the relevant crimes, considering whether the death penalty was being limited, as required, to the most serious classes of crimes and offenders, and whether its application would serve the goals of retribution and deterrence. Lastly, the Court looked to international opinion to inform its analysis. On May 22, 2007, in Louisiana v. Kennedy , the Louisiana Supreme Court held that the U.S. Supreme Court's decision in Coke r prohibiting the death penalty does not apply when the victim is a child under the age of 12. The defendant was convicted and sentenced to death for the aggravated rape of his 8-year-old stepdaughter. The Louisiana court explained that capital sentences for rape of a child were justifiable under the 8 th Amendment. In reaching its conclusion, the court followed the 8 th Amendment framework set forth by the U.S. Supreme Court in Atkins v. Virginia and Roper v. Simmons , first examining whether there is a national consensus on the punishment and then considering whether the Court would find the punishment excessive. The Louisiana court determined that because five states had adopted similar laws in the past decade, the national trend was toward capital punishment for child rape. Moreover, the court held that because children are uniquely vulnerable, permitting the death penalty for child rape is not unduly harsh, and is proportionate to the crime. On January 4, 2008, the U.S. Supreme Court announced that it would examine the constitutionality of permitting the execution of a child molester who did not kill his victim. In Kennedy v. Louisiana , a divided Court held, by a vote of 5 to 4, that capital punishment for a defendant convicted of a non-homicide child rape is unconstitutional. Writing for the majority, Justice Kennedy stated that such a punishment would be excessive, violating the 8 th Amendment's ban on cruel and unusual punishment. Following the standard set forth in Atkins and Roper , the Court rested its decision on several rationales. First, there is a national consensus against the imposition of the death penalty for child rape. Second, evolving standards of decency require that the categories of capital offenses not be expanded, but rather be reserved for the most heinous crimes. Lastly, imposition of capital punishment for the non-homicide crime of child rape does not fulfill the death penalty's social purposes of retribution and deterrence. In determining objective indicia of national consensus regarding capital punishment for non-homicide child rape, the Court looked at legislative enactments and state practices with respect to executions. The Court noted that while six states have made child rape a capital offense, 44 states and the federal government had not. According to the Court, the relatively small number of states which make child rape a capital offense is analogous to the activity in Enmund , where the Court found a national consensus against the death penalty for felony/murder despite eight jurisdictions allowing capital punishment. In addition, the Court noted that Louisiana was the only state since 1964 to sentence a defendant to death for child rape. The Court rejected Louisiana's contention that the Coker decision itself deterred states from adopting capital child rape statutes and thereby influenced the Court's view of a developing national consensus. The Court explained that several state courts recognized that Coker ' s holding was limited to the crime of rape against an adult woman and did not expressly prohibit imposition of capital punishment for child rape. Moreover, the Court noted that the state failed to cite any reliable data to support its assertion. The Court also concluded that the absence of executions for rape or any other non-homicide crime since 1964 demonstrated that there is a national consensus against capital punishment for the crime of child rape. As such, the Court determined that, viewed in its totality, the limited number of states authorizing the death penalty for child rape, as well as the absence of executions for rape or any other non-homicide crime since 1964, demonstrates a national consensus against capital punishment for child rape. After looking at objective evidence of a national consensus, the Court moved to a subjective analysis. While the Court acknowledged that rape is a heinous crime causing traumatic and long-lasting anguish which is exacerbated when the victim is a child, it "does not follow though, that capital punishment is a proportionate penalty for the crime." The Court reasoned that the evolving standards of decency require restraint in the application of capital punishment. As such, capital punishment should be reserved for a narrow category of crimes and/or offenses. The Court acknowledged the reprehensibility of the crime of rape. However, the Court reasoned that child rape cannot be compared to murder in terms of "severity and irrevocability." The majority found that imposition of the death penalty for non-homicide child rape would be counterproductive to the goals of rehabilitation, deterrence, and retribution. As for retribution, the Court questioned whether the death penalty for non-homicide crimes balances the wrong done to the victim. The Court concluded that there was no evidence that a child rape victim's hurt would be diminished when the law allows capital punishment for the perpetrator. Instead, it reasoned that it is likely there would be additional harm as minors would be forced to endure the stressors of reliving the traumatic events repeatedly. In addition, the Court noted systematic concerns in prosecuting child rape cases, including the problem of "unreliable, induced, and even imagined child testimony" that may lead to "wrongful execution" in some cases. The majority felt that allowing capital punishment for the crime of child rape had additional negative implications that are counterproductive to the goal of deterrence. For example, victims may be "more likely to shield the perpetrator from discovery, thus increasing underreporting." In addition, punishing child rape with death may remove a strong incentive for the rapist to spare the victim's life. In its analysis, the Court distinguished child rape from other death-eligible crimes because it is a crime against an individual person. It ruled that the death penalty should not be permitted when the victim's life was not taken. However, the Court did not address, and consequently left open, the possibility of imposing the death penalty for non-homicide crimes against the state, such as treason, espionage, terrorism, and drug kingpin activity. Justice Alito, writing for the dissent, expressed the view that the majority's decision conflicts with the original meaning of the 8 th Amendment and ignores the moral depravity of the crime. In addition, he felt that the small number of states which enacted child rape statutes was not based on a national consensus against execution of child rapists, but rather on the broad dicta presented in Coker . Also, he felt that the 8 th Amendment protects an accused's right, and does not authorize the majority to strike down criminal laws on the ground that they are not in the best interest of crime victims or society at large.
|
In Kennedy v. Louisiana, the United States Supreme Court, by a vote of 5 to 4, held that the 8th Amendment prohibits the death penalty for the rape of a child where the crime did not result and was not intended to result in the victim's death. The Court established a bright-line rule regarding the constitutionality of imposing capital punishment for a non-homicide crime against an individual. After reviewing the history of the death penalty for other non-homicide crimes against individuals, state legislative enactments, and jury practices since 1964, the Court concluded that there was a national consensus against the imposition of capital punishment for the crime of child rape. Based on precedent as well as other subjective factors, the Court concluded that the death penalty is a disproportionate punishment for such a crime. The immediate effect of this decision is to invalidate statutes authorizing the death penalty for non-homicide cases of child rape.
|
Early in the 114 th Congress, the House passed a proposed Justice for Victims of Trafficking Act ( H.R. 181 ). The Senate took S. 178 , the Senate companion to H.R. 181 , and added several other proposals from elsewhere. The package subsequently passed into law as the Justice for Victims of Trafficking Act of 2015, P.L. 114-22 . P.L. 114-22 consists in large measure of new or expanded federal anti-trafficking programs which are beyond the scope of this report. It does, however, include a number of substantive and procedural criminal law provisions which are discussed below. Most federal sex trafficking prosecutions arise under one of two statutes: 18 U.S.C. 1591, which outlaws commercial sex trafficking that has an impact on interstate or foreign commerce, and the Mann Act, which outlaws transportation and travel for unlawful sexual purposes. P.L. 114-22 addresses both. It amends Section 1591 to (1) confirm the coverage of the customers of a commercial sex trafficking enterprise; (2) outlaw advertising of a commercial sex trafficking enterprise; (3) clarify the government's burden of proof with regard to the age of the victim; and (4) enlarge the permissible term of supervised release for commercial sex trafficking conspirators. Prior to passage of P.L. 114-22 , §1591 outlawed commercial sex trafficking. More precisely, it outlawed: knowingly recruiting, enticing, harboring, transporting, providing, obtaining, or maintaining another individual knowing or with reckless disregard of the fact that the individual will be used to engage commercial sexual activity either as a child or virtue of the use of fraud or coercion when the activity occurs in or affects interstate or foreign commerce, or occurs within the special maritime or territorial jurisdiction of the United States. It continues to outlaw separately profiting from such a venture. Offenders face the prospect of life imprisonment with a mandatory minimum term of not less than 15 years (not less than 10 years if the victim is between the ages of 14 and 18). The same penalties apply to anyone who attempts to violate the provisions of Section 1591. At first glance, Section 1591 did not appear to cover the customers of a sex trafficking enterprise. Moreover, in the absence of a specific provision, mere customers ordinarily are not considered either co-conspirators or accessories before the fact in a prostitution ring. This might be thought particularly so given the severity of the penalties that attend conviction. Nevertheless, the U.S. Court of Appeals for the Eighth Circuit held that the language of Section 1591(a) applied to the cases of two customers caught in a law enforcement "sting" when they attempted to purchase the services of what they believed were child prostitutes. "The ordinary and natural meaning of 'obtains' and the other terms Congress selected in drafting §1591 are broad enough to encompass the actions of both suppliers and purchasers of commercial sex acts," the court declared. P.L. 114-22 confirms this construction by amending Section 1591(a) to read, in part, "Whoever knowingly ... recruits, entices, harbors, transports, provides, obtains, maintains, or patronizes, or solicits by any means any person ..." (language of the amendment in italics). Section 1591 absolves the government of the obligation to prove that a trafficker knew or recklessly disregarded the fact that a child prostitute was underage, if the prosecution can show that the defendant had an opportunity to "observe" the victim. P.L. 114-22 makes it clear that the government is comparably relieved regardless of whether the defendant were a consumer or purveyor of a child's sexual commercial services, as long as it establishes that the defendant had an opportunity to observe the child: "In a prosecution under subsection (a)(1) in which the defendant had a reasonable opportunity to observe the person so recruited, enticed, harbored, transported, provided, obtained, maintained, patronized, or solicited the Government need not prove that the defendant knew, or recklessly disregarded the fact , that the person had not attained the age of 18 years." Section 1591 consists of two offenses: commercial sex trafficking and profiting from commercial sex trafficking. Even before amendment, there was some evidence that advertising might constitute a crime under either offense. Aiding and abetting would have provided the key to prosecution in both instances. Anyone who aids and abets the commission of a federal crime by another merits the same punishment as the individual who actually commits the crime. Liability for aiding and abetting requires that a defendant embrace the crime of another and consciously do something to contribute to its success. Anyone who knowingly advertised the availability of child prostitutes might have faced charges of aiding and abetting a commercial sex trafficking offense. An advertiser who profited from such activity might face charges under the profiteering prong of Section 1591. Yet Section 1591 might have presented a technical obstacle. One of Section 1591's distinctive features was that its action elements—recruiting, harboring, transporting, providing, obtaining—were activities that might be associated with aiding and abetting the operation of a prostitution enterprise. Section 1591, read literally then, did not outlaw operating a prostitution business; it outlawed the steps leading up to or associated with operating a prostitution business—recruiting, harboring, transporting, etc. Strictly construed, advertising in aid of recruitment, harboring, transporting, or one of the other action elements might have qualified as aiding and abetting a violation of Section 1591, while advertising the availability of a prostitute might not have. Nevertheless, at least one court suggested that Section 1591 did outlaw operating a prostitution business, at least for purposes of aiding and abetting liability, and thus by implication advertising might have constituted aiding and abetting a violation of the section: Pringler first argues that the evidence is insufficient to support his conviction for aiding and abetting the sex trafficking of a minor [in violation of Section 1591].... We disagree. The record is not devoid of evidence to support the jury's verdict and show Pringler's integral role in the criminal venture. Pringler took the money that Norman and B.L. earned from their prostitution and used some of it to pay for hotel rooms where the women met their patrons. Pringler bought the laptop Norman and B.L. used to advertise their services. He drove Norman and B.L. to "outcall" appointments, and he took photographs of Norman, which he had planned for use in advertisements. P.L. 114-22 resolves the uncertainty by adding advertising to the prostitution-assisting element of the commercial sex trafficking offense. The offense now reads in pertinent part: Whoever knowingly- (1) in or affecting interstate or foreign commerce, or within the special maritime and territorial jurisdiction of the United States, recruits, entices, harbors, transports, provides, obtains, advertises, or maintains by any means a person; ... knowing, or ... in reckless disregard of the fact, that means of force, threats of force, fraud, coercion described in subsection (e)(2), or any combination of such means will be used to cause the person to engage in a commercial sex act, or that the person has not attained the age of 18 years and will be caused to engage in a commercial sex act, shall be punished as provided in subsection (b) [language added by the amendment in italics]. After amendment, the knowledge element of §1591's trafficking and profiteering offenses is slightly different. Advertising traffickers are liable if they knew of or recklessly disregarded the victim's status. Advertising profiteers are liable only if they knew of the victim's status: Whoever knowingly-(1) in or affecting interstate or foreign commerce, or within the special maritime and territorial jurisdiction of the United States, recruits ... advertises ... ; or (2) benefits, financially or by receiving anything of value, from participation in a venture which has engaged in an act described in violation of paragraph (1), knowing, or , except where, in an offense under paragraph (2), the act constituting the violation of paragraph (1) is advertising , in reckless disregard of the fact, that means of force, threats of force, fraud, coercion described in subsection (e)(2), or any combination of such means will be used to cause the person to engage in a commercial sex act, or that the person has not attained the age of 18 years and will be caused to engage in a commercial sex act, shall be punished as provided in subsection (b) [language added by the amendment in italics]. Knowledge is obviously a more demanding standard than reckless disregard, but the dividing line between the two is not always easily discerned, in part because of the doctrine of willful blindness. The doctrine describes the circumstances under which a jury may be instructed by the court that it may infer knowledge on the part of a defendant. Worded variously, the doctrine applies where evidence indicates that the defendant sought to avoid the guilty knowledge. Since the element was worded in the alternative—knowing or in reckless disregard of the fact—the courts have rarely distinguished the two. One possible interpretation comes from comparable wording in an immigration offense which outlaws transporting an alien knowing or acting in reckless disregard of the fact that the alien is in this country illegally: "To act with reckless disregard of the fact means to be aware of but consciously and carelessly ignore facts and circumstances clearly indicating that the person transported was an alien who had entered or remained in the United States illegally." The courts refer to a similar unreasonable indifference standard when speaking of the veracity required for the issuance of a warrant. Defendants sentenced to prison for federal crimes are also sentenced to a term of supervised release. Supervised release is comparable to parole. It requires a defendant upon his release from prison to honor certain conditions—such as a curfew, employment requirements and restrictions, limits on computer use, drug testing, travel restrictions, or reporting requirements—all under the watchful eye of a probation officer. As a general rule, the court may impose a term of supervised release of no more than five years. For several crimes involving sexual misconduct—commercial sex trafficking, for example—the term must be at least five years, and may run the lifetime of the defendant. P.L. 114-22 added conspiracy to engage in commercial sex trafficking to the list of offenses punishable by this not-less-than-five-years-nor-more-than-life term of supervised release. Section 1595 establishes a cause of action for victims of human trafficking. The cause of action is subject to a 10-year statute of limitations. P.L. 114-22 extends the statute of limitations in cases in which the victim is a child. Under those circumstances, the statute of limitations is 10 years after the child reaches the age of 18 years. P.L. 114-22 extends the reach of a number of the Mann Act's prohibitions to encompass activities involving child pornography. Section 2423(b) of the Mann Act outlaws travel in U.S. interstate or foreign travel with intent to engage in "illicit sexual conduct." Section 2423(c) prohibits U.S. citizens or U.S. permanent resident aliens from engaging in illicit sexual conduct overseas. Section 2423(d) outlaws commercially facilitating overseas travel in order to engage in illicit sexual conduct. Each of the offenses is punishable by imprisonment for not more than 30 years, and the same punishment attaches to any attempt or conspiracy to commit any of the three. Prior to the enactment of P.L. 114-22 , Section 2423 defined "illicit sexual conduct" as either (1) conduct that would be sexual abuse of a child if committed in U.S. maritime or territorial jurisdiction or (2) commercial sex trafficking of a child. P.L. 114-22 adds production of child pornography as an alternative third definition. Thus, it is a federal crime (1) under Section 2423(b) to travel in U.S. interstate or foreign travel with the intent to produce child pornography; or (2) under Section 2423(c) for a U.S. citizen or permanent resident alien to produce child pornography overseas; or (3) under Section 2423(d) to commercially facilitate overseas travel in order to produce child pornography. Defendants previously enjoyed an affirmative defense in "illicit sexual activity" cases involving commercial sex trafficking, if they could establish by a preponderance of the evidence that they reasonably believed that the victim was over 18 years of age. P.L. 114-22 limits the defense to cases in which the defendant establishes the reasonableness of his belief by clear and convincing evidence. The difference between preponderance of the evidence and clear and convincing is the difference between more likely than not and highly probable. The final Mann Act amendment involves prosecutors. Section 2421 outlaws transporting another in interstate or foreign commerce for purposes of prostitution or other unlawful sexual activity. Section 303 of P.L. 114-22 instructs the Attorney General to honor the request of a state attorney general to cross-designate a state prosecutor to handle a Section 2421 prosecution or to explain in detail why the request has not been honored. The designated state prosecutor—or prosecutors, should the Attorney General receive requests from both the state from which, and the state into which, the victim was transported—presumably operates under the direction of the U.S. Attorney. P.L. 114-22 addresses three victim-related matters. It expands the rights of those victimized by federal crimes, trafficking and otherwise; creates a Domestic Trafficking Victims Fund fed by special assessments levied against trafficking offenders; and adjusts federal forfeiture law to ensure victim restitution. Section 3771 provides victims of federal crimes and victims of crime under the District of Columbia Code with certain rights, including the right to confer with the prosecutor and to be heard at public proceedings concerning pleas and sentencing in the case. The rights are reinforced by a right to notice from federal officials of available services. Victims may appeal a failure to honor their rights by seeking a writ of mandamus, and the appellate court must decide the matter within three days (72 hours), or in the case of a stay or continuance within five days. Most often, mandamus is an extraordinary remedy awarded only on rare occasions and only if at least three prerequisites can be satisfied: "First, the party seeking issuance of the writ must have no other adequate means to attain the relief he desires.... Second, the petitioner must satisfy the burden of showing that his right to issuance of the writ is clear and indisputable. Third, even if the first two prerequisites have been met, the issuing court, in the exercise of its discretion, must be satisfied that the writ is appropriate under the circumstances." The federal appellate courts, however, cannot agree on whether this stringent traditional mandamus standard or the usual appellate standard (abuse of discretion or legal error) should apply in Crime Victims' Rights Act appeals. P.L. 114-22 resolves the dispute in favor of the less demanding abuse of discretion or legal error standard used for most appeals. It allows the parties to extend the three-day deadline for the appellate court to take up the petition for a writ of mandamus, but not the five-day limitation on stays or continuances in appellate mandamus cases concerning victims' rights. Finally, P.L. 114-22 creates two new additional rights—the right to timely notice of a plea bargain or deferred prosecution agreement and the right to be informed of the rights under the Crime Victims' Rights Act and the benefits under the Victims' Rights and Restitution Act. The House committee report indicates that the amendment was designed to "clarif[y] Congress' intent that crime victims be notified of plea agreements or deferred prosecution agreements, including those that may take place prior to a formal charge." Federal criminal convictions come with a special assessment ranging from $5 to $100 for individuals and from $25 to $400 for organizations, depending on the seriousness of the offense. Receipts are deposited in the Crime Victims Fund and used for victims' assistance and compensation. P.L. 114-22 establishes a second Fund, the Domestic Trafficking Victims Fund, and second special assessment, this one for $5,000 directed to the Fund for the assistance and compensation of victims of trafficking and sexual abuse. The assessment is imposed on those convicted offenses under: 18 U.S.C. ch. 77 (peonage, slavery, and human trafficking); 18 U.S.C. ch. 109A (sexual abuse in U.S. special maritime and territorial jurisdiction); 18 U.S.C. ch. 110 (child pornography); 18 U.S.C. ch. 177 (interstate or foreign transportation for unlawful sexual purposes); or 8 U.S.C. 1324 (smuggling aliens other than immediate family members). The Fund is to receive two types of transfers. The first is to be a transfer from the general fund of the Treasury in amounts equal to those collected from these assessments. These transferred amounts are to be appropriate and made available to the Attorney General, in coordination with the Secretary of Health and Human Services, through FY2019 for the services and benefits (other than health care services and benefits) under: 42 U.S.C. 14044c (grants for enhanced state and local anti-trafficking enforcement); 42 U.S.C. 13002(b) (grants for child advocacy centers); 22 U.S.C. 7105(b)(2) (grants to state, tribes, and local governments to enhance trafficking victims' services); and 22 U.S.C. 7105(f) (assistance for U.S. victims of severe forms of trafficking). The second transfer is to be from appropriations under the Patient Protection and Affordable Care Act, as amended, in amounts equal to those generated by the special assessments, but not less than $5 million or more than $30 million per fiscal year. The amounts are also to be available to the Attorney General, in coordination with the Secretary of Health and Human Services, for health care services under: 42 U.S.C. 14044a (grants for trafficking victims' assistance programs); 42 U.S.C. 14044b (residential treatment for victims of child trafficking); 42 U.S.C. 14044c (grants for enhanced state and local anti-trafficking enforcement); 42 U.S.C. 13002(b) (grants for child advocacy centers); 22 U.S.C. 7105(b)(2) (grants to states, tribes, and local governments to enhance trafficking victims' services); and 22 U.S.C. 7105(f) (assistance for U.S. victims of severe forms of trafficking). P.L. 114-22 adjusts existing forfeiture law in order to increase the extent of restitution payments available to trafficking victims. Forfeiture is the confiscation of property based on its proximity to a criminal offense. Confiscation may be accomplished either as a consequence of the property owner's conviction (criminal forfeiture) or in a civil proceeding conducted against the property in rem (civil forfeiture). In either case, the proceeds from most federal forfeitures are deposited either in the Justice Department's Asset Forfeiture Fund or the Department of the Treasury's Forfeiture Fund, and are available for law enforcement purposes. The forfeiture-triggering relationship between property and confiscation varies from one crime to another. Forfeitures relating to financial crimes sometimes apply to property "involved in" the offense. For example, property "involved in" a money laundering transaction is subject to confiscation. In the case of human trafficking, property that constitutes the proceeds from, that was used, or that was intended for use, to commit or facilitate, a trafficking offense is subject to criminal and civil forfeiture. P.L. 114-22 makes property "involved in" or proceeds "traceable to" a trafficking offense subject to criminal and civil forfeiture as well. Defendants convicted of human trafficking offenses must be ordered to pay victim restitution. As a general rule, the Attorney General may transfer forfeited property to pay victim restitution. P.L. 114-22 requires such a transfer in commercial sex trafficking cases or other human trafficking offenses cases, without reducing or mitigating the defendant's restitution obligations. Subject to annual appropriations, the Attorney General may use the Justice Department Asset Forfeiture Fund for informants' fees in drug and money laundering cases. The Secretary of the Treasury enjoys comparable authority with respect to the Treasury Fund, although apparently without the need for annual appropriations. P.L. 114-22 expands the authority to include access to the Justice Department Fund for informants' fees in human trafficking cases, and to the Treasury Department Fund for informants' fees paid by Immigration and Customs Enforcement in human trafficking cases. P.L. 114-22 bolsters existing law enforcement tools in the area of bail, wiretapping, and sex offender registration. Existing federal law states that an individual charged with a federal offense should be released on his own recognizance, unless the magistrate is convinced that certain conditions must be imposed to insure individual or community safety or to insure the appearance of the accused at subsequent judicial proceedings. The government may seek pretrial detention of an accused charged with a crime of violence, a federal crime of terrorism, or with commercial sex trafficking. P.L. 114-22 amends the definition of "a crime of violence" for these purposes to include any of the human trafficking offenses. In the investigation of certain serious federal and state crimes, the Electronic Communications Privacy Act, sometimes referred to in part as Title III, authorizes federal and state law enforcement officials to engage in court-supervised surreptitious interception of telephone, face-to-face, or electronic communications. The list of these federal crimes includes commercial sex trafficking (18 U.S.C. 1591), but not any of the other offenses outlawed in the slavery, peonage, and forced labor chapter of the federal criminal code. The list of state crimes includes murder, robbery, kidnaping, etc., but not prostitution or human trafficking. P.L. 114-22 permits federal court-ordered interceptions in connection with investigations involving peonage (18 U.S.C. 1581 (peonage), 1584 (involuntary servitude), 1589 (forced labor), and 1592 (trafficking-related document misconduct). It also permits state prosecutors to engage in state court-supervised interceptions in cases of human trafficking, child pornography production, and child sexual exploitation, to the extent that state law permits. The federal Sex Offender Registration and Notification Act (SORNA), as the name implies, requires individuals convicted of a federal, state, tribal, foreign, or military sex offense to register with, and continue to provide current information to, state or tribal authorities (jurisdictions) in any location in which they live, work, or attend school. The reporting obligations apply to those convicted of qualifying sex offenses either before or after the enactment of SORNA. SORNA accomplishes its notification goal through the creation of a system which affords public online access to state and tribal registration information. The system allows the public to determine either where a particular sex offender lives, works, and attends school, or the names and location of sex offenders who live, work, or attend school within a particular area. SORNA requires jurisdictions to satisfy minimum standards for the information they collect and maintain. Section 114 of SORNA requires registrants to provide (1) their name and any alias; their Social Security number; (2) their place of residence; (3) the name and address of their employer; (4) the name and address of any school they are attending; (5) the description and license plate number of any vehicle they own or operate; and (6) any other information the Attorney General requires. Section 114 requires jurisdictions to include within their registries (1) a physical description of the offender; (2) the text of the statute defining the crime which requires the offender to register; (3) the offender's criminal history; (4) a current photograph of the offender; (5) a set of the offender's fingerprints; (6) a sample of the offender's DNA; (7) a copy of the offender's driver's license or other identification card; and (8) any other information the Attorney General requires. P.L. 114-22 directs the Secretary of Defense to provide the Attorney General with the information described in Section 114 relating to military sex offenders whom SORNA requires to register with state or tribal authorities. The requirement would presumably apply to those convicted of registration-requiring offenses both before and after the enactment of SORNA.
|
The Justice for Victims of Trafficking Act, P.L. 114-22 (S. 178), establishes and enhances a host of federal programs designed to prevent human trafficking and assist its victims. It also adjusts federal criminal law in the areas of substantive criminal law, victims' rights, and related criminal procedure. It is these adjustments that are the subject of this report. P.L. 114-22 amends the federal commercial sex trafficking statute, 18 U.S.C. 1591, to clarify the criminal liability of the advertisers and customers of a commercial sex trafficking enterprise. It modifies the Mann Act, which outlaws interstate and foreign travel for unlawful sex purposes, to encompass travel for the purpose of producing child pornography and to narrow the ignorance-of-age defense available in some cases involving travel in order to engage in sexual activity with children. It also seeks to make clear that the victims of federal crimes, victims of both sex trafficking offenses and other crimes, have a right to be notified of plea agreements and deferred prosecution agreements, even when the bargains are struck before formal charges are filed. It establishes a Domestic Trafficking Victims Fund to receive the special assessments levied on convicted trafficking and sex abuse offenders. Victims become entitled to access to confiscated proceeds for restitution purposes. P.L. 114-22 modifies federal bail laws so that defendants charged with human trafficking offenses may be held on preventive detention. Moreover, it authorizes court-supervised wiretaps in federal and state cases involving human trafficking. Finally, it directs the Secretary of Defense to provide the Attorney General with information concerning individuals convicted of offenses under military law which require them to register as sex offenders.
|
By operation of section 224 of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT Act) of 2001, several of the USA PATRIOT Act's amendments to the Foreign Intelligence Surveillance Act (FISA) and the Electronic Communications Privacy Act (ECPA) concerning law enforcement and intelligence investigative tools, were originally scheduled to expire on December 31, 2005. Section 6001(a) of the Intelligence Reform and Terrorism Prevention Act (IRTPA) of 2004 (concerning "lone wolf" terrorists) was also scheduled to sunset on that date. Without any legislative action, these provisions as well as amendments to them would have ceased to exist after the sunset date, and most of the pre-existing provisions of law would have been revived automatically. During the 109 th Congress, the House and Senate each passed USA PATRIOT Reauthorization Acts, H.R. 3199 and S. 1389 respectively, which made permanent 14 of the 16 expiring USA PATRIOT Act sections and extended the sunset on section 206 (regarding FISA court orders for multipoint, or "roving," wiretaps) and section 215 (access to business records requested under FISA), as well as the sunset on section 6001(a) of IRTPA. The two bills differed in several respects, including the new sunset date (under S. 1389 , December 31, 2009, while H.R. 3199 offered a ten-year extension to December 31, 2015). On December 8, 2005, House and Senate conference committee members filed a report representing a compromise between the Senate version and the version passed by the House, H.Rept. 109-333 (2005). The House agreed to the conference report accompanying H.R. 3199 on December 14, 2005. However, with several Members of the Senate raising concerns about the sufficiency of the conference report's safeguards for civil liberties, the Senate voted to reject a motion to invoke cloture on the conference report, thus taking no action before the end of 2005. To provide the Senate with additional time to consider the conference report, Congress enacted legislation to postpone the expiration of the USA PATRIOT Act provisions and of IRTPA's "lone wolf" amendment, until February 3, 2006, and thereafter further extended the sunset until March 10, 2006. On March 1, 2006, the Senate passed a separate bill, the USA PATRIOT Act Additional Reauthorizing Amendments Act of 2006 ( S. 2271 ), that provides three civil liberties safeguards not included in the conference report. Passage of S. 2271 helped to pave the way for the Senate to invoke cloture on the conference report upon reconsideration, and the Senate agreed to the conference report on March 2. Under suspension of the rules, the House passed S. 2271 on March 7, and both H.R. 3199 and S. 2271 were signed into law by the President on March 9. This report provides a summary and legal analysis of the USA PATRIOT Improvement and Reauthorization Act of 2005 (the "Act" or the "Reauthorization Act"), P.L. 109-177 , 120 Stat. 192 (2006), and, where appropriate, discusses the modifications to law made by the USA PATRIOT Act Additional Reauthorizing Amendments Act of 2006, P.L. 109-178 , 120 Stat. 278 (2006). For organizational purposes, the report is divided according to the seven titles of the Act and, within those titles, arranged by topic headings. Title I is in many ways the heart of the Act. It makes permanent most of the USA PATRIOT Act sections that were scheduled to expire. To several, like section 215, it adds substantive changes such as civil liberties safeguards. It addresses issues raised by USA PATRIOT Act sections other than those for which the sun was setting. It more clearly states the "National Security Letter" provisions of law, in ways perhaps necessary to make them constitutionally viable. Elsewhere, it looks at the issues faced in the USA PATRIOT Act four years after the fact. In some instances it adds to the tools available; in others it adds further checks against abuse. Section 102(a) of the Act repeals section 224 of the USA PATRIOT Act that had mandated 16 of its sections to expire initially on December 31, 2005, and later extended to March 10, 2006 by P.L. 109-170 , 120 Stat. 3 (2006). Although the Act adopts a new sunset date on two of the sections, as discussed below, it makes permanent the following 14 sections: Sec. 201 (ECPA wiretapping in certain terrorism investigations) Sec. 202 (ECPA wiretapping in computer fraud and abuse investigations) Sec. 203(b) (law enforcement sharing of court-ordered wiretap-generated foreign intelligence information wiretap information) Sec. 203(d) (law enforcement sharing of foreign intelligence information notwithstanding any other legal restriction) Sec. 204 (technical exception for foreign intelligence pen register/trap & trace device use) Sec. 207 (duration of FISA wiretap and search orders involving agents of a foreign power) Sec. 209 (seizure of stored voice mail by warrant rather than ECPA order) Sec. 212 (communications providers emergency disclosures of communications content or related records to authorities) Sec. 214 (FISA pen register order amendments including extension to electronic communications, e.g., Internet use) Sec. 217 (law enforcement access to computer trespassers' communications within the intruded system) Sec. 218 (FISA wiretap or search orders with an accompanying law enforcement purpose [removal of "the wall" of separation between criminal catchers and spy catchers]) Sec. 220 (nationwide service of court orders directed to communication providers) Sec. 223 (civil liability and disciplinary action for certain ECPA or FISA violations) Sec. 225 (civil immunity for assistance in executing a FISA order) The Act adopts a sunset of December 31, 2009, for USA PATRIOT Act sections 206 (regarding FISA court orders for multipoint, or "roving," wiretaps) and 215 (access to business records requested under FISA). The Act makes two changes to the Intelligence Reform and Terrorism Prevention Act (IRTPA) of 2004, P.L. 108-458 , 118 Stat. 3638 (2004). First, it postpones the expiration of section 6001(a) of IRTPA, 118 Stat. 3742 (2004), until December 31, 2009. Section 6001(a) defines an "agent of a foreign power" to include any person, other than a United States person, who "engages in international terrorism or activities in preparation therefore." Thus, so-called "lone wolf" terrorists may be subjected to foreign intelligence surveillance despite not being an agent of a foreign power or an international terrorist organization. Second, the Act makes permanent section 6603 of IRTPA by repealing the sunset provision (section 6603(g)) that would have caused the section to be ineffective on December 31, 2006. Section 6603 of IRTPA amends federal law regarding material support of terrorists and terrorist organizations, primarily in 18 U.S.C. 2339A and 2339B. Briefly, section 6603: (1) amends the definitions of "material support or resources," "training," and "expert advice or assistance" as those terms are used in 18 U.S.C. 2339A and 2339B, and of "personnel" as used in section 2339B; (2) adds a more explicit knowledge requirement to section 2339B; (3) expands the extraterritorial jurisdiction reach of section 2339B; (4) enlarges the list of federal crimes of terrorism, 18 U.S.C. 2332b(g)(5); (5) adds the enlarged list to the inventory of predicate offenses for 18 U.S.C. 2339A (material support for the commission of certain terrorist crimes) and consequently for 18 U.S.C. 2339B (material support for designated terrorist organizations); and (6) precludes prosecution for certain violations committed with the approval of the Secretary of State and concurrence of the Attorney General. Section 215 of the USA PATRIOT Act amended the business record sections of FISA to authorize the Director of the Federal Bureau of Investigation (FBI) or a designee of the Director, to apply to the FISA court to issue orders granting the government access to any tangible item (including books, records, papers, and other documents), no matter who holds it, in foreign intelligence, international terrorism, and clandestine intelligence cases. The Act contains several provisions to guard against abuses of section 215 authority, including greater congressional oversight, enhanced procedural protections, more elaborate application requirements, and a judicial review process. Section 106(h) of the Act directs the Attorney General to submit to Congress an annual report regarding the use of section 215 authority. This report is to be filed with the House and Senate Committees on the Judiciary, the House Permanent Select Committee on Intelligence, and the Senate Select Committee on Intelligence. The annual report, due every April, must contain the following information regarding the preceding year: the total number of applications made for section 215 production orders ("215 orders") approving requests for the production of tangible things, the total number of such orders granted as requested, granted as modified, or denied, and the number of 215 orders either granted, modified, or denied for the production of each of the following: library circulation records, library patron lists, book sales records, or book customer lists; firearms sales records; tax return records; educational records; and medical records containing information that would identify a person. Prior to the Act, the law had required public disclosure of only the first two items listed above; by adding the third reporting requirement, the Act provides for a more detailed account of whether and when section 215 authority has been used to request these categories of sensitive information. Section 106A of the Act provides for the Inspector General of the Department of Justice to conduct a comprehensive audit to determine the effectiveness, and identify any abuses, concerning the use of section 215 authority, for calendar years 2002-2006. The audit is to be performed in accordance with the detailed requirements set forth in this section. The results of the audit are to be submitted in an unclassified report to the House and Senate Committees on the Judiciary and Intelligence; for calendar years 2002, 2003, and 2004, the report is due not later than March 9, 2007; for calendar years 2005 and 2006, the report is due not later than December 31, 2007. Section 106(a)(2) of the Act adds 50 U.S.C. 1861(a)(3), requiring that an application for a 215 order for the production of certain sensitive categories of records, such as library, bookstore, firearm sales, tax return, educational, and medical records, must be personally approved by one of the following three high-level officials: the FBI Director, the FBI Deputy Director, or the Executive Assistant Director for National Security. This provision was included as an attempt to allay concerns over federal authorities abusing section 215 authority to obtain sensitive types of records. The Act also instructs the Attorney General to promulgate specific minimization standards that apply to the collection and dissemination of information obtained through the use of the section 215 authority. These procedures are intended to limit the retention, and regulate the dissemination, of nonpublicly available information concerning unconsenting U.S. persons, consistent with the need of the United States to obtain, produce, and disseminate foreign intelligence information. Federal authorities are required to observe these minimization procedures regarding the use or disclosure of information received under a 215 order; furthermore, they may not use or disclose such information except for lawful purposes. Finally, the Act clarifies that otherwise privileged information does not lose its privileged character simply because it was acquired through a 215 order. Prior to the Act's enactment, an application for a 215 order to be submitted to the FISA court for approval only needed to state that the requested records were sought for an authorized investigation. The Act amends 50 U.S.C. 1861(b)(2) to require that such an application must include a "statement of facts" demonstrating that there are reasonable grounds to believe that the tangible things sought are "relevant" to an authorized or preliminary investigation to protect against international terrorism or espionage, or to obtain foreign intelligence information not concerning a U.S. person. Section 106(b)(2)(A) of the Act also provides that certain tangible items are "presumptively relevant" to an investigation if the application's statement of facts shows that the items sought 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. Finally, the application for a 215 order must include an enumeration of the minimization procedures applicable to the retention and dissemination of the tangible items sought. The FISA court judge shall approve an application for a 215 order as requested or as modified, upon a finding that the application complies with statutory requirements. The order must contain a particularized description of the items sought, provide for a reasonable time to assemble them, notify recipients of nondisclosure requirements, and be limited to things subject to a grand jury subpoena or order of a U.S. court for production. The ex parte order shall also direct that the retention and dissemination of the tangible things obtained under the order must adhere to the minimization procedures. Section 106(f) of the Act establishes a detailed judicial review process for recipients of 215 orders to challenge their legality before a judge selected from a pool of FISA court judges. If the judge determines that the petition is not frivolous after an initial review, the judge has discretion to modify or set aside a FISA order upon a finding that it does not comply with the statute or is otherwise unlawful. However, if the judge does not modify or rescind the 215 order, then the judge must immediately affirm the order and direct the recipient to comply with it. The FISA Court of Review and the U.S. Supreme Court are granted jurisdiction to consider appeals of the FISA court judge's decision to affirm, modify, or set aside a 215 order. The Chief Justice of the United States, in consultation with the Attorney General and the Director of National Intelligence, is directed to establish security measures for maintaining the record of the 215 order judicial review proceedings. A section 215 order is accompanied by a nondisclosure requirement that prohibits the recipient from disclosing to any other person that the FBI has sought the tangible things described in the order. Prior to the Act's enactment, the only exception to this "gag order" was for disclosure to those persons necessary for compliance with the production order. The Act expands the list of exceptions, expressly permitting a recipient of a 215 order to disclose its existence to an attorney to obtain legal advice, as well as to other persons approved by the FBI. Under the Act, the recipient is not required to inform the FBI or the authorized government agency of the intent to consult with an attorney to obtain legal assistance; however, upon the request of the FBI Director (or his designee), the recipient must disclose to the FBI the identity of the person to whom the disclosure will be or was made, which could include the name of the attorney. During the Senate debate over the conference report, some Members of Congress raised concerns that this provision of the Act might have an unintended "chilling effect" on the individual's right to seek legal counsel regarding the Section 215 order. Thus, section 4 of the USA PATRIOT Act Additional Reauthorizing Amendments Act of 2006, P.L. 109-178 , 120 Stat. 280 (2006), amends FISA to exempt explicitly from the identification disclosure requirement the name of the attorney sought to obtain legal advice with respect to the Section 215 production order. While the Act provided a judicial review process for recipients of 215 orders to challenge their legality, the Act does not expressly grant the right to petition the FISA court to modify or quash the nondisclosure requirement imposed in connection with the production order. The Act was criticized for its lack of an express right to challenge the nondisclosure order during the Senate debate over the conference report. Section 3 of the USA PATRIOT Act Additional Reauthorizing Amendments Act of 2006, P.L. 109-178 , 120 Stat. 278 (2006), addresses this omission by establishing a judicial review procedure for a section 215 nondisclosure orders. For one year after the date of the issuance of a 215 production order, the nondisclosure requirement remains in full effect and may not be challenged. During the floor debates over S. 2271 , this one-year mandatory moratorium and automatic gag order had been criticized and defended by Members of Congress. After the one-year waiting period has expired, the recipient of the production order may petition the FISA court to modify or set aside the nondisclosure requirement. Within 72 hours, if the judge assigned to consider the petition determines after an initial review that the petition is frivolous, the judge shall immediately deny the petition and affirm the nondisclosure order. If, after the initial review, the judge determines that the petition is not frivolous, the judge shall promptly consider the petition under procedural measures that the FISA court has established to protect national security, including conducting the review in camera. The FISA court judge has discretion to modify or set aside a nondisclosure order upon a finding that 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. If, at the time the individual files the petition for judicial review of a nondisclosure order, the Attorney General, Deputy Attorney General, an Assistant Attorney General, or the Director of the FBI certifies that disclosure may endanger the national security of the United States or interfere with diplomatic relations, then the FISA judge must treat such government certification as conclusive unless the judge finds that the certification was made in bad faith. If the judge grants a petition to quash the nondisclosure requirement, upon the request of the government, such order is stayed pending review of the decision to the FISA Court of Review. If the judge denies the petition to modify or set aside the nondisclosure requirement, the recipient of the 215 order is precluded from filing another such petition for one year. The FISA Court of Review has jurisdiction to consider a petition by the government or by the recipient of a 215 order and to review a FISA judge's decision to affirm, modify, or set aside such production order or the nondisclosure order imposed in connection with it. The U.S. Supreme Court has jurisdiction to review a decision of the FISA Court of Review concerning this matter. Five federal statutes, in roughly the same terms, authorize federal intelligence investigators (generally the FBI) to request that communications providers, financial institutions and credit bureaus provide certain types of customer business records, including subscriber and transactional information related to Internet and telephone usage, credit reports, and financial records. Unlike a section 215 production order for tangible items, a national security letter (NSL) need not receive prior approval of a judge. However, NSLs are more limited in scope compared to a section 215 order, in terms of the types of information that can be obtained. For example, NSLs cannot be used to receive "content information"âthe content of a telephone communication or e-mail message is unavailable through a NSL, but a NSL could request the phone number dialed or the e-mail addresses used. A federal court in the Southern District of New York has held that the FBI's practices and procedure surrounding the exercise of its authority under one of these NSL statutes, 18 U.S.C. 2709, violate the Fourth and First Amendments. In the opinion of the court, the constitutional problem stems from the effective absence of judicial review before or after the issuance of a NSL under section 2709 and from the facially absolute, permanent confidentiality restrictions ("gag order") that the statute places on NSL recipients. Another federal court in the District of Connecticut enjoined enforcement of a NSL gag order on First Amendment grounds. Section 115 of the Act attempts to address these potential constitutional deficiencies by authorizing judicial review of a NSL. In addition to providing the right to challenge the validity of the NSL request, section 115 expressly grants NSL recipients the power to petition a federal district court to modify or quash a nondisclosure requirement that may be imposed in connection with the request. Under the Act, the recipient of a NSL request may petition a U.S. district court for an order modifying or setting aside the request. The federal court may modify or quash the NSL request if compliance would be unreasonable, oppressive, or otherwise unlawful. Section 115 also provides the government with the means to enforce the NSL through court action. If a NSL recipient fails to respond to the request for information, the Attorney General may seek a federal district court order to compel compliance with the request. Disobedience of the U.S. district court's order to respond to a NSL is punishable as contempt of court. Section 115 directs that any court proceedings concerning NSL matters must be closed, subject to any right to an open hearing in a contempt proceeding, to prevent unauthorized disclosure of the NSL request. In addition, all petitions, filings, records, orders, and subpoenas must be kept under seal to prevent unauthorized disclosure. Finally, the government may request that its evidence be considered ex parte and in camera. Section 116 of the Act amends all five NSL statutes to prohibit service providers from disclosing to any person that the FBI has sought or obtained access to the information sought through the NSL, only if the investigative agency has certified that disclosure may endanger any individual or the national security of the United States, interfere with diplomatic relations, or interfere with a criminal or intelligence investigation. Thus, a nondisclosure order does not automatically attach to the NSL, as it does in the case of a Section 215 order under FISA. Assuming that this certification occurs and the gag order is in place, disclosure by the NSL recipient is permitted to any person whose assistance is needed to comply with the NSL request or to an attorney to obtain legal advice or legal assistance concerning the NSL. Although the individual is not required to inform the FBI or the authorized government agency of the intent to consult with an attorney to obtain legal assistance, upon the request of the FBI Director (or his designee), or upon the request of the government agency authorized to issue the NSL, the recipient must disclose to the FBI or the government agency the identity of the person to whom the disclosure will be or was made. According to the sponsor of H.R. 3199 , "without this safeguard, a recipient could disclose the government's investigative efforts to a person with ties to hostile foreign governments or entities." However, the potential that this identity disclosure requirement may chill the right to seek legal counsel was reduced by Section 4 of the USA PATRIOT Act Additional Reauthorizing Amendments Act of 2006, P.L. 109-178 , 120 Stat. 280 (2006). (Section 4 also had removed a similar disclosure requirement concerning a Section 215 production order under FISA.) Section 4 amends the five NSL statutes by adding language expressly exempting the identity of attorneys from the disclosure requirement established by the Act: At the request of the Director of the Federal Bureau of Investigation or the designee of the Director, any person making or intending to make a disclosure under this section shall identify to the Director or such designee the person to whom such disclosure will be made or to whom such disclosure was made prior to the request, except that nothing in this section shall require a person to inform the Director or such designee of the identity of an attorney to whom disclosure was made or will be made to obtain legal advice or legal assistance with respect to the [NSL] request... Section 117 of the Act punishes a person who was notified of a NSL nondisclosure requirement but nevertheless knowingly and willfully violates that directive, with imprisonment of not more than one year, or not more than five years if committed with the intent to obstruct an investigation or judicial proceeding. The law prior to the Act's enactment did not provide a felony charge for such disclosure to an unauthorized person. Section 115 of the Act grants a NSL recipient with an explicit statutory right to challenge in court the gag order that may attach to the NSL requestâa right that a recipient of a section 215 FISA production order lacks under the Act but which was subsequently provided by the USA PATRIOT Act Additional Reauthorizing Amendments Act of 2006. Section 115 creates a bifurcated procedure for handling petitions for judicial review of the nondisclosure requirement accompanying a NSL: (1) If the petition is filed within one year of the NSL request, the U.S. district court may modify or set aside the gag order if it finds 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. If, at the time of the petition, a high-ranking government official certifies that disclosure may: endanger the national security of the United States, or interfere with diplomatic relations, then the court must treat the government certification as conclusive unless the court finds that the certification was made in bad faith. (2) If the petition challenging the gag order is filed one year or more after the NSL issuance, a high-ranking government official must, within 90 days of the petition, either terminate the gag order or re-certify 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. If such recertification occurs, then a court may modify or quash the gag order if it finds 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. However, if the recertification was made by the Attorney General, Deputy Attorney General, an Assistant Attorney General, or the Director of the FBI, and if such recertification stated that disclosure may: endanger the national security of the United States, or interfere with diplomatic relations then such certification is to be treated by the court as conclusive unless it was made in bad faith. If court denies the petition for an order to modify the nondisclosure requirement, the NSL recipient is precluded from filing another such petition for one year. Although the Act provides a process to challenge the nondisclosure requirement, critics believe that this judicial review is not meaningful, in light of the "conclusive presumption" provision: "A recipient would technically be given a right to challenge the gag order but if the government asserted national security, diplomatic relations or an ongoing criminal investigation the court would be required to treat that assertion as conclusive, making the 'right' an illusion." In addition, some Members of Congress have raised First Amendment and due process concerns over the indefinite gag order and the conclusive presumption. However, others have defended the conclusive presumption as necessary to ensure that sensitive information is not publicly disclosed: Only the FBI, the people who are investigating the matter, not individual district judges, are in a position to determine when the disclosure of classified information would harm national security. Obviously, that is not something that a Federal district judge has any expertise on. ... It is also important that the FBI make the final determination whether the disclosure would harm national security. And only the agents in charge of these counterterrorism investigations will be able to evaluate how the disclosure of a particular piece of information could potentially, for example, reveal sources and methods of intelligence and who, therefore, might be tipped off as a result of the disclosure. Section 5 of the USA PATRIOT Act Additional Reauthorizing Amendments Act of 2006, P.L. 109-178 , 120 Stat. 281 (2006), entitled "Privacy Protections for Library Patrons," addresses the concern that a library could potentially be subject to an NSL issued under 18 U.S.C. 2709 to obtain certain transactional and subscriber records pertaining to its patrons. Because libraries often offer patrons the ability to access the Internet, the law prior to the Act was unclear as to whether libraries might be considered "electronic communication service providers" for purposes of 18 U.S.C. 2709. Section 5 amends 18 U.S.C. 2709 by adding the following section: "A library ..., the services of which include access to the Internet ..., is not a wire or electronic communication service provider for purposes of this section, unless the library is providing the services defined in section 2510(15) of this title..." This provision "makes very clear that libraries operating in their traditional role, including the lending of books, including making books available in digital form, including providing basic Internet access, are not subject to National Security Letters." However, if the library "provides" the services described in 18 U.S.C. 2510(15), which are "electronic communication services," then such library would still be subject to NSLs. 18 U.S.C. 2510(15) defines "electronic communication service" to mean any service that provides to users the ability to send or receive wire or electronic communications. A reasonable interpretation of this definition suggests that to be considered an electronic communication service provider under 18 U.S.C. 2510(15), a library must independently operate the means by which transmission, routing, and connection of digital communication occurs. In contrast, a local county library likely has a service contract with an Internet Service Provider (ISP) to furnish the library with the electronic communication service, as many businesses and individuals do; the fact that the library has set up a computer with Internet access for the use of its patrons probably does not, by itself, turn the library into a communications service "provider." Under this characterization, the actual "provider" of Internet access is the ISP, not the library. Therefore, a public library offering "basic" Internet access would likely not be considered an electronic communication service provider, at least for purposes of being an entity subject to the NSL provisions in 18 U.S.C. 2709. Section 118 of the Act requires that any reports to a Congressional committee regarding NSLs shall also be provided to the House and Senate Judiciary Committees. In addition, the Attorney General must submit a report semiannually on all NSL requests made under the Fair Credit Reporting Act, to the House and Senate Judiciary Committees, the House and Senate Intelligence Committees, and the House Committee on Financial Services and the Senate Committee on Banking, Housing, and Urban Affairs. The Attorney General is also instructed to submit to Congress an annual report describing the total number of requests made by the Department of Justice under the NSL statutes. This report is to be unclassified, in order to permit public scrutiny. Section 119 of the Act directs the Inspector General of the Department of Justice to perform a comprehensive audit of the effectiveness and use of NSLs, including any improper or illegal use, for submission to the House and Senate Judiciary and Intelligence Committees for calendar years 2003-2006. This report is to be unclassified. Section 119 also requires the Attorney General and Director of National Intelligence to analyze the feasibility of applying minimization procedures to NSL to ensure the protection of the constitutional rights of U.S. persons. This feasibility study is to be submitted to the House and Senate Judiciary and Intelligence Committees by February 1, 2007, or upon completion of the audit of the use of NSLs for calendar years 2003 and 2004, whichever is earlier. Unlike a criminal wiretap order issued under Title III of the Omnibus Crime Control and Safe Streets Act of 1968, which may be approved if a judge finds probable cause for believing that an individual is committing, has committed, or is about to commit a particular enumerated offense, a FISA wiretap may be issued upon a finding of probable cause to believe that the target of the electronic surveillance is a foreign power or agent of a foreign power. Section 206 of the USA PATRIOT Act amended FISA to authorize the installation and use of multipoint, or "roving," wiretaps, for foreign intelligence investigations. A roving wiretap order applies to the suspect rather than a particular phone or computer that the target might use, and thus allows law enforcement officials to use a single wiretap order to cover any communications device that the target uses or may use. Without this authority, investigators must seek a new FISA court order each time they need to change the name of the location to be monitored, as well as the specified person or entity that is needed to assist in facilitating the wiretap. Section 206 of the USA PATRIOT Act permits a general command for the assistance of third parties (for example, common carriers and Internet service providers) for the installation and use of these multipoint wiretaps, where the target of the surveillance has taken steps to thwart the identification of a communications company or other person whose assistance may be needed to carry out the surveillance. Thus, if the FISA court finds that the target's actions may have the effect of thwarting specific identification, section 206 temporarily authorizes FISA orders that need not specifically identify the communications carriers, landlords or others whose assistance the order commands. Prior to the enactment of the Act, a FISA roving surveillance order had to specify the identity of the target only if it was known; otherwise, it was sufficient for the order to describe the target. Section 108 of the Act amends the FISA roving surveillance authority to require that an application for an order, as well as the wiretap order itself, describe the specific target of the electronic surveillance if the target's identity is not known. It also clarifies that the FISA court must find that the prospect of a target thwarting surveillance is based on specific facts in the application. Furthermore, if the government begins to direct surveillance at a new facility or place, the nature and location of which were unknown at the time the original surveillance order was issued, the government must notify the FISA court within 10 days after such change, of the following information: the nature and location of each new facility or place at which the surveillance is directed, the facts and circumstances relied upon by the applicant to justify the applicant's belief that each new facility or place is or was being used, or is about to be used, by the target of the surveillance, an explanation of any proposed minimization procedures that differ from those contained in the original application or order, if such change is necessitated by the new facility or place, and the total number of electronic surveillances that have been or are being conducted under the roving surveillance order. The Act also enhances congressional oversight over the use of all foreign intelligence electronic surveillance authority, by adding the Senate Judiciary Committee as a recipient of the semi-annual FISA reports that the Attorney General currently must submit to the House and Senate Intelligence committees, and by modifying the FISA report requirements to include a description of the total number of applications made for orders approving roving electronic surveillance. A delayed notice search warrant, or "sneak and peek" warrant, is one that authorizes law enforcement officers to secretly enter a home or business, either physically or virtually, conduct a search, and depart without taking any tangible evidence or leaving notice of their presence. The Department of Justice has defended the necessity and legality of delayed notification search warrants: This tool can be used only with a court order, in extremely narrow circumstances when immediate notification may result in death or physical harm to an individual, flight from prosecution, evidence tampering, witness intimidation, or serious jeopardy to an investigation. The reasonable delay gives law enforcement time to identify the criminal's associates, eliminate immediate threats to our communities, and coordinate the arrests of multiple individuals without tipping them off beforehand. In all cases, law enforcement must give notice that property has been searched or seized. Until the USA PATRIOT Act was enacted, the Federal Rules of Criminal Procedure required contemporaneous notice in most instances. At the time, the courts were divided over whether the failure to provide contemporaneous notice, in the absence of exigent circumstances, constituted a constitutional violation or a violation of the Rule, and over the extent of permissible delay in cases presenting exigent circumstances. Section 213 of the USA PATRIOT Act created an express statutory authority for delayed notice search warrants in any criminal investigation, not just those involving suspected terrorist activity. Delayed notification of the execution of a sneak and peek search warrant is permissible for a reasonable period of time (with the possibility of court-approved extensions for good cause shown), if: the court that issued the warrant finds reasonable cause to believe that contemporaneous notice of the search may result in adverse consequences (flight, destruction of evidence, intimidation of a witness, danger to an individual, serious jeopardy to an investigation, or undue trial delay), and the warrant prohibits the seizure of any tangible property, any wire or electronic communication, and any stored wire or electronic information, except where the court finds reasonable necessity for the seizure. Responding to concerns that the "reasonable period" for delaying notification of a search warrant is an undefined and indefinite standard under current law, section 114 of the Act establishes a specific limitation on the length of the delay, requiring notice to be given no more than 30 days after the date of the warrant's execution, with the possibility for 90 day extensions if the facts of a case justify. Several Members of Congress have criticized this 30-day delayed notice provision, arguing instead for notice to be given to the target of the search warrant within 7 days. However, it should be noted that the Act's 30-day delay period was itself a compromise between the House and Senate-passed versions of the Reauthorization Act; the House bill allowed 180 days, while the Senate limited the delay to 7 days. In addition, section 114 removes "unduly delaying a trial" as one of the "adverse consequences" that justifies delayed notification. Some commentators have noted that "seriously jeopardizing an investigation," which is retained by the Act as a ground for permitting delayed notice, is an overly broad "catch-all" provision that law enforcement officials could abuse. There may also be some question of whether it qualifies as a constitutionally acceptable exigent circumstance. However, Justice Department officials defend this provision, observing that before the delayed notice can be approved, a federal judge must agree with the government's evaluation of the circumstances that indicate that contemporaneous notice of a search might seriously jeopardize an ongoing investigation. Finally, section 114 enhances oversight of delayed notice search warrants, by requiring that no later than 30 days after the expiration or denial of such a warrant, the issuing or denying judge must notify the Administrative Office of the U.S. Courts of: the fact that the delayed notice search warrant was applied for, the fact that the warrant was either granted, modified, or denied, the length of time of the delay in giving notice, and the offense specified in the warrant or the application. Beginning with the fiscal year ending September 30, 2007, the Director of the Administrative Office is required to transmit a detailed, annual report to Congress that summarizes the use and number of warrants authorizing delayed notice. Section 212 of the USA PATRIOT Act permits electronic communications service providers to disclose voluntarily the contents of stored electronic communications to a Federal, State, or local governmental entity in emergency situations involving a risk or danger of death or serious physical injury to any person. Service providers are also permitted to disclose customer records to governmental entities in emergencies involving an immediate risk of serious physical injury or danger of death to any person. To provide congressional oversight over the use of this authority, section 107(a) of the Act requires the Attorney General annually to report to the Judiciary Committees of the House and Senate concerning the number of service providers' voluntary emergency disclosures of the contents of electronic communications to the Department of Justice. The report must also summarize the basis for the voluntary disclosure in circumstances where the investigation pertaining to the disclosure was closed without the filing of criminal charges. In addition, section 107(b) of the Act removes the immediacy requirement from the customer records provision and defines "governmental entity" to mean a department or agency of the United States or any State or political subdivision thereof. The Act extends the maximum duration of FISA electronic surveillance and physical search orders against any agent of a foreign power who is not a U.S. person (e.g., a lone wolf terrorist), by amending section 105(e) of FISA. Initial orders authorizing such searches may be for a period of up to 120 days, with renewal orders permitted to extend the period for up to one year. In addition, the Act extends the life time for both initial and extension orders authorizing installation and use of FISA pen registers, and trap and trace surveillance devices from a period of 90 days to one year, in cases where the government has certified that the information likely to be obtained is foreign intelligence information not concerning a U.S. person. Section 109(a) of the Act enhances congressional oversight over the use of physical searches under FISA, by requiring, on a semi-annual basis, the Attorney General: to make full reports concerning all physical searches to the Senate Judiciary Committee in addition to the House and Senate Intelligence committees, and to submit to the three committees listed above and to the House Judiciary Committee a report with statistical information concerning the number of emergency physical search orders authorized or denied by the Attorney General. Section 109(b) requires that the report the Attorney General submits to the House and Senate Judiciary Committees semi-annually concerning the number of applications and orders for the FISA use of pen registers or trap and trace devices, must include statistical information regarding the emergency use of such devices. Law enforcement officials may secure an order authorizing the installation and use of a pen register or trap and trace device to obtain information relevant to a criminal investigation, 18 U.S.C. 3122, 3123. They are also entitled to a court order directing a communications provider to supply certain customer information when relevant to a criminal investigation, 18 U.S.C. 2703. Foreign intelligence officials are entitled to secure a FISA order for installation and use of a pen register or trap and trace device in connection with certain foreign intelligence investigations, 50 U.S.C. 1841-1846. Under its national security letter authority the FBI may request communications providers to supply customer name, address, length of service and local and long distance toll billing records, 18 U.S.C. 2709. Under section 215 of the USA PATRIOT Act, the FBI may obtain a FISA tangible item order for customer records held by a communications provider, 50 U.S.C. 1861. Section 128(a) of the Act provides that the FISA court may, in its pen register/trap and trace order, direct a service provider to supply customer information relating to use of the device. The information to be made available is more extensive than what is available under 18 U.S.C. 2709, or to law enforcement officials, but it is not as extensive as the scope of information under a FISA section 215 "tangible item" order; that isâ (I) in the case of the customer or subscriber using the service covered by the order (for the period specified by the order)â (I) the name of the customer or subscriber; (II) the address of the customer or subscriber; (III) the telephone or instrument number, or other subscriber number or identifier, of the customer or subscriber, including any temporarily assigned network address or associated routing or transmission information; (IV) the length of the provision of service by such provider to the customer or subscriber and the types of services utilized by the customer or subscriber; (V) in the case of a provider of local or long distance telephone service, any local or long distance telephone records of the customer or subscriber; (VI) if applicable, any records reflecting period of usage (or sessions) by the customer or subscriber; and (VII) any mechanisms and sources of payment for such service, including the number of any credit card or bank account utilized for payment for such service; and (I) if available, with respect to any customer or subscriber of incoming or outgoing communications to or from the service covered by the orderâ (I) the name of such customer or subscriber; (II) the address of such customer or subscriber; (III) the telephone or instrument number, or other subscriber number or identifier, of the customer or subscriber, including any temporarily assigned network address or associated routing or transmission information; (IV) the length of the provision of service by such provider to the customer or subscriber and the types of services utilized by the customer or subscriber. The Senate Select Committee on Intelligence observed with respect to an identically worded section in S. 1266 , "the FISA audit staff was informed that when a federal court issues an order for criminal pen register or trap and trace device, the court has the authority under 18 U.S.C. 2703(d) to routinely require the service provider to supply subscriber information in its possession for the numbers or e-mail addresses captured by the devices. The FISA pen register/trap and trace provision has no comparable authority. Section 215 of this bill addresses this discrepancy." . The amendment would likely simplify the process, but critics might ask why it is necessary since information already seems to be available through use of the national security letter authority under 18 U.S.C. 2709 or the FISA business records "tangible item" authority when used in conjunction with the FISA pen register/trap and trace authority. Section 128(b) of the Act amends the FISA oversight reporting requirements so that Judiciary Committees receive full reports on the use of the FISA's pen register and trap and trace authority every six months. Crimes designated as federal crimes of terrorism under 18 U.S.C. 2332b(g)(5) trigger the application of other federal laws, for example, 18 U.S.C. 1961(1)(g) (RICO predicates), 18 U.S.C. 3142 (bail), 18 U.S.C. 3286 (statute of limitations), and 18 U.S.C. 3583 (supervised release). Section 112 of the Act adds two additional offenses to the definition of federal crimes of terrorism: receiving military-type training from a foreign terrorist organization, and drug trafficking in support of terrorism (the "narco-terrorism" provisions of Section 1010A of the Controlled Substances Import and Export Act). Generally, federal law requires the government to obtain a court order authorizing the interception of wire, oral or electronic communications in the investigation of certain crimes ("predicate offenses") specifically enumerated in 18 U.S.C. 2516(1). Section 113 of the Act expands the list of predicate offenses in which law enforcement may seek wiretap orders to include crimes relating to biological weapons, violence at international airports, nuclear and weapons of mass destruction threats, explosive materials, receiving terrorist military training, terrorist attacks against mass transit, arson within U.S. special maritime and territorial jurisdiction, torture, firearm attacks in federal facilities, killing federal employees, killing certain foreign officials, conspiracy to commit violence overseas, harboring terrorists, assault on a flight crew member with a dangerous weapon, certain weapons offenses aboard an aircraft, aggravated identity theft, "smurfing" (a money laundering technique whereby a large monetary transaction is separated into smaller transactions to evade federal reporting requirements on large transactions), and criminal violations of certain provisions of the Sherman Antitrust Act. Section 110 of the Act merges 18 U.S.C. 1992 (outlawing train wrecking) and 18 U.S.C. 1993 (outlawing attacks on mass transportation system) into a new 18 U.S.C. 1992 intended to provide uniform offense elements and penalties for attacks on all transportation systems on land, on water, or through the air. In addition, the Act explicitly provides criminal punishment for the planning of terrorist attacks and other acts of violence against railroads and mass transportation systems; previous law had only criminalized committing such attacks or attempting, threatening, or conspiring to do so. Punishment under this new criminal statute is imprisonment for not more than 20 years, but if the offense results in the death of any person, then imprisonment of any years or for life or the death penalty, although the death penalty is not available for inchoate forms of the offense (planning, conveying false information, attempting, threatening, or conspiring). Furthermore, the new 18 U.S.C. 1992 enhances the penalties for committing these criminal acts in circumstances that constitute an aggravated offense, by authorizing imprisonment for any term of years or life, or where death results, the death penalty. Finally, the new 18 U.S.C. 1992 defines covered conveyances and their systems to include passenger vessels. Federal law permits U.S. confiscation of property derived from certain drug offenses committed in violation of foreign law, and also permits U.S. confiscation of all assets, foreign or domestic, associated with certain terrorist offenses. Section 111 of the Act amends the general civil forfeiture statute to authorize seizure of property within U.S. jurisdiction constituting, derived from, or traceable to, any proceeds obtained in (or any property used to facilitate) an offense that involves trafficking in nuclear, chemical, biological, or radiological weapons technology or material, if such offense is punishable under foreign law by death or imprisonment for a term exceeding one year or would be so punishable if committed within U.S. jurisdiction. In addition, the Act changes the reference for the definition of terrorism as used in the asset forfeiture provision under section 806 of the USA PATRIOT Act. Prior to the Act, 18 U.S.C. 981(a)(1)(G) called for the confiscation of property of those planning or engaged in acts of domestic or international terrorism (as defined in 18 U.S.C. 2331) against the United States or its citizens. Domestic terrorism is defined in 18 U.S.C. 2331 (section 802 of the USA PATRIOT Act), and includes acts dangerous to human life in violation of state or federal law committed to influence the policy of a government or civilian population by intimidation or coercion, 18 U.S.C. 2331(5). Critics might suggest that the juxtaposition of the definition and the confiscation provisions of section 981(a)(1)(G) could result in the confiscation of the property of political action organizations whose members became involved in a picket sign swinging melee with counter-demonstrators. In contrast, 18 U.S.C. 2332b(g)(5)(B) seems less susceptible to such challenges since it defines terrorism by reference to violations of specific federal terrorist offenses rather than the generic, violation of state or federal law found in section 2331. Thus, section 120 of the Act replaces terrorism defined in 18 U.S.C. 2331 with terrorism defined in 18 U.S.C. 2332b(g)(5)(B) as the ground for confiscation under section 981(a)(1)(G). It does so by amending 18 U.S.C. 981(a)(1)(G) so that it calls for the confiscation of property of those planning or engaged acts of domestic or international terrorism (as defined in 18 U.S.C. 2332b(g)(5)(B)) against the United States or its citizens. Section 981 of title 18 of the United States Code describes various forms of property that are subject to confiscation by the United States because of their proximity to various federal crimes. The proceeds from the confiscation of crime-related property are generally available for law enforcement purposes to the law enforcement agencies that participate in the investigation and prosecution that results in the forfeiture, e.g., 18 U.S.C. 981(e). The funds realized from the collection of criminal fines are generally available for victim compensation and victim assistance purposes, 42 U.S.C. 10601. Victims of violent federal crimes are entitled to restitution, 18 U.S.C. 3663A, and victims of other federal crimes are eligible for restitution, 18 U.S.C. 3663. Section 127 of the Act expresses the sense of Congress that under section 981 victims of terrorist attacks should have access to the assets of terrorists that have been forfeited. This section of the report discusses miscellaneous provisions of Title I of the Act which are not easily classifiable within the subheadings above. Section 109(d) of the Act requires the FISA court to publish its rules and procedures and transmit them in unclassified form to all judges on the FISA court, the FISA Court of Review, the Chief Justice of the United States, and the House and Senate Judiciary and Intelligence Committees. The Act directs the Secretary of Homeland Security to report to the House and Senate Judiciary Committees semi-annually regarding the internal affairs operations and investigations of the U.S. Citizenship and Immigration Services. The first such written report is to be submitted no later than April 1, 2006. Federal law proscribes trafficking in contraband cigarettes. Violations are punishable by imprisonment for up to five years, and constitute racketeering predicate offenses. During debate on the House floor, several Members pointed to the fact that in at least one instance terrorists had resorted to cigarette smuggling as a financing mechanism. Section 121 amends federal law by lowering the threshold definition of contraband cigarettes, from "a quantity in excess of 60,000 cigarettes" to 10,000 cigarettes, and adds a new provision for contraband smokeless tobacco, defined as a quantity in excess of 500 cans or packages of smokeless tobacco. Additionally, the Act creates a federal cause action against violators (other than Indian tribes or Indians in Indian country) for manufacturers, exporters, and state and local authorities. The federal Controlled Substances Act prohibits drug trafficking with severe penalties calibrated according to the kind and volume of drugs and the circumstances involved (e.g., trafficking in 50 grams or more of crack cocaine is punishable by imprisonment for not less than 10 years and for not more than life; distributing a small amount of marijuana for no remuneration is punishable by imprisonment for not more than one year). Drug offenses that involved additional egregious circumstances are often subject to multiples of the sanctions for the underlying offense. Providing material support for the commission of a terrorist crime or to a designated foreign terrorist organization is likewise a federal crime, punishable by imprisonment for not more than 15 years. Section 122 of the Act outlaws drug traffickingâfor the benefit of a foreign terrorist organization as defined in the immigration laws, 8 U.S.C. 1182(a)(3)(B), or of a person who has or is engaged in terrorism as defined in 22 U.S.C. 2656f(d)(2) (politically motivated violence against civilian targets)âunder a wide range of jurisdictional circumstances. The offense can only be committed with the knowledge of the terrorist misconduct of its beneficiaries. Violators face imprisonment for not less than twice the minimum penalty for drug trafficking under 21 U.S.C. 841(b)(1) nor more than life, and period of supervised release of not less than five years. The Act also expressly prohibits attempts and conspiracies to violate the new section. It may be that 21 U.S.C. 963 would have produced the same result in the absence of an express provision, since it punishes attempts and conspiracies to commit any offense defined in the Controlled Substances Act. It may also be that in conjunction, section 963 and the new section outlaw conspiracies to attempt a substantive violation of the new section. It is a federal crime to destroy an aircraft or its facilities under various circumstances giving rise to federal jurisdiction or to attempt, or conspire to do so, 18 U.S.C. 32. Violations are punishable by imprisonment for not more than 20 years. It is likewise a federal crime to interfere with a member of a flight crew in the performance of their duties; this too is punishable by imprisonment for not more than 20 years (or imprisonment for any term of years or for life in the case of assault with a dangerous weapon), 49 U.S.C. 46504. Section 123 of the Act amends 18 U.S.C. 32 to make it a federal crime to interfere or disable the operator of an aircraft or aircraft facility with reckless disregard for human safety or with the intent to endanger, subject to the same sanctions that apply to other violations of the section. By operation of section 32, the new prohibition extends to attempts and conspiracies to engage in such conduct, 18 U.S.C. 32(a)(7)(redesignated 18 U.S.C. 32(a)(8)). FISA bars the use of various information collection techniques in the course of a foreign intelligence investigation, if the investigation is based solely on the exercise of First Amendment protected rights, 50 U.S.C. 1805(a)(3)(A), 1824(a)(1)(A), 1942(a)(1). Section 124 of the Act expresses the sense of Congress that the federal government should not conduct criminal investigations of Americans based solely on their membership in non-violent political organizations or their participation in other lawful political activity. Section 125 grants immunity from civil liability to the donors (other than manufacturers) of fire equipment to volunteer fire organizations. Section 126 directs the Attorney General to submit a report to Congress within a year after the date of the Act's enactment, concerning the Department of Justice's use or development of "pattern-based" data mining technologies. While the Act provides a definition of "data-mining," it does not define "pattern-based." Title II of the Act makes several adjustments in federal death penalty law, which concern air piracy cases arising before 1994, a redundant procedural mechanism in federal capital drug cases, supervised release for terrorism offenses, and a transfer of the law governing the appointment of counsel in capital cases. In the late 1960s and early 1970s, the U.S. Supreme Court held unconstitutional the imposition of capital punishment under the procedures then employed by the federal government and most of the states. In 1974, Congress established a revised procedure for imposition of the death penalty in certain air piracy cases. In 1994, when Congress made the procedural adjustments necessary to revive the death penalty as a sentencing option for other federal capital offenses, it replaced the air piracy procedures with those of the new regime. At least one court, however, held that the new procedures could not be applied retroactively to air piracy cases occurring after the 1974 fix but before the 1994 legislation, in the absence of an explicit statutory provision. Section 211 of the Act adds an explicit provision to the end of the 1994 legislation. The amendment provides for the application of the existing federal capital punishment procedures, 18 U.S.C. ch.228, in addition to consideration of the mitigating and aggravating factors in place prior to the 1994 revival. Section 211 also provides for severance should any of the 1994 factors be found constitutionally invalid, and includes a definition of "especially heinous, cruel, or depraved" used as an aggravating factor in section 46503, to avoid the vagueness problems that might otherwise attend the use of such an aggravating factor. The conference report accompanying H.R. 3199 notes that the changes apply to a relative small group of individuals responsible for murders committed during the course of hijackings in the mid 1980's who would otherwise be eligible for parole within 10 years of sentencing and could not be effectively sentenced to more than 30 years in prison. Prior to the Act, a federal court could have imposed a sentence of supervised release, to be served upon release from prison, of any term of years or life if the defendant has been convicted of a federal crime of terrorism (18 U.S.C. 2332b(g)(5)(B)) involving the foreseeable risk of physical injury of another, 18 U.S.C. 3583(j). Section 212 of the Act amends section 3583(j) to eliminate the requirement that the defendant be convicted of a crime involving a foreseeable risk of injury; conviction of any federal crime of terrorism is sufficient. Prior to the Act, federal law provided two sets of death penalty procedures for capital drug cases, the procedures applicable in federal capital cases generally, 18 U.S.C. 3591-3598, and the procedures specifically applicable in federal capital drug cases, 21 U.S.C. 848. The two procedures are virtually identical according to United States v. Matthews, 246 F.Supp.2d 137, 141 (N.D.N.Y. 2002). Section 221 of the Act eliminates the specific drug case procedures so that only the general procedures apply in such cases. According to the conference report accompanying H.R. 3199 , this "eliminates duplicative death procedures under title 21 of the United States code, and consolidates procedures governing all Federal death penalty prosecutions in existing title 18 of the United States Code, thereby eliminating confusing requirements that trial courts provide two separate sets of jury instructions." Prior to the Act, the federal capital drug provisions housed provisions for the appointment of counsel to assist indigents facing federal capital charges and indigent federal and state death row inmates during federal habeas proceedings, 21 U.S.C. 848(q)(4)-(10). Section 222 of the Act transfers these provisions to title 18. Title III of the Act, among other things, creates more severe criminal penalties concerning criminal and terrorist activities committed at U.S. seaports or aboard vessels. The Maritime Transportation Security Act requires the submission to the Department of Homeland Security of vessel and facility security plans that include provisions for establishing and controlling secure areas, 46 U.S.C. 70103(c). It also calls for issuance of transportation security cards in order to regulate access to secure areas, 46 U.S.C. 70105. It contains no specific provisions regarding trespassing upon security areas, but the Coast Guard and Maritime Transportation Act amended its provisions in a manner that suggests the application of state criminal laws as well as criminal sanctions found in the Deepwater Port Act, 33 U.S.C. 1514 (imprisonment for not more than one year); the Ports and Waterways Safety Act, 33 U.S.C. 1232 (imprisonment for not more than 10 years); and the act of June 15, 1917, 50 U.S.C. 192 (imprisonment for not more than 10 years). As a general matter, it is a federal crime to use fraud or false pretenses to enter federal property, a vessel or aircraft of the United States, or the secured area in an airport, 18 U.S.C. 1036. The offense is punishable by imprisonment for not more than five years if committed with the intent to commit a felony and imprisonment for not more six months in other cases. The same maximum penalty applies to making a false statement to federal officials or in any matter within the jurisdiction of a federal agency or department, 18 U.S.C. 1001. Possession of phony government identification to defraud the U.S. is a one-year felony, absent further aggravating circumstances under which the sanctions are increased, 18 U.S.C. 1028 (a)(4), (b)(6). Moreover, except to the extent covered by 18 U.S.C. 1036 or 18 U.S.C. 1863 (trespassing in the national forests), unlawful entry to property (federal or otherwise) with the intent to commit a second crime is punishable under the laws of the state in which it occurs, cf., 18 U.S.C. 13. Section 302 of the Act expands 18 U.S.C. 1036 to cover seaports and increases the penalty for violations with respect to any of the protected areas committed with the intent to commit a felony, from imprisonment for not more than five years to imprisonment for not more than 10 years, amended 18 U.S.C. 1036. The section also provides a definition of "seaport." The conference report accompanying H.R. 3199 quotes the Interagency Commission report and describes the problems the amendments are designed to address: According to the Report of the Interagency Commission ... '[c]ontrol of access to the seaport or sensitive areas within the seaport is often lacking.' Such unauthorized access is especially problematic, because inappropriate controls may result in the theft of cargo and more dangerously, undetected admission of terrorists. In addition to establishing appropriate physical, procedural, and personnel security for seaports, it is important that U.S. criminal law adequately reflect the seriousness of the offense. However, critics might point out that the section does not deal with all "unauthorized access," only access accomplished by fraud. And, they argue, even if the seriousness of such unauthorized access to seaport restricted areas with criminal intent might warrant imprisonment for up to 10 years, there is nothing in conference or Commission reports to explain the necessity for the comparable penalty increase for the other forms of trespassing upon the other areas covered under section 1036. Various federal laws prohibit the failure to heave to or otherwise obstruct specific maritime inspections under various circumstances. Section 303 of the Act establishes a new, general federal crime that outlaws, in the case of vessel subject to the jurisdiction of the United States, the failure to heave to, or to forcibly interfere with the boarding of the vessel by federal law enforcement or resist arrest, or to provide boarding federal law enforcement officers with false information concerning the vessel's cargo, origin, destination, registration, ownership, nationality or crew. The crime is punishable by imprisonment for not more than five years. Federal law prohibits violence against maritime navigation, 18 U.S.C. 2280, burning or bombing vessels, 18 U.S.C. 2275, burning or bombing property used in or whose use affects interstate or foreign commerce, 18 U.S.C. 844(I), destruction of property within the special maritime and territorial jurisdiction of the United States, 18 U.S.C. 1363. None of them are punishable by life imprisonment unless death results from their commission. Section 304 of the Act creates two new federal crimes. The first makes it a federal crime punishable by imprisonment for any term of years or for life (or the death penalty if death results) to place a dangerous substance or device in the navigable waters of the United States with the intent to damage a vessel or its cargo or to interfere with maritime commerce. The second of section 304's provisions makes it a federal crime punishable by imprisonment for not more than 20 years to tamper with any navigational aid maintained by the Coast Guard or St. Lawrence Seaway Development Corporation in manner likely to endanger navigation, new 18 U.S.C. 2282B as added by the Act. Opponents may find the sanctions a bit stiff, but in the words of the conference report, "the Coast Guard maintains over 50,000 navigational aids on more than 25,000 miles of waterways. These aids ... are inviting targets for terrorists." There may also be some question why the new section is necessary given that section 306 of the Act provides, "Whoever knowingly ... damages, destroys, or disables ... any aid to navigation ... shall be ... imprisoned not more than 20 years," new 18 U.S.C. 2291(a)(3) as added by the Act; see also , new 18 U.S.C. 2291(a)(4) as added by section 306 of the Act ("Whoever knowingly interferes by force or violence with the operation of ... any aid to navigation ..., if such action is likely to endanger the safety of any vessel in navigation"). Section 305 of the Act establishes two other federal terrorism-related transportation offenses, one for transporting dangerous materials and the other for transporting terrorists. It is a federal crime to possess biological agents, chemical weapons, atomic weapons, and nuclear material, each punishable by imprisonment for any term of years or for life. And although the penalties vary, it is likewise a federal crime to commit any federal crime of terrorism. Morever, it is a federal crime to provide material support, including transportation, for commission of various terrorist crimes or for the benefit of a designated terrorist organization, 18 U.S.C. 2339A, 2339B, or to transport explosives in interstate or foreign commerce with the knowledge they are intended to be used in injure an individual or damage property, 18 U.S.C. 844(d). Most of these offenses condemn attempts and conspiracies to commit them, and accomplices and coconspirators incur comparable liability in any event. Section 305 of the Act establishes a new federal offense which prohibits transporting explosives, biological agents, chemical weapons, radioactive or nuclear material knowing it is intended for use to commit a federal crime of terrorismâaboard a vessel in the United States, in waters subject to U.S. jurisdiction, on the high seas, or aboard a vessel of the United States. The crime is punishable by imprisonment for any term of years or for life and may be punishable by death if death results from commission of the offense. While it is a crime to harbor a terrorist, 18 U.S.C. 2339, or to provide material support, including transportation, for the commission of a terrorist offense or for the benefit of a foreign designated terrorist organization, 18 U.S.C. 2339A, 2339B, such offenses are only punishable by imprisonment for not more than 15 years. The same perceived defect may appear to some in the penalties for aiding and abetting commission of the various federal crimes of terrorism and in the penalties available for committing many of them. Section 305 creates a new federal offense, 18 U.S.C. 2284, punishable by imprisonment for any term of years or for life for transporting an individual knowing he intends to commit, or is fleeing from the commission of, a federal crime of terrorism. Unlike the new 18 U.S.C. 2282A(c), created in section 304, neither of the section 305 offenses have an explicit exception for official activities. Of course, even though facially the new section 2284 forbids transporting terrorists for purposes of extradition or prisoner transfer, it would never likely be read or applied to prevent or punish such activity. Chapter 111 of title 18 of the United States Code relates to shipping and by and large outlaws violence in various forms committed against vessels within U.S. jurisdiction. Other sections of the Code proscribe the use of fire, explosives or violence with sufficient breath of protect shipping under some circumstances. For example, one section condemns the use fire or explosives against property used in (or used in an activity affecting) interstate or foreign commerce, 18 U.S.C. 844(I). Another prohibits destruction of property within the maritime jurisdiction of the Untied States, 18 U.S.C. 1363, and a third, arson within the maritime jurisdiction, 18 U.S.C. 81. Hoaxes relating to violations of chapter 111 are punishable by imprisonment for not more than five years (not more than 20 years if serious injury results and if death results, by imprisonment for any term of years or for life or by death), 18 U.S.C. 1038. Section 306 of the Act enacts a new chapter 111A supplementing chapter 111 as well as section 1038 and consists of four sections. Of the four sections, two are substantive, proscribing hoaxes and the destruction of vessels or maritime facilities, new 18 U.S.C. 2291, 2292; and two procedural, one providing the jurisdictional base for the substantive offenses, new 18 U.S.C. 2290, and the other barring prosecution of certain misdemeanor or labor violations, new 18 U.S.C. 2993. According to the conference report accompanying H.R. 3199 , "this section harmonizes the somewhat outdated maritime provisions with the existing criminal sanctions for destruction or interference with an aircraft or aircraft facilities in 18 U.S.C. 32, 34, and 35." It is not surprising, therefore, that the new destruction offense mirrors the substantive provisions for the destruction of aircraft and their facilities, 18 U.S.C. 32, although it differs from the aircraft prohibition in several respects. First, it has exceptions for lawful repair and salvage operations and for the lawful transportation of hazardous waste, new 18 U.S.C. 2291(b). Second, in the manner of 18 U.S.C. 1993 (attacks on mass transit), it increases the penalty for violations involving attacks on conveyances carrying certain hazardous materials to life imprisonment, new 18 U.S.C. 2291(c). Third, it tightens the "death results" sentencing escalator so that a sentence of death or imprisonment for life or any term of years is only warranted if the offender intended to cause the resulting death, new 18 U.S.C. 2291(d). In addition to these, the substantive prohibitions of the new section 2291 differ from the otherwise comparable prohibitions of 18 U.S.C. 2280 (concerning violence against maritime navigation) in two major respects. The proscriptions in section 2280 and those of section 32 generally require that the prohibited damage adversely impact on safe operation; new section 2291 is less likely to feature a comparable demand. On the other hand, because it is treaty-based, section 2280 enjoys a broader jurisdictional base than new section 2290 is able to provide for new section 2291. By virtue of new section 2290, a violation of new section 2291 is only a federal crime if it is committed within the United States, or the offender or victim is a U.S. national, or the vessel is a U.S. vessel, or a U.S. national is aboard the vessel involved. In the case of subsection 32(b) or section 2280, there need be no more connection to the United States than that the offender is subsequently found or brought here, 18 U.S.C. 32(b), 2280(b)(1)(c). Like section 2280, however, new section 2291 is subject to exceptions for misdemeanor offenses and labor disputes. New section 2292 creates a hoax offense in the image of 18 U.S.C. 35 which relates to hoaxes in an aircraft context. It sets a basic civil penalty of not more than $5000 for hoaxes involving violations of the new section 2291 or of chapter 111, the existing shipping chapter. If the misconduct is committed "knowingly, intentionally, maliciously, or with reckless disregard for the safety of human life," it is punishable by imprisonment for not more than five years. The Act also requires that in both instances, jurisdiction over the offense is governed by the jurisdiction of the offense that is the subject to the hoax. In the case of hoaxes involving violations of chapter 111, the new section affords the government an alternative ground for prosecution to that offered by 18 U.S.C. 1038. Section 307 of the Act expands or clarifies the application of various criminal provisions particularly in the case of maritime commerce. Federal law prohibits theft from shipments traveling in interstate or foreign commerce; violations are punishable by imprisonment for not more than 10 years (not more than one year if the value of the property stolen is $1000 or less), 18 U.S.C. 659. Section 307 increases the penalty for theft of property valued at $1000 or less to imprisonment for not more than three years, 18 U.S.C. 659 as amended by the Act. It also makes it clear that theft from trailers, cargo containers, freight stations, and warehouses are covered, and that the theft of goods awaiting transshipment is also covered, 18 U.S.C. 659 as amended by the Act. Interstate or foreign transportation of a stolen vehicle or aircraft is punishable by imprisonment for not more than 10 years, 18 U.S.C. 2312; receipt of a stolen vehicle or aircraft that has been transported in interstate or foreign commerce carries the same penalty, 18 U.S.C. 2313. Section 307 expands the coverage of federal law to cover the interstate or foreign transportation of a stolen vessel and receipt of a stolen vessel that has been transported in interstate or overseas, 18 U.S.C. 2311 as amended by the Act. The United States Sentencing Commission is to review the sentencing guidelines application to violations of 18 U.S.C. 659 and 2311. The Attorney General is to see that cargo theft information is included in the Uniform Crime Reports and to report annually to Congress on law enforcement activities relating to theft from interstate or foreign shipments in violations of 18 U.S.C. 659. Stowing away on a vessel or an aircraft is a federal crime; offenders are subject to imprisonment for not more than one year, 18 U.S.C. 2199. Section 308 of the Act increases the penalty for stowing away from imprisonment for not more than one year to not more than five years (not more than 20 years if the offense is committed with the intent to inflict serious injury upon another or if serious injury to another results; or if death results, by imprisonment for any term of years or for life), 18 U.S.C. 2199 as amended by the Act. The "death results" capital punishment provision of the Act is only triggered if the offender intended to cause a death, 18 U.S.C. 2199(3) as amended by the Act. Bribery of a federal official is punishable by imprisonment for not more than 15 years, 18 U.S.C. 201; many federal crimes of terrorism carry maximum penalties of imprisonment for not more than 20 years or more. Those who aid and abet or conspire for the commission of such crimes are subject to sanctions. Section 309 of the Act makes it a federal crime to bribe any individual (private or public) with respect to various activities within any secure or restricted area or seaportâwith the intent to commit international or domestic terrorism (as defined in 18 U.S.C. 2331). Offenders face imprisonment for not more than 15 years, new 18 U.S.C. 226 as added by the Act. Section 310 increases the sentence of imprisonment for smuggling into the United States from not more than five years to not more than 20 years, 18 U.S.C. 545 as amended by the Act. The penalty for smuggling goods into a foreign country by the owners, operators, or crew of a U.S. vessel is imprisonment for not more than five years, 18 U.S.C. 546. Other penalties apply for smuggling or unlawfully exporting specific goods or materials out of the U.S. or into other countries. Section 311 of the Act creates a new federal crime which outlaws smuggling goods out of the United States; offenders face imprisonment for not more than 10 years, new 18 U.S.C. 554 as added by the Act. Once smuggling from the U.S. is made a federal offense, corresponding changes in federal forfeiture and custom laws become a possibility. Federal law proscribes laundering the proceeds of various federal crimes (predicate offenses), 18 U.S.C. 1956, 1957. Smuggling goods into the U.S. in violation of 18 U.S.C. 545 is a money laundering predicate offense, 18 U.S.C. 1956(c)(7)(D). The proceeds involved in financial transactions in violation of the money laundering statutes are generally subject to confiscation, 18 U.S.C. 981(a)(1)(A). Section 311 adds the new overseas smuggling crime, 18 U.S.C. 554, to the money laundering predicate offense list, 18 U.S.C. 1956(c)(7)(D) as amended by the Act. Federal law calls for the confiscation of goods smuggled into the United States and of the conveyances used to smuggle them in, 19 U.S.C. 1595a. Section 311 calls for the confiscation of goods smuggled out of the U.S. and of any property used to facilitate the smuggling, new 19 U.S.C. 1595a(d) as added by the Act. It is a federal crime to remove property from the custody of the Customs Service. Section 311 increases the penalty for violation of this crime to imprisonment for not more than 10 years, 18 U.S.C. 549 as amended by the Act. Title IV of the Act strengthens penalties for money laundering, particularly related to financing terrorism, and makes changes to forfeiture authority. There is also a provision that might be construed to permit pre-trial asset freezes in certain civil forfeiture cases made part of the property owner's criminal trial. The International Emergency Economic Powers Act (IEEPA), 50 U.S.C. 1701-1707, grants the President the power to impose economic restrictions "to deal with unusual and extraordinary [external] threats to the national security, foreign policy, or economy of the United States," 50 U.S.C. 1701(a). The authority has been invoked among other instances to block Iranian assets, Exec. Order No. 12170, 44 Fed.Reg. 65729 (Nov. 1979); to prohibit trade and certain other transactions with Libya, Exec. Order No. 12543, 51 Fed.Reg. 875 (Jan. 7, 1986); to impose economic sanctions on countries found to be contributing to the proliferation of weapons of mass destruction, Exec. Order No. 12938, 59 Fed. Reg. 59099 (Nov. 14, 1994); to block the assets and prohibit financial transactions with significant narcotics traffickers, 60 Fed.Reg. 54579 (Oct. 21, 1995); and to block the property and prohibit transactions with persons who commit, threaten to commit, or support terrorism, Exec. Order No. 13224, 66 Fed.Reg. 49079 (Sept. 23, 2001). The Act increases the imprisonment and civil penalty for violations of presidential orders or related regulations issued under IEEPA, including but not limited to those that bar financial dealings with designated terrorists and terrorist groups. Violations are now punishable by a civil penalty of not more than $50,000 (previously $10,000) and by imprisonment for not more than 20 years (previously 10 years). The federal Racketeer Influenced and Corrupt Organizations (RICO) law imposes severe penalties (up to 20 years imprisonment) for acquiring or operating an enterprise through the commission of a pattern of other crimes (predicate offenses), 18 U.S.C. 1961-1965. One federal money laundering statute prohibits, among other things, using the funds generated by the commission of a predicate offense in a financial transaction designed to conceal the origin of the funds or promote further predicate offenses, 18 U.S.C. 1956. A second statute condemns financial transactions involving more than $10,000 derived from a predicate offense, 18 U.S.C. 1957. Crimes designated RICO predicate offenses automatically qualify as money laundering predicate offenses, 18 U.S.C. 1956(c)(7)(A), 1957(f)(3). Property associated with either a RICO or money laundering violation is subject to confiscation, but RICO forfeiture requires conviction of the property owner, 18 U.S.C. 1963, money laundering forfeiture does not, 18 U.S.C. 1956, 1957, 981. It is a federal crime to operate a business that transmits money overseas either directly or indirectly, without a license, or for a licensed business to either fail to comply with applicable Treasury Department regulations or to transmit funds that it knows will be used for, or were generated by, criminal activities, 18 U.S.C. 1960. The Act adds 18 U.S.C. 1960 (illegal money transmissions) to the RICO predicate offense list and consequently to the money laundering predicate offense list, 18 U.S.C. 1961(1) as amended by the Act. The House-passed version of the Reauthorization Act also added 8 U.S.C. 1324a (employing aliens) to the RICO list; however, this provision was not included in the conference bill and consequently is not part of the Act as enacted. Section 403(b) of the Act states, "Section 1956(c)(7)(D) of title 18, United States Code, is amended by striking 'or any felony violation of the Foreign Corrupt Practices Act' and inserting 'any felony violation of the Foreign Corrupt Practices Act.'" However, this grammatical change relating to the Foreign Corrupt Practices Act (dropping the "or" before the reference) is redundant. The Intelligence Reform and Terrorism Prevention Act already made this grammatical fix, 118 Stat. 3774 (2004). The Act makes conforming amendments to 18 U.S.C. 1956(e), 1957(e) concerning the money laundering investigative jurisdiction of various components of the Department of Homeland Security. Procedures for coordination, to avoid duplication of efforts, and because investigative agencies share in the distribution of forfeited property to the extent of their participation in the investigation that led to confiscation, may prove necessary in implementing these provisions, 18 U.S.C. 981(d), (e); 19 U.S.C. 1616a. The property of individuals and entities that prepare for or commit acts of international terrorism against the United States or against Americans is subject to federal confiscation, 18 U.S.C. 981(a)(1)(G). Criminal forfeiture is confiscation that occurs upon conviction for a crime for which forfeiture is a consequence, e.g., 18 U.S.C. 1963 (RICO). Civil forfeiture is confiscation accomplished through a civil proceeding conducted against the "offending" property based on its relation to a crime for which forfeiture is a consequence, e.g., 18 U.S.C. 981. Criminal forfeiture is punitive; civil forfeiture is remedial, Calderon-Toledo v. Pearson Yacht Leasing , 416 U.S. 663, 683-88 (1974). A convicted defendant may be required to surrender substitute assets if the property subject to criminal forfeiture is located overseas or otherwise beyond the reach of the court, 18 U.S.C. 853(p). Civil forfeiture ordinarily requires court jurisdiction over the property, but when forfeitable property is held overseas in a financial institution that has a correspondent account in this country the federal government may institute and maintain civil forfeiture proceedings against the funds in the interbank account here, 18 U.S.C. 9871(k). Article III, section 2 of the United States Constitution declares in part that, "no attainder of treason shall work corruption of blood, or forfeiture of estate except during the life of the person attainted," U.S.Const. Art.III, §3, cl.2. Forfeiture of estate is the confiscation of property simply because it is the property of the defendant, without any other connection to the crime for which gives rise to the forfeiture. The constitutional provision applies only in cases of treason, but due process would seem likely to carry the ban to forfeiture of estate incurred as a result of other crimes, particularly lesser crimes. The assumption may be hypothetical because with a single Civil War exception, until very recently federal law only called for the forfeiture of property that had some nexus to the confiscation-triggering crime beyond mere ownership by the defendant. Subparagraph 981(a)(1)(G) calls for the confiscation the property of individuals and entities that engage in acts of terrorism against the United States or Americans, 18 U.S.C. 981(a)(1)(G)(i), and under separate clauses any property derived from or used to facilitate such misconduct, 18 U.S.C. 981(a)(1)(G)(ii),(iii). As yet, there no reported cases involving 18 U.S.C. 981(a)(1)(G)(i). Section 404 of the Act authorizes the federal government to confiscate under civil forfeiture procedures all property of any individual or entity planning or committing an act of international terrorism against a foreign nation or international organization without any further required connection of the property to the terrorist activity other than ownership. The section contemplates forfeiture of property located both here and abroad, since it refers to "all assets, foreign or domestic," but with respect to property located outside of the United States, it requires an act in furtherance of the terrorism to have "occurred within the jurisdiction of the United States." It is unclear whether the jurisdiction referred to is the subject matter jurisdiction or territorial jurisdiction of the United States or either or both. The due process shadow of Article III, section 3, clause 2 may limit the reach of the proposal to property with some nexus other than ownership to the terrorist act. Money laundering in violation of 18 U.S.C. 1956 may take either of two forms (1) engaging in a prohibited financial transaction involving the proceeds of a predicate offense, 18 U.S.C. 1956(a)(1), or (2) internationally transporting, transmitting, or transferring the proceeds of a predicate offense, 18 U.S.C. 1956(a)(2). Section 405 of the Act extends the financial transaction offense to include related, parallel transactions and transmissions. As the conference report accompanying H.R. 3199 explains, the amendment addresses a feature of the often informal networks called "hawalas," for transfer money overseas: Alternative remittance systems are utilized by terrorists to move and launder large amounts of money around the globe quickly and secretly. These remittance systems, also referred to as "hawala" networks, are used throughout the world, including the Middle East, Europe, North American and South Asia. These systems are desirable to criminals and non-criminals alike because of the anonymity, low cost, efficiency, and access to underdeveloped regions. The United States has taken steps to combat the "hawala" networks by requiring all money transmitters, informal or form, to register as money service businesses. Under current Federal law, a financial transaction constitutes a money laundering offense only if the funds involved in the transaction represent the proceeds of some criminal offense. . . There is some uncertainty, however, as to whether the "proceeds element" is satisfied with regard to each transaction in a money laundering scheme that involves two or more transactions conducted in parallel, only one of which directly makes use of the proceeds from unlawful activity. For example, consider the following transaction: A sends drug proceeds to B, who deposits the money in Bank Account 1. Simultaneously or subsequently, B takes an equal amount of money from Bank Account 2 and sends it to A, or to a person designated by A. The first transaction from A to B clearly satisfies the proceeds element of the money laundering statute, but there is some question as to whether the second transactionâthe one that involves only funds withdrawn form Bank Account 2 does so as well. The question has become increasingly important because such parallel transactions are the technique used to launder money through the Black Market Peso Exchange and "hawala" network. Section 406 of the Act corrects a number of typographical and grammatical errors in existing law including changing the reference in section 322 of the USA PATRIOT Act, 115 Stat. 315 (2001), from 18 U.S.C. 2466(b) to 28 U.S.C. 2466(b); changing the phrase "foreign bank" to "foreign financial institution" in 18 U.S.C. 981(k)(relating to forfeiture and interbank accounts); correcting a reference to the Intelligence Reform and Terrorism Prevention Act in 31 U.S.C. 5318(n)(4)(A); capitalizing a reference in the Intelligence Reform and Terrorism Prevention Act (amending 18 U.S.C. 2339C rather than 18 U.S.C. 2339c); and codifying the forfeiture procedure passed as section 316 of the USA PATRIOT Act, 115 Stat. 309 (2001), new 18 U.S.C. 987. Federal law permits pre-trial restraining orders to freeze property sought in criminal forfeiture cases, 21 U.S.C. 853(e), and pre-trial restraining orders or the appointment of receivers or conservators in civil forfeiture cases, 18 U.S.C. 983(j). In money laundering civil penalty and forfeiture cases, federal law also permits restraining orders and the appointment of receivers under somewhat different, less demanding procedures with respect to the property of foreign parties held in this country, 18 U.S.C. 1956(b). Section 406 of the Act removes the requirement that the property be that of a foreign party, by amending 18 U.S.C. 1956(b)(3),(4). It is a federal crime to destroy or attempt to destroy commercial motor vehicles or their facilities, 18 U.S.C. 33. Offenders face imprisonment for not more than 20 years. It is also a federal crime to cause or to attempt to cause more than $100,000 worth of damage to an energy facility, 18 U.S.C. 1366. Again, offenders face imprisonment for not more than 20 years. As a general rule, conspiracy to commit these or any other federal crime is punishable by imprisonment for not more than five years, 18 U.S.C. 371, and conspirators are liable for the underlying offense and any other offense committed by any of co-conspirators in the foreseeable furtherance of the criminal scheme, United States v. Pinkerton , 340 U.S. 640 (1946). For several federal crimes, instead of the general five-year penalty for conspiracy, section 811 of the USA PATRIOT Act used the maximum penalty for the underlying offense as the maximum penalty for conspiracy to commit the underlying offense, 115 Stat. 381-82 (2001). Section 406(c) of the Act allows for the same penalty scheme for conspiracies to violate 18 U.S.C. 33 (destruction of motor vehicles) and 18 U.S.C. 1366 (damage an energy facility). Federal law prohibits laundering the proceeds of various predicate offenses, 18 U.S.C. 1956; in addition to other criminal penalties, property associated with such laundering is subject to confiscation, 18 U.S.C. 981(a)(1)(A). Receipt of military training from a foreign terrorist organization is also a federal crime, 18 U.S.C. 2339D. Section 112 of the Act makes 18 U.S.C. 2339D a federal crime of terrorism under 18 U.S.C. 2332b(g)(5)(B). Federal crimes of terrorism are RICO predicate offenses by definition, 18 U.S.C. 1961(1)(G). RICO predicate offenses are by definition money laundering predicate offenses, 18 U.S.C. 1956(c)(7)(A). Section 409 of the Act makes 18 U.S.C. 2339D a money laundering predicate offense directly, 18 U.S.C. 1956(c)(7)(D). It is not clear why the duplication was thought necessary. The Act contains an amendment to 28 U.S.C. 2461(c), for which there is no explanation in the conference report accompanying H.R. 3199 . Nor does the amendment appear in either of the two versions of H.R. 3199 sent to conference. Nor does the amendment appear to have been included in other legislative proposals and thus has not heretofore been the beneficiary of examination in committee or on the floor. The change is captioned "uniform procedures for criminal forfeitures," but it is not facially apparent precisely how the procedures for various criminal forfeitures are disparate or how the amendment makes them more uniform. Part of the difficulty flows from the fact that both section 2461(c) and the Act's amendment are somewhat cryptic. Nevertheless, it seems crafted to make a default procedure into an exclusive procedure. In its original form, 28 U.S.C. 2461(c) states: If a forfeiture of property is authorized in connection with a violation of an Act of Congress, and any person is charged in an indictment or information with such violation but no specific statutory provision is made for criminal forfeiture upon conviction, the Government may include the forfeiture in the indictment or information in accordance with the Federal Rules of Criminal Procedure, and upon conviction, the court shall order the forfeiture of the property in accordance with the procedures set forth in section 413 of the Controlled Substances Act (21 U.S.C. 853), other than subsection (d) of that section. The Act amends section 2461(c) to read: If a person is charged in a criminal case with a violation of an Act of Congress for which the civil or criminal forfeiture of property is authorized, the Government may include notice of the forfeiture in the indictment or information pursuant to the Federal Rules of Criminal Procedure. If the defendant is convicted of the offense giving rise to the forfeiture, the court shall order the forfeiture of the property as part of the sentence in the criminal case pursuant to the Federal Rules of Criminal Procedure and section 3554 of title 18, United States Code. The procedures in section 413 of the Controlled Substances Act (21 U.S.C. 853) apply to all stages of a criminal forfeiture proceeding, except that subsection (d) of such section applies only in cases in which the defendant is convicted of a violation of such Act. A casual reading of the original section 2461(c) might suggest that it only applies in the case of a criminal forfeiture statute which fails to indicate what procedure should be used to accomplish confiscation. In fact, section 2461(c) originally allowed confiscation under its criminal forfeiture procedures where civil forfeiture was authorized by statute but criminal forfeiture otherwise was not. On its face, however, it did not allow the government to merge every civil forfeiture with the criminal prosecution of the property owner. In its original form, section 2461(c) was only available if there was no other criminal forfeiture counterpart for the civil forfeiture. Under the Act, the distinction no longer exists. Moreover, since section 2461(c) speaks of treating civil forfeitures as criminal forfeitures after conviction, some courts have held that pre-trial freeze orders available in other criminal forfeiture cases may not be invoked in the case of a section 2461(c) "gap filler." It is unclear whether the Act is intended to change this result as well. On the one hand, the language of conviction still remains. On the other hand, the description of the role of 21 U.S.C. 853 (which authorizes pre-trial restraining orders) may signal a different result. The statutory language prior to amendment is fairly clear, the procedures of section 853 come into play after conviction: "upon conviction, the court shall order the forfeiture of the property in accordance with the procedures set forth in section 413 of the Controlled Substances Act (21 U.S.C. 853)," 28 U.S.C. 2461(c). The statement in the Act is less conclusive: "The procedures in section 413 of the Controlled Substances Act (21 U.S.C. 853) apply to all stages of a criminal forfeiture proceeding." This change in language suggests that a change in construction may have been intended. Title V of the Act contains miscellaneous provisions added in conference and not previously included in either the House or Senate version of H.R. 3199 , some of whichâlike the habeas amendments in the case of state death row inmates, or the adjustments in the role of the Office of Intelligence Policy and Review in the FISA processâmay be of special interest. United States Attorneys and Assistant United States Attorneys must live within the district for which they are appointed, except in the case of the District of Columbia and the Southern and Eastern Districts of New York, 28 U.S.C. 545. The Attorney supervises and directs litigation in which the United States has an interest, 28 U.S.C. 516-519. He enjoys the authority to marshal, move, and direct the officers, employees, or agencies of the Department of Justice to this end, 28 U.S.C. 509, 510, 547. Section 501 of the Act allows the Attorney General to waive the residency requirement with respect to U.S. Attorneys or Assistant U.S. Attorneys who have been assigned additional duties outside the districts for which they were appointed. The conference report accompanying H.R. 3199 notes that the amendment will allow Justice Department personnel to be assigned to Iraq, but does not explain why the authority is made retroactive to February 1, 2005. The Attorney General has the authority to temporarily fill vacancies in the office of United States Attorney, 28 U.S.C. 546. Prior to the Act, if a replacement had not been confirmed and appointed within 120 days, the district court was authorized to make a temporary appointment. The Act repeals the authority of the court and permits the Attorney General's temporary designee to serve until the vacancy is filled by confirmation and appointment. The heads of the various federal departments come within the line of presidential succession, 3 U.S.C. 19(d)(1). Section 503 of the Act adds the Secretary of the Department of Homeland Security to the list following the Secretary of Veterans Affairs. Prior to the Act, the Attorney General had the responsibility of appointing the Director the Bureau of Alcohol, Tobacco, Firearms and Explosives (BATFE). Section 504 of the Act removes this power from the Attorney General, and vests the appointment in the President with the advice and consent of the Senate, amending section 1111(a)(2) of the Homeland Security Act of 2002, P.L. 107-296 , 116 Stat. 2135 (2002). The President appoints the marshal in each federal judicial district with the advice and consent of the Senate, 28 U.S.C. 561. There are no statutory qualifications. The Act describes a fairly demanding set of minimum qualifications that each marshal "should have," which the conference report characterizes as clarifications. Some may consider this an intrusion upon the constitutional prerogatives of the President. The Constitution does confer upon him the power to nominate and, with the advice and consent of the Senate, to appoint officers of the United States, U.S. Const. art. II, §2. It might be thought that to impose minimum qualifications for appointment impermissibly limits the President's power to nominate. But with few exceptions, the offices in question are creatures of statute. They exist by exercise of Congress's constitutional authority "to make all laws necessary and proper for carrying into execution" the constitutional powers of the Congress, the President or Government of the United States, U.S. Const. art. I, §8, cl.18. The imposition of minimum qualifications is consistent with long practice as to which the Supreme Court has observed: Article II expressly and by implication withholds from Congress power to determine who shall appoint and who shall remove except as to inferior offices. To Congress under its legislative power is given the establishment of offices, the determination of their functions and jurisdiction, the prescribing of reasonable and relevant qualifications and rules of eligibility of appointees, and the fixing of the term for which they are to be appointed, and their compensationâall except as otherwise provided by the Constitution. The terminology used in section 505 of the Act leaves some doubt whether it is intended to require or merely encourage the nomination of candidates exhibiting the statutory qualifications ("each marshal appointed under this section should have ..."). Perhaps more intriguing is why the conferees deemed this particular office and not others appropriate for such treatment. The office has existed since the dawn of the Republic, 1 Stat. 87 (1789), without a statement of required or preferred qualifications. Arguably comparable or more significant offices within the Department of Justice face no similar provisions. No such provisions attend the appointment of U.S. Attorneys, 28 U.S.C. 541; the Director the Federal Bureau of Investigation, 28 U.S.C. 532; the Director of the Marshals Service, 28 U.S.C. 561; or even the Attorney General himself, 28 U.S.C. 503. Even when the Act puts its hand anew to the appointment of an arguably comparable positionâthe appointment of the Director of BATFE, supra âit says nothing of minimum qualifications. Of course, the requirements seem relevant and it is difficult to argue that any federal office should not be filled with the most highly qualified individual possible. Section 506 of the Act creates a new National Security Division within the Department of Justice (DOJ), headed by a new Assistant Attorney General, comprising prosecutors from the DOJ's Criminal Division's Counterespionage and Counterterrorism sections and attorneys from the DOJ's Office of Intelligence Policy and Review, the office that is responsible for reviewing wiretapping operations under FISA. The presidential Commission on the Intelligence Capabilities of the United States Regarding Weapons of Mass Destruction recommended that "[t]he Department of Justice's primary national security elementsâthe Office of Intelligence Policy and Review, and the Counterterrorism and Counterespionage sections [of the Criminal Division]âshould be placed under a new Assistant Attorney General for National Security." The Commission felt the then-existing organizational scheme might be awkward and that perhaps the system would benefit from a check on Office of Intelligence Policy and Review's rejection of FISA applications as insufficient. Critics might suggest that curtailing the independence of the Office of Intelligence Policy and Review (OIPR) with an eye to less rigorous examination of FISA applications is likely to have an adverse impact. They might argue that adding another layer of review to the FISA application process can only bring further delays to a process the Administration has continuously sought to streamline. In the same vein, should the judges of the FISA Court conclude that the OIPR has been shackled and ceased to function as an independent gatekeeper for the Court, they might examine applications more closely and feel compelled to modify or reject a greater number; further contributing to delay, or so it might be said. On the other hand, both the Act and the USA PATRIOT Act vest oversight on the exercise of sensitive investigative authority in senior officials in order to guard against abuse. Be that as it may, the President notified various administration officials that he concurred in the Commission's recommendation. Section 441 of the Intelligence Authorization Act for Fiscal Year 2006, S. 1803 , as reported by the Senate Select Committee on Intelligence, contained similar provisions. The Act makes the following provisions for the new Assistant Attorney General: Assistant Attorney General (AAG) is to be designated by the President and presented to the Senate for its advice and consent, adding new section 28 U.S.C. 507A(a); cf., H.Rept. 109-142 at 31; AAG serves as head of the DOJ National Security Division, as primary DOJ liaison with DNI, and performs other duties as assigned, new 28 U.S.C. 507A(b); the Attorney General is to consult with the DNI before recommending a nominee to be AAG, adding new subsection 50 U.S.C. 403-6(c)(2)(C); the Attorney General may authorize the AAG to perform the Attorney General's FISA-related duties, amending 50 U.S.C. 1801(g); AAG may approve application for a communications interception (wiretap) order under the Electronic Communications Privacy Act (Title III), amending 18 U.S.C. 2516(1); the Attorney General may authorize the AAG to approve admission into the witness protection program, amending 18 U.S.C. 3521(d)(3); AAG must provide briefings for the DOJ officials or their designee of Division cases involving classified information, amending 18 U.S.C. App. III 9A(a); AAG replaces OIPR for purposes of advising the Attorney General on the development of espionage charging documents and related matters, amending 28 U.S.C. 519 note; the Attorney General may authorize the AAG to approve certain undercover operations, amending 28 U.S.C. 533 note; AAG joins those whom the Attorney General consult concerning a state application of emergency law enforcement assistance, amending 42 U.S.C. 10502(2)(L); the National Security Division headed by the AAG consists of the OIPR, the counterterrorism and counterespionage sections, and any other entities the Attorney General designates, adding new section 28 U.S.C. 509A; Division employees are barred from engaging in political management or political campaigns, amending 5 U.S.C. 7323(b)(3); subject to a rule change by the Senate, the Senate Select Committee on Intelligence enjoys 20 day sequential referral of AAG nominees, amending section 17 of S.Res. 94-400 of the Standing Rules of the Senate, Senate Manual §94 (2002). Federal law provides expedited habeas corpus procedures in the case of state death row inmates in those states that qualify for application of the procedures and have opted to take advantage of them, 28 U.S.C. ch. 154. As the Supreme Court stated, "Chapter 154 will apply in capital cases only if the State meets certain conditions. A state must establish 'a mechanism for the appointment, compensation, and payment of reasonable litigation expenses of competent counsel' in state postconviction proceedings, and 'must provide standards of competency for the appointment of such counsel,'" Calderon v. Ashmus , 523 U.S. 740, 743 (1998). Thus far apparently, few if any states have sought and been found qualified to opt in. Critics implied that the states have been unable to take advantage of the expedited capital procedures only because the courts have a personal stake in the outcome. The solution, they contend, is the amendment found in section 507 of the Act, which allows the Attorney General to determine whether a state qualifies, permits the determination to have retroactive effect, and allows review by the federal appellate court least likely to have an interest in the outcome, the U.S. Court of Appeals for the D.C. Circuit. Opponents of the proposal raised separation of powers issues and questioned whether the chief federal prosecutor or the courts are more likely to make an even handed determination of whether the procedures for providing capital defendants with qualified defense counsel are adequate. Under the Act, states would opt-in or would have opted-in as of the date, past or present, upon which the Attorney General determines they established or have established qualifying assistance of counsel mechanism. Opting-in to the expedited procedures of chapter 154 only applies, however, to instances in which "counsel was appointed pursuant to that mechanism [for the death row habeas petitioner], petitioner validly waived counsel, petitioner retained counsel, or petitioner was found not to be indigent." The standards of qualifying mechanism remain the same except that the Act drops that portion of subsection 2261(d) which bars an attorney from serving as habeas counsel if he represented the prisoner during the state appellate process, amending 28 U.S.C. 2261(d). The Act establishes a de novo standard of review for the Attorney General's determination before the D.C. Circuit, new 28 U.S.C. 2265(c)(3). It also extends the expedited time deadline for U.S. district court action on a habeas petition from a state death row inmate from 6 to 15 months (180 days to 450 days)(although the 60 days permitted the court for decision following completion of all pleadings, hearings, and submission of briefs remains the same), new 28 U.S.C. 2266(b). In McFarland v. Scott , 512 U.S. 849, 859 (1994), the Supreme Court held that federal district courts might stay the execution of a state death row inmate upon the filing of a petition for the appointment of counsel but prior to the filing of a federal habeas petition in order to allow for the assistance of counsel in the filing the petition. In an amendment described as overruling McFarland , H.Rept. 109-333 , at 109 (2005), the Act amends federal law to permit a stay in such cases of no longer than 90 days after the appointment of counsel or the withdrawal or denial of a request for the appointment of counsel, new 28 U.S.C. 2251(b) as added by section 507(f) of the Act. The Secret Service provisions of the Act were added to H.R. 3199 during conference. They have several intriguing aspects although the constitutional reach of two provisions may be somewhat limited. Under 18 U.S.C. 1752, it is a federal crime: (1) to willfully and knowingly trespass in areas designated as temporary offices or residences for (or as restricted areas in places visited by or to be visited by) those under Secret Service protection, 18 U.S.C. 1752(a)(1); (2) to engage in disorderly conduct in or near such areas or places with the intent to and result of impeding or disrupting the orderly conduct of governmental business or functions there, 18 U.S.C. 1752(a)(2); (3) to willfully and knowingly block passage to and from such areas or places, 18 U.S.C. 1752(a)(3); (4) to willfully and knowingly commit an act of violence in such area or place, 18 U.S.C. 1752(a)(4); or (5) to attempt of conspire to do so, 18 U.S.C. 1752(a),(b). Obstructing Secret Service officers in the performance of their protective duties is also a federal crime and is punishable by imprisonment for not more than one year and/or a fine of not more than $1,000, 18 U.S.C. 3056(d). Section 602 of the Act increases the penalties for violation of 18 U.S.C. 1752 from imprisonment for not more than six months to imprisonment for not more than one year; unless the offense results in significant bodily injury or the offender uses or carries a deadly or dangerous weapon during and in relation to the offense, in which case the offense is punishable by imprisonment for not more than 10 years, 18 U.S.C. 1752(b) as amended by the Act. As a general rule applicable here, crimes punishable by imprisonment for not more than six months are subject as an alternative to a fine of not more than $5,000; crimes punishable by imprisonment for not more than one year by a fine of not more than $100,000 as an alternative; crimes punishable by imprisonment for more than one year by a fine of not more than $250,000; and in each case organizations are subject to maximum fines that are twice the amount to which an individual might be fined, 18 U.S.C. 3571, 3559. The Act also amends section 1752 to provide a uniform scienter element (willfully and knowingly) for each of the offenses prescribed there. Section 602 of the Act also creates a new federal crime relating to misconduct concerning "special events of national significance." It amends 18 U.S.C. 1752 to make it a federal crime "willfully and knowingly to enter or remain in any posted, cordoned off, or otherwise restricted area of a building or grounds so restricted in conjunction with an event designated as a special event of national significance," 18 U.S.C. 1752(a)(2) as amended. The Act provides no definition of "special event of national significance." Nor is the term defined elsewhere in federal law, although it is used in 18 U.S.C. 3056, which authorizes the Secret Service to participate in the coordination of security arrangements for such activities. The conference report accompanying H.R. 3199 explains that the provisions relate to misconduct at events at which individuals under Secret Service protection are not attendees and by implication are not anticipated to be attendees. This may raise questions about the constitutional basis upon which the other criminal prohibitions in section 1752 rely. Congress and the federal government enjoy only those powers which the Constitution provides; all other powers are reserved to the states and to the people, U.S. Const. Amends. X, IX. The Constitution does not vest primary authority to enact and enforce criminal law in the federal government. The Constitution does grant Congress explicit legislative authority in three instancesâtreason, piracy and offenses against the law of nations, U.S.Const. Art.III, §3; Art.I, §8, cl.10. And it vests Congress with other more general powers which may be exercised through the enactment of related criminal laws, such as the power to regulate commerce or to enact laws for the District of Columbia, U.S.Const. Art.I, §8, cls.3, 17. Nevertheless, "[e]very law enacted by Congress must be based on one or more of its powers enumerated in the Constitution," United States v. Morrison , 529 U.S. 598, 607 (2000). It is not clear which of Congress's enumerated powers individually or in concert supports under all circumstances the creation of a trespassing offense relating to "restricted areas" temporarily cordoned off or established for a "special event of national significance." Of course, the protection of such events under many circumstances may fall within one or more of Congress's enumerated powers. For instance, Congress may enact a trespassing law protecting special events held in the District of Columbia by virtue of its power to enact laws for the District, U.S. Const. Art.I, §8, cl.17. Even here, however, the First Amendment may impose impediments when in a particular case the governmental interest in the special event is minimal and significant access restrictions are imposed on use of the streets or other public areas to prevent peaceful protest demonstrations. Subject to some considerations, events which have an impact on interstate or foreign commerce seem to fall within Congress's power to regulate such commerce, U.S. Const. Art.I, §8, cl. 3. Interpretative regulations that limit the amendment's application to areas within the scope of Congress's legislative authority and consistent with the demands of the First Amendment offer the prospect of passing constitutional muster. Although the bill repeals the subsection of 1752 which in amended form might authorize curative implementing regulations, such regulatory authority is likely implicit. Questions as to the breadth of the exercise of Congress's legislative authority might also be raised about section 603 of the Act, which brings special event tickets and credentials within the folds of the statute that outlaws misuse of governmentally issued identification documents, 18 U.S.C. 1028. The structure of section 1028 makes the point more obviously than might otherwise be the case. In its form prior to the Act, section 1028 prohibited eight particular varieties of unauthorized possession or trafficking in identification documents when committed under one of three jurisdictional circumstances: the documents are issued or purport to be issued by a federal entity, the documents are used to defraud the United States, or the offense involves transportation in, or affects, interstate or foreign commerce, 18 U.S.C. 1028(a), (c). The Act makes three changes in the scheme. First, it amends one of the eight prohibition subsections, that which outlaws unlawful possession of U.S. documents or facsimiles thereof, when committed under one of three jurisdictional circumstances. The change adds the documents of special event sponsors to the protected class, if the one jurisdictional predicates is satisfied. Second, it amends the definition of "identification document" to include special events documents, so that each of the other eight prohibition subsections applies as long as one of the three jurisdictional predicates is satisfied. Third, it amends one of the jurisdictional predicates, that which is based on issuance by a federal agency. It treats sponsors of special events as federal agencies within the jurisdictional subsection of section 1028(c). It is this third amendment that raises the issue. There is no doubt that Congress has the constitutional power to enact legislation prohibiting possession or trafficking in special event identification documents, if the third jurisdictional predicate is satisfied, i.e., the offense involves transportation in, or affects, interstate or foreign commerce. Nor is there any dispute Congress enjoys such authority, if the second jurisdiction predicate is satisfied, i.e., the offense involves defrauding the United States. There may be some question, however, as to the extent to which Congress may prohibit unlawful possession or trafficking in special event identification documents predicated solely upon the fact they were issued by a special event sponsor. "National significance" is not a term that by itself conjures up reference to any of Congress's constitutionally enumerated powers, although the commerce clause might provide an arguably adequate foundation, particularly if regulations confined enforcement to events with an obvious impact on interstate or foreign commerce. Of course, legislation that cannot be traced to one or more of Congress's enumerated powers lies beyond its reach, United States v. Morrison , 529 U.S. 598, 607 (2000). The PROTECT Act authorizes "officers and agents of the Secret Service" to provide state and local authorities and the National Center for Missing Exploited Children with investigative and forensic services in missing and exploited children cases, 18 U.S.C. 3056(f). Within the Secret Service, officers and agents conduct investigations, but employees provide forensic services. Section 604 of the Act changes "officers and agents of the Secret Service" to simply "the Secret Service" to reflect this reality. The Act amends and transfers the organic authority for the Secret Service Uniformed Division. The conference report's explanation is terse: Section 605 of the conference report is a new section. This section places all authorities of the Uniformed Division, which are currently authorized under title 3, in a newly created 18 U.S.C. §3056A, following the core authorizing statute of the Secret Service (18 U.S.C. §3056), thereby organizing the Uniformed Division under title 18 of the United States Code with other Federal law enforcement agencies. What makes the statement interesting is that the organic authority for most federal law enforcement agencies is not found in title 18. For example, the FBI and the Marshals Service provisions appear not in title 18 but in title 28, 28 U.S.C. 531-540, 561-569; the Inspectors General Offices in appendices to title 5, 5 U.S.C. App. III; the Coast Guard in title 14, 14 U.S.C. chs.1-25; the Customs Service in title 19, 19 U.S.C. 2071-2083. What is also somewhat intriguing is what is not said. There is no further explanation of the additions, modifications, deletions or apparent duplications associated with the transfer. Existing law lists a series of protective duties the Uniformed Division is authorized to perform, 3 U.S.C. 202. Although it is more geographically specific, it essentially reflects a similar list of some of the duties of the Secret Service as a whole found in 18 U.S.C. 3056. The Act adds four protective duties to the list: protection of former presidents and their spouses, protection of presidential and vice presidential candidates, protection of visiting heads of state, and security for special events of nation significance, new 18 U.S.C. 3056A(a)(10)-(13) as added by the Act. All but the special event provisions are already part of the general Secret Service authority under section 3056 (18 U.S.C. 3056(a)(3),(7), (5)). The Act also explicitly authorizes members of the Division to carry firearms, make arrests under certain situations, and perform other duties authorized by law, 18 U.S.C. 3056A(b)(1) as added by the Actâauthority they are likely to already enjoy by operation of section 3056, 18 U.S.C. 3056(c)(1)(B), (C), (F), or by virtue of the fact they are vested with "powers similar to those of members of the Metropolitan Police of the District of Columbia," 3 U.S.C. 202. Section 605(b) of the Act specifically permits the Secretary of Homeland Security to contract out protection of foreign missions and foreign officials outside of the District of Columbia, amending 18 U.S.C. 3056(d). The Act also repeals 3 U.S.C. 203 (relating to personnel, appointment and vacancies), 204 (relating to grades, salaries, and transfers), 206 (relating to privileges of civil-service appointees), 207 (relating to participation in police and firemen's relief fund), and 208(b)(relating to authorization of appropriations). Section 607 of the Act statutorily declares the Secret Service a distinct entity within the Department of Homeland Security, reporting directly to the Secretary, adding new subsection 18 U.S.C. 3056(g). Major presidential and vice presidential candidates are entitled to Secret Service protection, 18 U.S.C. 3056(a)(7). The Secretary of Homeland Security identifies who qualifies as a "major" candidate and therefore is entitled to protection after consulting with an advisory committee consisting of House Speaker and minority leader, the Senate majority and minority leader and fifth member whom they select, id. The Secret Service's electronic crime task forces consist of federal and state law enforcement members as well as representatives from academia and industry who share information concerning computer security and abuse, 18 U.S.C. 3056 note. The Federal Advisory Commission Act imposes notice, open meeting, record keeping, and reporting requirements on groups classified as federal advisory committees, 5 U.S.C. App. II. Advisory committees are committees, task forces, and other groups established by the statute, the President, or an executive agency "in the interest of obtaining advice and recommendations for" the President or federal agencies, 5 U.S.C. App. II 3(2). No group consisting entirely of officers or employees of the United States is considered an advisory committee for purposes of the act, id. It is not clear that either the candidates protection committee or the electronic crimes task forces would be considered advisory committees for purposes of the advisory act. Even if the committee were not exempt because it consists entirely of federal "officers or employees," it seems highly unlikely that it is the type of committee envisioned by Congress when it enacted the act. As for the task forces, it is not clear that their function is to provide advice and recommendations for agency action. In any event, section 608 of the Act exempts electronic crimes task forces and the candidates protection advisory committee from provisions of the Federal Advisory Committee Act, amending 18 U.S.C. 3056 note, 3056(a)(7). Title VII of the Act contains subtitles concerning regulation of domestic and international commerce in three methamphetamine (meth) precursor chemicals: ephedrine, pseudoephedrine, and phenylpropanolamine (EPP); increased penalties for methamphetamine offenses; expanded environmentally-related regulations; and adjusted grant programs. In many of its particulars, Title VII resembles H.R. 3889 , the Methamphetamine Epidemic Elimination Act, as amended by the House Committees on Energy and Commerce and on the Judiciary, H.Rept. 109-299 (pts. 1 & 2)(2005). The first part of Title VII addresses the fact that certain cold and allergy medicinesâwidely and lawfully used for medicinal purposes and readily available in news stands, convenience stores, grocery stores, and drugstoresâwhen collected in bulk can be used to manufacture methamphetamine. At the federal level, the Food and Drug Administration (FDA) regulates the commercial drug market to ensure the public of safe and effective medicinal products pursuant to the Federal Food Drug and Cosmetic Act, 21 U.S.C. 301-397. The Attorney General through the Drug Enforcement Administration regulates the commercial drug market with respect to drugs with a potential for addiction and abuse, pursuant to the Controlled Substances Act, 21 U.S.C. 801-904, and the Controlled Substances Import and Export Act, 21 U.S.C. 951-971. The degree of regulatory scrutiny afforded a particular drug classified as a controlled substance and sometimes certain of the chemicals essential for its production (precursor chemicals, also known as "list chemicals") depends upon the drug's potential for abuse weighed against its possible beneficial uses. Those who lawfully import, export, produce, prescribe, sell or otherwise dispense drugs classified as controlled substances must be registered, 21 U.S.C. 958, 822. In the case of controlled substances susceptible to abuse and therefore criminal diversion and for certain of their precursor chemicals, the Attorney General may impose production and import/export quotas, security demands, inventory control measures, and extensive registration, record keeping and inspection requirements, 21 U.S.C. 821-830, 954-71. A wide range of civil and criminal sanctions, some of them quite severe, may be imposed for violation of the Controlled Substances Act, the Controlled Substances Import and Export Act, or of the regulations promulgated for their implementation, 21 U.S.C. 841-863, 959-967. Prior to the Act, the Controlled Substances Act, in a dizzying array of criss-crossing exceptions and definitions, permitted the over-the-counter sale, without regulatory complications, of cold remedies containing ephedrine, pseudoephedrine or phenlypropanolamine (EPP)âmethamphetamine precursorsâin packages containing less than 3 grams of EPP base (and in amounts not in excess of 9 grams of pseudoephedrine or phenlypropanolamine base per transaction). Title VII eliminates the criss-crossing and replaces it with a new regulatory scheme for "scheduled listed chemical products," i.e., EPP products, which: limits drugstore, convenience store, grocery store, news stand, lunch wagon (mobile retailer), and other retail sales of EPP products to 3.6 grams of EEP base per customer per day (down from 9 grams per transaction), 21 U.S.C. 830(d), 802(46), 802(47); limits mobile retail sales to 7.5 grams of EPP base per customer per month, 21 U.S.C. 830(e)(1)(A); insists that EPP products be displayed "behind the counter" (locked up in the case of mobile retailers), 21 U.S.C. 830(e)(1)(A); (other than for sales involving 60 milligrams or less of pseudoephedrine) requires sellers to maintain a logbook (for at least two years) recording for every purchase, the time and date of sale, the name and quantity of the product sold, and name and address of the purchaser, 21 U.S.C. 830(e)(1)(A); (other than for sales involving 60 milligrams or less of pseudoephedrine) demands that purchasers present a government-issued photo identification, sign the logbook for the sale noting their name and address, and the date and time of the sale, 21 U.S.C. 830(e)(1)(A); provides that the logbook must include a warning that false statements are punishable under 18 U.S.C. 1001 with a term of imprisonment of not more than five years and/or a fine of not more than $250,000 (not more than $500,000 for organizations), 21 U.S.C. 830(e)(1)(A), 830(e)(1)(D); states that sellers must provide, document, and certify training of their employees on the EPP product statutory and regulatory requirements, 21 U.S.C. 830(e)(1)(A), (B); directs the Attorney General to promulgate regulations to protect the privacy of the logbook entries (except for access for federal, state and local law enforcement officials), 21 U.S.C. 830(e)(1)(C); affords sellers civil immunity for good faith disclosure of logbook information to law enforcement officials (unless the disclosure constitutes gross negligence or intentional, wanton, or willful misconduct), 21 U.S.C. 830(e)(1)(E); requires sellers take measures against possible employee theft or diversion and preempts any state law which precludes them asking prospective employees about past EPP or controlled substance convictions, 21 U.S.C. 830(e)(1)(G); sets September 30, 2006 as the effective date for the regulatory scheme (but the 3.6 gram limit on sales would become effective 30 days after enactment). Federal law imposes monthly reporting requirements on mail order sales of EPP products, 21 U.S.C. 830(b)(3). Under the Act, those subject to the reporting requirement must confirm the identity of their customers under procedures established by the Attorney General, and sales are limited to 7.5 grams of EPP base per customer per month. If the Attorney General determines that an EPP product cannot be used to produce methamphetamine, he may waive the 3.6 gram limit on retail sales and 7.5 gram limits on mail order and mobile retail sales. Sellers who knowingly violate the mail order regulations, or knowingly or recklessly violate the sales regulations, or unlawfully disclose or refuse to disclose EPP logbook sales information, or continue to sell after being prohibited from doing so as a result of past violations, are subject to imprisonment for not more than one year, and/or a fine of not more than $100,000 (not more than $200,000 for organizations), and to a civil penalty of not more than $25,000, 21 U.S.C. 842 as amended by section 711(f) of the Act. During the 30 days after enactment but before the new purchase limits become effective, knowing or intentional retail purchases more than 9 grams of EPP base (7.5 grams in the case of mail order purchases) are punishable by imprisonment for not more than one year and/or a fine of not less than $1,000 nor more than $100,000 (not more than $200,000 for an organization), 21 U.S.C. 844(a) as amended by section 711(e)(1) of the Act. The Controlled Substances Act allows the Attorney General to assess the total annual requirements for various controlled substances and to impose manufacturing quotas accordingly, 21 U.S.C. 826. Section 713 of the Act extends that authority to reach EPP production. For violations, manufacturers face imprisonment for not more than one year, and/or a fine of not more than $100,000 (not more than $200,000 for organizations), and to a civil penalty of not more than $25,000. The Attorney General enjoys broad general authority to regulate controlled substances imported and exported for legitimate purposes, 21 U.S.C. 952, 953 (neither section mentions listed chemicals). Importers and exporters of list I chemicals (which includes EPP), however, must register with the Attorney General, 21 U.S.C. 958. And they must notify the Attorney General 15 days in advance of any anticipated shipment of listed chemicals to or from the U.S. involving anyone other than a regular source or customer, 21 U.S.C. 971. Section 715 of the Act expands the statutory statement of the Attorney General's authority to regulate controlled substance imports to include EPP, amending 21 U.S.C. 952. Moreover, it provides implicit statutory confirmation of the Attorney General's authority to set import quotas for EPP by authorizing him to increase the quantity of chemicals importer's registration permits him to bring into the country, new subsection 21 U.S.C. 952(d) as added by the Act. Here and its other adjustments concerning imports and exports, the Act instructs the Attorney General to confer with the U.S. Trade Representative in order to ensure continued compliance with our international trade obligations. The Act also affords the Attorney General renewed notification when the listed chemical transaction, for which approval was initially sought and granted, "falls through," and the importer or exporter substitutes a new subsequent purchaser, 21 U.S.C. 971 as amended. The Attorney General may require EPP importers to include "chain of distribution" information in their notices that traces the distribution trial from foreign manufacturers to the importer, new subsection 21 U.S.C. 971(h) as added by section 721 of the Act. The Attorney General may seek further information from foreign participants in the chain and refuse to approve transactions involving uncooperative participants, 21 U.S.C. 971(h)(2), (h)(3). Failure to comply with these expanded notice requirements or the bills's EPP import registration and quota provisions is punishable by imprisonment for not more than 10 years and /or a fine of not more than $250,000 (not more than $500,000 for organizations), 21 U.S.C. 960(d)(6) as amended by section 717 of the Act. The Foreign Assistance Act calls for an annual report on the drug trafficking and related money laundering activities taking place in countries receiving assistance, 22 U.S.C. 2291h. Major illicit drug-producing and drug-transit countries are subject to a procedure featuring presidential certification of cooperative corrective efforts, 22 U.S.C. 2291j. The Act amends the reporting and certification requirements to cover the five largest EPP exporting and the five largest EPP importing countries with the highest rates of diversion, 22 U.S.C. 2291h, 2291j as amended by section 722 of the Act. It also directs the Secretary of State in consultation with the Attorney General to report to Congress on a plan to deal with the diversion. Section 723 of the Act further instructs the Secretary to take diplomatic action to prevent methamphetamine smuggling from Mexico into the United States and to report to Congress on results of the efforts; the first such report is due not later than one year after the Act's enactment, and every year thereafter. Unlawful possession of methamphetamine is punishable by imprisonment for terms ranging from not more than 20 years to imprisonment for life depending upon the amount involved and the offender's criminal record, 21 U.S.C. 841(b), 848. Unlawful possession of EPP is punishable by imprisonment for terms ranging from not more than five years to imprisonment for life depending upon the amount involved and the offender's criminal record, 21 U.S.C. 841(c), 848. Similar penalties follow smuggling methamphetamine or EPP, 21 U.S.C. 960, 848. Section 731 of the Act establishes a consecutive term of imprisonment of not more than 15 years to be added to the otherwise applicable sentence when the methamphetamine or EPP offense is committed in connection with quick entry border procedures. The fines for controlled substance offenses that involve cultivation of a controlled substance on federal property are not more than $500,000 individuals and $1 million for organizations, 21 U.S.C. 841(b)(5). The Act establishes the same fine levels for manufacturing a controlled substance on federal property, 21 U.S.C. 841(b)(5) as amended by section 732 of the Act. The Controlled Substances Act punishes major drug traffickers (those guilty of continuing criminal enterprise offenses sometimes known as "drug kingpins"), 21 U.S.C. 848. Drug kingpins, whose offenses involve 300 or more times the amount of controlled substance necessary to trigger the sentencing provisions of 21 U.S.C. 841(b)(1)(B) or whose offenses generate more than $10 million in gross receipts a year, face sentences of mandatory life imprisonment. In the case of a drug kingpin trafficking in methamphetamine, section 733 of the Act lowers the thresholds to 200 or more times the trigger amounts or $5 million in gross receipts a year, new subsection 21 U.S.C. 848(s) as added by the Act. The Controlled Substances Act doubles the otherwise applicable penalties for the distribution or manufacture of controlled substances near schools, playgrounds, video arcades and other similarly designated places likely to be frequented by children, 21 U.S.C. 860. Section 734 of the Act adds a penalty of imprisonment for not more than 20 years to the otherwise applicable penalties for distributing, possessing with the intent to distribute, or manufacturing methamphetamine anywhere where a child under 18 years of age is in fact present or resides, new section 21 U.S.C. 860a as added by the Act. The United States Sentencing Commission establishes and amends federal sentencing guidelines, which must be considered when federal courts impose sentence in a criminal case, 28 U.S.C. 994; 18 U.S.C. 3553; United States v. Booker , 543 U.S. 220, 245 (2005). Every federal judicial district must provide the Commission with detailed reports on each criminal sentence imposed by the district's judges, 28 U.S.C. 994(w). Section 735 of the Act authorizes the Commission to establish the format for such reports and emphasizes the need for a written statement of reasons for the sentence imposed including the reasons for any departure from the sentence advised the by the guidelines, 28 U.S.C. 994(w) as amended by the Act. Section 736 of the Act requires the Attorney General to report twice a yearâto the Judiciary Committees; the House Energy and Commerce Committee; the Senate Commerce, Science and Transportation Committee; the House Government Reform Committee; and the Senate Caucus on International Narcotics Controlâon the Drug Enforcement Administration's and the Federal Bureau of Investigation's allocation of resources to the investigation and prosecution of methamphetamine offenses. Under the Hazardous Material Transportation Act, the Secretary of Transportation enjoys regulatory authority over the transportation of certain explosive, toxic or otherwise hazardous material, 49 U.S.C. 5103. Section 741 of the Act instructs the Secretary to report every two years to the House Committee on Transportation and Infrastructure and to the Senate Committee on Commerce, Science, and Transportation on whether he has designated as hazardous materials for purposes of the act, all methamphetamine production by-products, 49 U.S.C. 5103(d) as added by the Act. Under the Solid Waste Disposal Act, the Administrator of the Environmental Protection Agency identifies and lists toxic, flammable, corrosive and otherwise hazardous waste, 42 U.S.C. 6921. Section 742 of the Act requires the EPA Administrator to report within two years of enactment, to the House Committee on Energy and Commerce and the Senate Committee on Environment and Public Works, on the information received from law enforcement agencies and others identifying the by-products of illicit methamphetamine product and on which of such by-products the Administrator considers hazardous waste for purposes of the act, new subsection 42 U.S.C. 6921(j) as added by the Act. The Act amends the provision under which offenders convicted of violations of the Controlled Substances Act or the Controlled Substances Import and Export Act involving the manufacture of amphetamine or methamphetamine may be ordered to pay restitution and to reimburse governmental entities for cleanup costs, to specifically include restitution and reimbursement in the case of offenses involving simple possession or possession with intent to distribute, 21 U.S.C. 853(q) as amended by section 743 of the Act. This change was prompted by United States v. Lachowski , 405 F.3d 696, 700 (8 th Cir. 2005), which had held that the "offenses involving the manufacture of amphetamine or methamphetamine" upon which a restitution or reimbursement order might be based did not include unlawful possession with intent to distribute methamphetamine. The conferees felt that Lachowski "undermined the ability of the Federal government to seek cleanup costs from methamphetamine traffickers who are convicted only of methamphetamine possessionâeven when the methamphetamine lab in question was on the defendant's own property." The Attorney General may make grants to state, local and tribal governments for the operation of drug courts, 42 U.S.C. 3797u. The Act instructs the Attorney General to prescribe guidelines or regulations to ensure that such programs feature mandatory drug testing and mandatory graduated sanctions for test failures, new subsection 42 U.S.C. 3797u(c) as added by section 751 of the Act, and authorizes appropriations for FY2006 of $70 million, new subsection 42 U.S.C. 3793(25)(A)(v)[inadvertently cited in the Act as 42 U.S.C. 2591(25)(A)(v)] as added by section 752 of the Act. The Attorney General is also directed to study the feasibility of a drug court program for low-level, non-violent federal offenders and to report on the results by June 30, 2006. The Act also creates three methamphetamine-related grant programs. One, provided by section 754 of the Act, addresses public safety as well as methamphetamine manufacturing, trafficking and use in "hot spots." Appropriations of $99 million for each of the next five fiscal years (2006-2010) are authorized for grants to the states under the program. The second, section 755 of the Act, authorizes appropriations of $20 million for fiscal years 2006 and 2007 in order to provide grants to the states for programs for drug-endangered children. The third program (services relating to methamphetamine use by pregnant and parenting women offenders), section 756 of the Act, is available to state, local, and tribal governments and supported an authorization of such appropriations as are necessary.
|
Several sections of the USA PATRIOT Act and one section of the Intelligence Reform and Terrorism Prevention Act of 2004 were originally scheduled to expire on December 31, 2005. In July 2005, both Houses approved USA PATRIOT reauthorization acts, H.R. 3199 and S. 1389 , and the conference committee filed a report, H.Rept. 109-333 . A separate bill, the USA PATRIOT Act Additional Reauthorizing Amendments Act of 2006 ( S. 2271 ), provided civil liberties safeguards not included in the conference report. Both H.R. 3199 and S. 2271 were signed into law ( P.L. 109-177 and P.L. 109-178 ) by the President on March 9, 2006. This report describes the USA PATRIOT Improvement and Reauthorization Act of 2005 (the Act) and, where appropriate, discusses the modifications to law made by the USA PATRIOT Act Additional Reauthorizing Amendments Act of 2006. Consisting of seven titles, the Act, among other things: Makes permanent 14 of the 16 expiring USA PATRIOT Act sections as well as the material support of terrorism amendments scheduled to expire on December 31, 2006. Creates a new sunset of December 31, 2009, for USA PATRIOT Act sections 206 and 215 ("roving" FISA wiretaps and FISA orders for business records), and for the "lone wolf" amendment to FISA. Provides for greater congressional and judicial oversight of section 215 orders, section 206 roving wiretaps, and national security letters. Requires high-level approval for section 215 FISA orders for library, bookstore, firearm sale, medical, tax return, and educational records. Enhances procedural protections and oversight concerning delayed notice, or "sneak and peek" search warrants. Expands the list of predicate offenses in which law enforcement may obtain wiretap orders to include more than 20 federal crimes. Revises criminal penalties and procedures concerning criminal and terrorist activities committed at seaports or aboard vessels. Reenforces federal money laundering and forfeiture authority, particularly in connection with terrorist offenses. Allows the Attorney General to determine whether a state qualifies for expedited habeas corpus procedures for state death row inmates. Establishes a new National Security Division within the Department of Justice (DOJ), supervised by a new Assistant Attorney General. Creates a new federal crime relating to misconduct at an event designated as a "special event of national significance," whether or not a Secret Service protectee is in attendance. Intensifies federal regulation of foreign and domestic commerce in methamphetamine precursors. Much of the information contained in this report may also be found under a different arrangement in CRS Report RL33239, USA PATRIOT Improvement and Reauthorization Act of 2005 (H.R. 3199): Section-by-Section Analysis of the Conference Bill .
|
To initiate a civil suit in federal court, a litigant submits a complaint "pleading" entitlement to legal relief. In a 2007 decision, Bell Atlantic Corp. v. Twombly , and more forcefully in a 2009 decision, Ashcroft v. Iqbal , the U.S. Supreme Court heightened the standard for evaluating such pleadings. Although the extent of its impact has yet to be determined, the change appears to reduce the likelihood that plaintiffs' claims will survive the pleadings stage in federal courts, particularly in cases in which plaintiffs plan to rely on evidence discovered during litigation to bolster their claims. Bills pending in the House and Senate Judiciary Committees, the Open Access to Courts Act of 2009 ( H.R. 4115 ) and the Notice Pleading Restoration Act of 2009 ( S. 1504 ), aim to reverse the effects of the rulings. This report discusses the context and implications of the Twombly and Iqbal decisions and the pending bills. Standards and procedures governing complaints in federal civil suits are governed by the Federal Rules of Civil Procedure. Although the Rules are promulgated by the U.S. Supreme Court pursuant to the Rules Enabling Act, Congress has ultimate authority over amendment of the Rules. Under Federal Rule of Civil Procedure 8(a)(2), a complaint in a civil case must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." A related rule, Rule 12(b)(6), enables a defendant to bring a motion to dismiss a plaintiff's claim for failure to satisfy the 8(a)(2) requirement—that is, failure to state a claim upon which relief can be granted. If a court grants a defendant's Rule 12(b)(6) motion, the case will be dismissed and thus will not proceed. If a complaint survives the Rule 12(b)(6) motion to dismiss, then the process of discovery and pre-trial motions begin. During the discovery phase, litigants may petition the court for subpoenas to access evidence from the other parties. With some exceptions, federal courts historically interpreted the Rule 8(a)(2) pleading requirement broadly and the corresponding Rule 12(b)(b) standard narrowly, meaning that complaints had to satisfy a relatively low bar in order to survive a motion to dismiss. The prevailing approach was articulated by the Supreme Court in Conley v. Gibson , a 1957 case: "[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." The Conley "no set of facts" approach is described as "notice pleading" or the "access principle." It requires that a complaint "give the defendant fair notice of what the ... claim is and the grounds upon which it rests" rather than requiring that allegations be fully developed at the pleading stage. It is contrasted with a "heightened pleading standard," under which a complaint must allege a minimum number or type of facts. In practice, the notice pleading approach meant that civil complaints were sufficient as long as they asserted a claim which, if proved, could lead to a winning legal judgment. No evaluation was made regarding whether the allegations were likely to be proven in the case. After the enactment of the Federal Rules of Civil Procedure in 1938, Rule 8(a)(2) and Rule 12(b)(6) were interpreted as having adopted a notice pleading approach to remove barriers to civil litigation in federal courts. The Supreme Court summarized the notice pleading rationale in a case decided shortly after the enactment of the Rules: "Pleadings are intended to serve as a means of arriving at fair and just settlements of controversies between litigants" and thus "should not raise barriers which prevent the achievement of that end." In Conley , the Court likewise explained that "[t]he Federal Rules reject the approach that pleading is a game of skill in which one misstep by counsel may be decisive to the outcome and accept the principle that the purpose of pleading is to facilitate a proper decision on the merits." Although some lower federal courts departed from the notice pleading approach during the past few decades, the Supreme Court reaffirmed the approach in Leatherman v. Tarrant County Narcotics Intelligence & Coordination , a 1993 case, and again in Swierkiewicz v. Sorema N.A. , a 2002 case. In Swierkiewicz , a unanimous Court declined to apply a heightened pleading standard to an employment discrimination suit. It stated that such a heightened pleading standard would be "a result that 'must be obtained by the process of amending the Federal Rules, and not by judicial interpretation.'" Adhering to the Conley interpretation of Rule 8(a)(2) as having no "regard to whether a claim will succeed on the merits," the Court stated that "'[i]ndeed it may appear on the face of the pleadings that a recovery is very remote and unlikely but that is not the test." As mentioned, despite the Leatherman and Swierkiewicz rulings, some lower court opinions scaled back the "notice pleading" approach in recent decades, particularly in complex areas such as bankruptcy, antitrust, and civil rights. The shift has been described as a response to concerns regarding the cost and delay of litigation resulting from an increased number and complexity of federal civil cases. By carving out exceptions for allegations characterized as "mere conclusions" or "bare bones," and by declaring in some instances that the "no set of facts" language from Conley "has never been taken literally," lower courts arguably set the stage for the changes made in Twombly and Iqbal . In Bell Atlantic Cor p oration . v. Twombly , a 7-2 decision, the Supreme Court appeared to depart from the notice pleading approach for the first time in a decision that arguably applied to all federal civil cases. The plaintiffs in Twombly were a group of television and Internet subscribers. Filing a complaint in the U.S. District Court for the Southern District of New York, they sued four "Incumbent Local Exchange Carriers," also known as "Baby Bells," alleging that the defendants had engaged in a conspiracy in violation of section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. That section prohibits "a contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce[.]" To support their conspiracy allegation, the plaintiffs principally alleged facts intended to show that the defendants had engaged in "parallel conduct," that is, adjusted prices and taken other actions in a similar timeframe and manner. The defendants brought a Rule 12(b)(6) motion to dismiss the plaintiffs' complaint for failure to state a claim, and the district court granted the motion. It held that even if true, the facts alleging parallel conduct would constitute only one piece of evidence in the antitrust case, and would not, alone, constitute a sufficient basis on which to prove that the defendant companies had engaged in a conspiracy in violation of 15 U.S.C. § 1. The U.S. Court of Appeals for the Second Circuit reversed, but the U.S. Supreme Court reversed again. Echoing the district court's reasoning, Justice Souter's opinion for the Court emphasized that the plaintiffs alleged no facts other than parallel conduct that would point to the existence of an unlawful conspiracy. The opinion states that "[t]he need at the pleading stage for allegations plausibly suggesting (not merely consistent with) [a violation of section 1 of the Sherman Antitrust Act] reflects the threshold requirement of Rule 8(a)(2) that the 'plain statement' possess enough heft to 'sho[w] that the pleader is entitled to relief.'" Thus, the Court held that to survive a Rule 12(b)(6) motion to dismiss, an antitrust complaint must provide "enough factual matter (taken as true) to suggest that an agreement was made." Mirroring language rulings in which lower courts had similarly adopted narrow interpretations of the Rule 8(a)(2) pleading standard in antitrust cases, the Court also suggested that a "naked" allegation of conspiracy, without sufficient accompanying facts, would not survive a Rule 12(b)(6) motion to dismiss. Thus, the Supreme Court appeared to require a heightened pleading standard for the Rule 12(b)(6) motion, at least as applied to the antitrust claims. Speaking more broadly, the Court rejected the literal reading of the "no set of facts" language from Conley , holding that the phrase had "earned its retirement." Other language in the opinion created doubt as to whether the Court intended a heightened pleading standard or appeared at least to limit the scope of the holding. For example, the Court clarified that "[a]sking for plausible grounds to infer an agreement does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement." Likewise, in a footnote, the Court cited the 1993 and 2002 cases in which the Court explicitly reaffirmed Conley and rejected a "heightened pleading standard." In addition, shortly after Twombly , the Court issued an opinion in which it appeared to adopt a narrow view of the decision. In dissent in Twombly , Justice Stevens argued against what he perceived as the Court's decision to upend the long-standing notice pleading approach. "If Conley 's 'no set of facts' language is to be interred," he wrote, "let it not be without a eulogy." He then discussed the historical importance of notice pleading, for example as a vehicle by which litigants enforced civil rights laws. Justice Stevens also disputed the majority's practical arguments regarding the increasing cost of litigation. He argued that cases have long been allowed to proceed until "at least some sort of response" was obtained from defendants, with relatively little cost or delay. Interpretations of Twombly differed among the lower federal courts. Some interpreted the decision as having introduced a general heightened pleading standard, while others viewed the holding as more limited. Several courts interpreted it as having established a "flexible" heightened pleading standard, which would apply to complaints brought in antitrust and other types of cases requiring factual specificity. Among legal commentators, a consensus seemed to emerge that despite containing some language to the contrary, the ruling creates a general heightened pleading standard. In Ashcroft v. Iqbal , a 5-4 decision, the Supreme Court clarified, and arguably extended, the "plausibility" standard introduced in Twombly . Iqbal involved a suit brought against various federal officials by a Pakistani citizen, Javaid Iqbal, who had been detained in a detention facility in New York following an arrest on fraud and immigration charges. Iqbal was one of 184 individuals designated by the Federal Bureau of Investigation to be of "high interest" with regard to the government's investigation of the 9/11 terrorist attacks. On the basis of that designation, he was placed in a special unit within the detention facility, wherein he alleged that he endured beatings and slurs and was denied access to medical care and opportunities to practice his religion. Iqbal eventually pled guilty on a fraud charge and served a prison sentence. His civil action did not contest the sentence or resulting imprisonment. Rather, it focused on alleged mistreatment during his pre-trial detention. Naming as defendants individuals ranging from prison guards to high-level federal officials in the Department of Justice, Iqbal brought an action for civil damages pursuant to Bivens v. Six Unknown Federal Narcotics Agents , under which federal officers may be subject to civil liability for violating individuals' constitutional rights. In his complaint, Iqbal alleged that his designation and subsequent mistreatment resulted from unconstitutional discrimination on the basis of his race and religion. The U.S. District Court for the Southern District of New York considered the defendants' Rule 12(b)(6) motion to dismiss the case prior to the Supreme Court's 2007 Twombly decision. Applying Conley , it denied the motion to dismiss. Twombly , however, was handed down before the U.S. Court of Appeals for the Second Circuit considered the case on appeal. The Second Circuit interpreted Twombly as requiring an evaluation of the "plausibility" of facts alleged in Iqbal's Bivens claim, but it held that Iqbal's complaint satisfied that standard. In particular, it held that Iqbal had alleged more specific facts, and more facts drawn from personal experience, than were alleged in Twombly . Thus, it upheld the district court's denial of the motion to dismiss. The Supreme Court reversed. Writing for the majority, Justice Kennedy clarified "two working principles" that follow from Twombly . First, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." As discussed infra , this statement arguably reintroduces a distinction between factual and legal elements in a complaint that existed prior to the enactment of the Federal Rules of Civil Procedure and the notice pleading approach. The opinion continues: "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice...." Taken together, these two principles preserve the rule that facts alleged in a complaint are not to be scrutinized for their veracity. However, they appear to require courts to identify components of a claim which may masquerade as fact, but are instead assertions of legal conclusions. In addition, the Court reasserted the heightened "plausibility" pleading standard introduced in Twombly. Multiple lower courts have quoted the following words from the Iqbal opinion: "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim for relief that is plausible on its face.'" In other words, the inquiry appears to require courts to evaluate facts asserted to determine whether they are likely to result in a judgment in the claimant's favor. The Iqbal decision seems to give lower courts greater latitude to make such determinations. The Court states: Determining whether a complaint states a plausible claim for relief will ... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. ... In keeping with these principles a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief. Thus, the opinion appears to require federal courts to engage in a "common sense" inquiry to assess whether facts alleged in a complaint provide "plausible" support for a claim. Applying this approach, the Court granted defendants' 12(b)(6) motion to dismiss. On appeal, claims against the high-ranking Justice Department officials were particularly at issue. The Court rejected Iqbal's assertions—for example, that Attorney General Ashcroft and other officials "knew of, condoned, and willfully and maliciously agreed to subject [him] to harsh conditions as a matter of policy"—as "bare assertions" which "amount[ed] to nothing more than a 'formulaic recitation of the elements' of a constitutional discrimination claim," and therefore did not satisfy the plausibility test. Justice Souter, who had written the majority opinion in Twombly , wrote a dissenting opinion in Iqbal . He did not dispute the majority's general characterization of the Twombly holding, but argued that Iqbal's particular complaint should not have been dismissed under the Twombly principles. In particular, he viewed the Court as having chosen the most vague of Iqbal's allegations against the high-ranking officials, while ignoring more specific allegations, such as an assertion that Attorney General Ashcroft served as the "principal architect" of the allegedly discriminatory policy. He concluded that the "allegations singled out by the majority as 'conclusory' are no such thing." Although their impact has not been fully realized, it can be said that the Twombly and Iqbal rulings signal a departure from the notice pleading approach and establish a heightened pleading standard. The decisions are being interpreted in that manner by the lower federal courts. In addition, it is assumed that the rulings apply in all federal civil cases. The potentially significant outcome of the rulings is that fewer cases will survive to the discovery phase in federal courts than would otherwise proceed to that stage. Commentators debate the practical likelihood of that result. Multiple federal courts, including many of the federal courts of appeals, have cited the decision when granting a Rule 12(b)(6) motion to dismiss. In many such cases, it is possible that a motion to dismiss would have been granted even in the absence of the Twombly and Iqbal precedents. In at least some such cases, however, language from majority or dissenting opinions suggests that a dismissal might not have been warranted prior to those rulings. Thus, it seems probable that at least to some extent, the decisions will decrease the quantity of civil complaints which survive a motion to dismiss. Moreover, while this decrease may not be perceivable from statistics on the total number of motions to dismiss granted, its effect may be meaningful for particular subsets of claims. Whether decreases will continue or are a negative result is a subject for debate. Commentators who view the Iqbal ruling as a positive development note that an increase in both the quantity and complexity of federal civil cases in recent decades produced delay and increased the costs of civil litigation. They may argue that the Iqbal ruling will aid federal courts to weed out the weakest cases in a system in which delays and expense restrict litigants' access to the federal courts. Practically, they may also argue that plaintiffs' attorneys will respond to the Twombly and Iqbal decisions by crafting more detailed complaints. In addition, some commentators have asserted that the heightened pleading standard protects government officials from intrusions during the discovery stage, which may otherwise cause unneeded expense and inefficiency. One counter argument suggests that discovery can be limited so as to minimize delay, cost, and unnecessary intrusion once a case survives the pleading stage. In his dissenting opinion in Twombly , Justice Stevens asserted that a characterization of discovery as inevitably costly "vastly underestimates a district court's case-management arsenal." Justice Breyer echoed that argument in a dissent in Iqbal , noting that federal courts "can structure discovery in ways that diminish the risk of imposing unwarranted burdens on public officials." However, it is unclear whether the reforms giving courts greater control over the discovery process have led to significant practical changes in the extent to which federal courts manage or control discovery in civil cases. Another argument made by opponents of a heightened pleading standard emphasizes the potential for unintended consequences as a result of the types of complaints that might be dismissed as a result of Twombly and Iqbal . In particular, it has been asserted that the heightened pleading standard will weed out not the weakest cases but rather those which, by their nature, rely on access to the discovery process in order to build a case. Commentators suggest that cases will be particularly affected in areas in which civil litigation has an important "investigatory function." Civil rights, antitrust, environmental regulation, and other areas in which a federal statutory scheme relies on civil litigation, including the discovery process it entails, as a means of enforcement might be particularly affected. To illustrate the point, at least one commentator asserts that major twentieth century civil rights cases would have been unable to proceed under the Iqbal pleading standard. Another concern suggests that Twombly and Iqbal reintroduce problems which prompted the enactment of the Rule 8(a)(2) notice pleading approach in 1938. For example, some commentators note that the Iqbal opinion appears to require federal courts to distinguish between factual assertions, which are entitled to a presumption of truth, and legal assertions, which are not. For example, in Iqbal , the majority opinion characterized the allegation that Attorney General Ashcroft served as the "principal architect" of a discriminatory policy as a legal conclusion subject to a plausibility test. In contrast, in his dissenting opinion in Iqbal , Justice Souter appeared to construe that allegation as a factual allegation which bolstered the plaintiff's legal claims. A similar distinction existed prior to the enactment of the Federal Rules of Civil Procedure in 1938 and was viewed as problematic, specifically because it resulted in arbitrary line-drawing between legal and factual assertions. Similarly, to the extent that the Iqbal approach requires courts to take at least an initial look at the case's chance for success on the merits, it might become increasingly hard to draw a clear line between decisions made at the pleading stage and decisions which should wait for a later stage of litigation. For example, motions for summary judgment, which are submitted after at least some discovery of evidence has been conducted but before trial, had typically been a court's first opportunity to make a decision evaluating the plausibility of a case. One issue to be resolved is how the heightened pleading standard might affect decisions regarding summary judgment motions or other decisions. Finally, some commentators who characterize the Twombly and Iqbal opinions as making a substantial change in the procedural rules argue that it is troubling that the Court effected such a change without formally amending the Federal Rules of Civil Procedure or obtaining congressional approval. Those who view the change as a more modest shift in interpretation are less likely to view the Court's approach as problematic. Experts have testified as to Iqbal 's legal and practical effects in hearings held by the respective judiciary committees. In addition, as mentioned, two bills pending in the committees would require that the civil pleading standard be interpreted as it was prior to the Supreme Court's decisions in Twomb l y and Iqbal . A bill pending in the House Judiciary Committee, the Open Access to Courts Act of 2009 ( H.R. 4115 ), would codify the "no set of facts" standard as articulated in Conley . It would expressly prohibit the dismissal of a complaint "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of the claim which would entitle the plaintiff to relief." A bill pending in the Senate Judiciary Committee, the Notice Pleading Restoration Act of 2009 ( S. 1504 ), would prohibit the dismissal of a complaint for failure to state a claim "except under the standards set forth ... in Conley v. Gibson ." The extent to which a reinstatement of the notice pleading approach adopted in Conley is intended to be tempered by refinements made to the interpretation of Conley since it was decided in 1957 is unclear. For example, although the Supreme Court in Twombly criticized the Conley decision, and in particular rejected the "no set of facts" language, the Court did not expressly overrule Conley . Thus, the Twombly and Iqbal opinions may be characterized as having overruled Conley only in part, or as having refined rather than overruled the Conley decision. Various Supreme Court decisions from the intervening years likewise cite Conley as the controlling precedent but might nevertheless be interpreted as having refined the Conley approach, albeit to a smaller degree than in Twombly .
|
In 2007 and 2009 decisions, Bell Atlantic Corporation v. Twombly and Ashcroft v. Iqbal, the U.S. Supreme Court heightened the standard governing whether a civil complaint filed in federal court will survive a motion to dismiss for failure to state a claim. After those rulings, it appears that federal courts must evaluate the "plausibility" of claims made at the pleading stage. Previously, complaints typically survived a motion to dismiss as long as they stated a claim for which some set of facts could be assembled to warrant legal relief. The change makes it less likely for plaintiffs' claims to survive past the initial pleadings stage, particularly in cases in which plaintiffs may need to rely on the discovery of evidence once litigation begins in order to bolster their claims. Bills pending in the House and Senate Judiciary Committees, the Open Access to Courts Act of 2009 (H.R. 4115) and the Notice Pleading Restoration Act of 2009 (S. 1504), aim to reverse the effects of the Twombly and Iqbal decisions.
|
In recent years a subject of continuing interest to Senators has been the length of time taken for lower federal court nominations to receive Senate confirmation. Senate debate often has concerned whether a President's judicial nominees, relative to the nominees of other recent Presidents, encountered more difficulty or had to wait longer before receiving consideration by the Senate Judiciary Committee or up-or-down floor votes on confirmation. Of related concern to the Senate have been recent increases in the number and percentage of vacant judgeships in the federal judiciary and the effect of delays in the processing of judicial nominations on filling such vacancies. This report seeks to inform the current debate in three ways: first, by providing an overview of the time taken by the Senate during recent presidencies to confirm U.S. circuit and district court nominees; second, by identifying potential consequences of a protracted confirmation process for such nominees; and third, by identifying policy options the Senate might consider to shorten the length of time from nomination to confirmation for U.S. circuit and district court nominees. It is comprised of four sections: A first section provides background information related to U.S. circuit and district courts, the two types of lower federal courts to which a President frequently makes nominations. A second section provides the average and median lengths of time from nomination to confirmation for circuit and district court nominees of the five most recent Presidents (i.e., Presidents Reagan to Obama). The average and median waiting times from nomination to confirmation, the section concludes, generally increased from one presidency to the next for both circuit and district court nominees. This section also discusses the adoption of a new standing order in the 113 th Congress that might serve to facilitate negotiations arranging for floor consideration of district court nominees (and, thus, might also shorten the length of time district court nominees wait to have their nominations considered by the full Senate). A third section identifies possible consequences of the relatively longer periods of time lower federal court nominees have waited, once nominated, to be confirmed by the Senate. A fourth section identifies and analyzes three policy options the Senate might consider in order to shorten the time from nomination to confirmation for at least some circuit and district court nominees. This report does not take the position that all judicial nominations should be processed relatively quickly by the Senate. There might be instances in which heightened scrutiny of U.S. circuit and district court nominees by the Senate is warranted, leading to relatively long waiting times from nomination to confirmation for these nominees. Additionally, given that there are no minimal qualifications or term limits for Article III judges, some Senators might argue that the emphasis of the confirmation process should be to avoid "rubber stamping" judicial nominations submitted by the President, even if, presumably, such deliberate processing by the Senate leads to longer wait times for nominees to be confirmed. Article III, Section I of the Constitution provides, in part, that the "judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish." It further provides that Justices on the Supreme Court and judges on lower courts established by Congress under Article III have what effectively has come to mean life tenure, holding office "during good Behaviour." Along with the Supreme Court, some other courts that constitute Article III courts in the federal system are the U.S. courts of appeals, the U.S. district courts, and the U.S. Court of International Trade. As mentioned above, this report concerns nominations to the U.S. circuit courts of appeals and the U.S. district courts (including the territorial district courts). Outside the report's scope are nominations to the U.S. Supreme Court and the occasional nominations that Presidents make to the nine-member U.S. Court of International Trade. The U.S. courts of appeals take appeals from federal district court decisions and also review the decisions of many administrative agencies. Cases presented to the courts of appeals are generally considered by judges sitting in three-member panels. Courts within the courts of appeals system are often called "circuit courts" (e.g., the First Circuit Court of Appeals is also referred to simply as the "First Circuit"), because the nation is divided into 12 geographic circuits, each with a U.S. court of appeals. One additional nationwide circuit, the Federal Circuit, hears certain specialized legal claims. Altogether, 179 appellate court judgeships for these 13 courts of appeals are currently authorized by law. The First Circuit (comprising Maine, Massachusetts, New Hampshire, Rhode Island, and Puerto Rico) has the fewest number of authorized appellate court judgeships, 6, while the Ninth Circuit (comprising Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) has the most, 29. In this report, nominations to U.S. courts of appeals judgeships are frequently referred to as "circuit court nominations." U.S. district courts are the federal trial courts of general jurisdiction. There are 91 Article III district courts: 89 in the 50 states, plus one in the District of Columbia and one more in Puerto Rico. Each state has at least one U.S. district court, while some states (specifically California, New York, and Texas) have as many as four. Altogether, 673 Article III U.S. district court judgeships are currently authorized by law. Congress has authorized between 1 and 28 judgeships for each district court. The Eastern District of Oklahoma has 1 judgeship (the smallest number among Article III district courts), while the Southern District of New York and the Central District of California each have 28 judgeships (the most among Article III district courts). Additionally, there are three U.S. territorial courts established by Congress pursuant to its authority to govern the territories under Article IV of the Constitution. Judicial appointees to these courts serve 10-year terms, with one judgeship each in Guam and the Northern Mariana Islands, and two in the U.S. Virgin Islands. In sum, references throughout this report to U.S. district court judgeships include a total of 677 judgeships (673 Article III judgeships, of which 10 are temporary, and 4 territorial judgeships). This section provides statistics related to the length of time it has taken for circuit and district court nominees, once nominated by the President, to be confirmed by the Senate. Figure 1 tracks by President, from Reagan to Obama, the mean (average) and median number of days from nomination to confirmation for all circuit and district court nominees confirmed during a President's tenure in office (whether one or two terms). In general, the average and median time from nomination to confirmation has increased during each presidency since President Reagan. If a nominee was nominated more than once by a President, prior to the nominee's eventual confirmation by the Senate, the first date on which he or she was nominated was used to calculate the days elapsed from nomination to confirmation. Note that the average and median number of days from nomination to confirmation can reflect various factors, including opposition by the minority party in the Senate, committee and floor scheduling decisions unrelated to partisan opposition to the nomination, and delays in receiving requested background information from nominees. As shown in Figure 1 , President George W. Bush's circuit court nominees who were confirmed during his two terms waited, on average, the longest period of time from first nomination to confirmation (350.6 days). As of November 1, 2013, President Obama's nominees waited, on average, the second-longest period of time (257 days) followed by the circuit court nominees of Presidents Clinton (238.2 days), George H.W. Bush (103.7 days), and Reagan (68.7 days). President G.W. Bush's circuit nominees waited, on average , the longest period of time from nomination to confirmation while President Obama's circuit court nominees have, thus far, had the longest median wait time from first nomination to confirmation (229 days). This statistic is interpreted to mean that half of the circuit court nominees who have been confirmed during President Obama's time in office (as of November 1, 2013) waited more than 229 days from nomination to confirmation, while the other half waited less than 229 days. The circuit court nominees who were confirmed during President G.W. Bush's tenure had the second longest median wait time (216 days) followed, in decreasing order, by the circuit court nominees of President Clinton (139 days), G.H.W. Bush (85.5 days), and Reagan (45 days). Turning again to Figure 1 , President Obama's confirmed nominees for district courts waited, on average, 220.8 days from nomination to confirmation. President G.W. Bush's district nominees waited, on average, 178.8 days. The district court nominees confirmed during President Clinton's two terms waited an average of 135 days while the nominees of Presidents G.H.W. Bush and Reagan waited on average 103.8 and 67.9 days, respectively. The median waiting times from nomination to confirmation for district court nominees ranged from a high of 215 days, thus far, during President Obama's time in office to a low of 41 days during President Reagan's two terms. The median waiting times from nomination to confirmation for district court nominees of the remaining three Presidents were 141.5 days (G.W. Bush), 99 days (Clinton), and 93 days (G.H.W. Bush). Perhaps in response to the relatively longer waiting times experienced by President Obama's district court nominees, the Senate adopted a new standing order in the 113 th Congress that might serve to facilitate negotiations arranging for floor consideration of district court nominations (and, thus, might serve to shorten the length of time district court nominees wait to have their nominations considered by the full Senate once their nominations are reported by the Judiciary Committee). The standing order provides for a new procedure in effect for just the 113 th Congress by which the Senate could move more quickly to final action on district court nominations supported by at least three-fifths of the Senate. Specifically, if cloture is invoked on a district court nomination in accordance with Rule XXII of the Senate, post-cloture consideration is reduced from a maximum of 30 hours to 2 hours. Generally, district court nominations are considered pursuant to unanimous consent agreements. The majority leader, when the new standing order was approved, indicated that the intent is to continue to negotiate unanimous consent agreements for the consideration of such nominations —which might be facilitated by the alternative provided by the standing order. As of November 2013, an insufficient number of district court nominations have been considered since the beginning of the 113 th Congress to measure whether the standing order has been effective in shortening the length of time to confirm such nominations. If it is determined in the future that the standing order is useful in shortening the time from nomination to confirmation for district court nominees, the Senate might consider renewing it on a temporary basis for future congresses (or making it permanent). In recent years, scholars and others concerned with the judicial appointment process have identified possible consequences of relatively long waiting times from nomination to confirmation experienced by judicial nominees. Five of the more notable possible consequences are discussed below. A protracted confirmation process might contribute to an increase in vacancy rates for U.S. circuit and district court judgeships as well as an increase in the number of vacancies considered "judicial emergencies" by the Judicial Conference of the United States. In recent years there have been several episodes of "historically high" vacancy rates for U.S. circuit and district court judgeships. Such periods in which vacancy rates have increased to historically high levels have occurred during presidencies in which, as shown in Figure 1 , the length of time it takes to confirm circuit and district court nominees has similarly increased. Additionally, as reported previously by CRS, President Obama is the only White House occupant since at least President Reagan for whom the district court vacancy rate increased during a presidential first term unaccompanied by the creation of new district court judgeships. Such an increase in the vacancy rate coincided, during President Obama's first term, with historically high average and median waiting times from nomination to confirmation for U.S. district court nominees. If longer waiting times from nomination to confirmation are associated with higher vacancy rates, then longer waiting times might also have a detrimental effect on the management of the federal courts, and on caseload management in particular. Such an effect might disproportionately impact those courts with relatively heavier caseloads. Such a relationship between longer waiting times and a decline in the quality or efficiency of judicial administration has been suggested by Chief Justice John G. Roberts, Jr., as well as by his predecessor, Chief Justice William Rehnquist. Chief Justice Roberts, noting that vacancies are not evenly distributed across judicial districts, has stated that "a persistent problem has developed in the process of filling judicial vacancies.... This has created acute difficulties for some judicial districts. Sitting judges in those districts have been burdened with extraordinary caseloads." Consequently, he has argued that there is "an urgent need for the political branches to find a long-term solution to this recurring problem." Similarly, former Chief Justice Rehnquist argued that "[j]udicial vacancies can contribute to a backlog of cases, undue delays in civil cases, and stopgap measures to shift judicial personnel where they are most needed. Vacancies cannot remain at such high levels indefinitely without eroding the quality of justice that traditionally has been associated with the federal judiciary." He emphasized the need to more quickly fill judicial vacancies, arguing "[T]o continue functioning effectively and efficiently, our federal courts must be appropriately staffed. This means that judicial vacancies must be filled in a timely manner with well-qualified candidates.... We [the judiciary] simply ask that the President nominate qualified candidates with reasonable promptness and that the Senate act within a reasonable time to confirm or reject them." Fewer qualified individuals might be willing to be nominated because of the protracted length of time it takes to be confirmed. A relatively lengthy time from nomination to confirmation might interfere with professional and personal obligations of potential nominees. Such interference might cause some qualified individuals to forgo the opportunity to serve on the federal bench. Such interference might be particularly problematic for nominees working in private practice. As Justice Rehnquist noted, "[A] drawn-out and uncertain confirmation process is a handicap to judicial recruitment across the board, but it most significantly restricts the universe of lawyers in private practice who are willing to be nominated for a federal judgeship.... for lawyers coming directly from private practice, there is both a strong financial disincentive and the possibility of losing clients in the course of the wait for a confirmation vote." Another observer argues that, in terms of the protracted periods of time that some recent nominees have waited for a Senate vote after being reported by the Judiciary Committee, "[T]he cost to nominees is real. They and their families find it stressful. For nominees in private practice, the delay is expensive as their work dries up. For nominees who are serving as state or magistrate judges, there is also a cost to the efficiency of the courts on which the nominees are sitting at the time of nomination, as the delay creates uncertainty and difficulty for their litigants." Such difficulties might lead some individuals, who would otherwise be highly qualified nominees for the federal bench, to pass on the opportunity to be nominated. Longer waiting times from nomination to confirmation might politicize the confirmation process in a way that leaves the public with the impression that the ideological or partisan predisposition of the nominee is the primary consideration in determining how the nominee will approach his or her work on the bench. A former chief judge of the Fifth Circuit Court of Appeals, for example, has argued as much, stating that "a highly partisan or ideological judicial selection process conveys the notion to the electorate that judges are simply another breed of political agents, that judicial decisions should be in accord with political ideology, all of which tends to undermine public confidence in the legitimacy of the courts." For district court nominees in particular, the impression by the public that trial judges routinely act based on their partisan or ideological predisposition might be at odds with the reality of the type of work they typically do while on the bench. For example, former Attorney General Nicholas Katzenbach has argued that "[m]ost trial lawyers will say that the political or ideological views of a trial judge are not very important. What is important is his experience with litigation, his demeanor on the bench, and the fairness of his rulings on evidence." Finally, a confirmation process characterized by longer waiting times might adversely affect the Senate in ways not directly related to the confirmation process itself. For example, a protracted confirmation process characterized by partisan or ideological rancor might have a "spill-over" effect of politicizing issues related to the judiciary that might otherwise enjoy bipartisan support, such as "legislation that could affect the independent operation of the federal courts (court funding, judicial salaries, jurisdiction)," as well as leading to "substantive [congressional] intrusions on adjudicatory functions ... " This section discusses three proposals to shorten the amount of time, generally, from nomination to confirmation for U.S. circuit and district court nominees. These proposals are not mutually exclusive and any policy adopted by the Senate to shorten the length of time from nomination to confirmation for judicial nominees might incorporate elements of more than one of the proposals. As the scope of this report includes only the time from nomination to confirmation, this section does not include proposals that have been offered to reform or change the pre-nomination stage of the judicial confirmation process. This section, furthermore, does not provide an exhaustive list or description of potential policies that might be adopted by the Senate to shorten the time from nomination to confirmation for lower federal court nominees. The Senate might consider adopting a time table for one or more stages of the nomination process. Such time tables would establish deadlines for Senate action on judicial nominations. Both Presidents G.W. Bush and Obama, for example, have offered such proposals. Specifically, in 2002, President G.W. Bush proposed two deadlines: a nominee would (1) receive a hearing before the Senate Judiciary Committee within 90 days of being nominated, and (2) receive an up-or-down vote in the Senate within 180 days of being nominated. President Bush, in proposing the deadlines, argued that a "strict deadline is the best way to ensure that judicial nominees are promptly and fairly considered. And 90 days is more than enough time for the committee to conduct necessary research before holding a hearing." Additionally, he maintained that the 180 days deadline for final Senate action "is a very generous period of time that will allow all the Senators to evaluate nominees and have their votes counted." For his part, President Obama has not offered a deadline for nominees to receive a hearing but instead called for a Senate rule that would require all judicial (and executive) nominees to receive an up-or-down vote by the full Senate within 90 days of being nominated. Such proposals have not come solely from Presidents. In 2004, Senator Arlen Specter of Pennsylvania introduced a resolution providing for a series of time tables or deadlines for Senate action on judicial nominations. The three deadlines proposed by Senate Specter required (1) the Judiciary Committee to hold a hearing on the nomination within 30 days after the nomination was submitted to the Senate; (2) the committee to act on the nomination within 30 days of the hearing; and (3) the full Senate act on the nomination within 30 days after the committee reported out the nomination. The proposal also authorized the committee chair and the Senate majority leader to extend the period for committee and full Senate action, respectively, by up to an additional 30 days for cause. Presumably, however, the maximum amount of time from nomination to final Senate action for most nominees would not exceed 90 days. One concern that the Senate might have in adopting time tables is the question of enforcement (i.e., how would the Senate ensure that such time tables are followed and would there be any consequences if deadlines are not met?) Second, the Senate might be concerned that, by committing itself to certain deadlines, it would give a President greater leverage or influence in the selection of judicial nominees. During the G.W. Bush presidency, for example, CRS noted that streamlining the confirmation process with various timelines "could tip the balance of power on the selection of [judicial] nominees toward the President." Another concern might be that time tables would, instead, result in lengthening the time from nomination to confirmation for some nominations. For example, Jane Kelly, a recent nominee to the Eighth Circuit Court of Appeals, was confirmed by the Senate on April 24, 2013—83 days after being nominated by President Obama on January 31, 2013. The imposition of a rigid time table on nominations such as the Kelly nomination (which are uncontroversial) might have the unintended result of lengthening the amount of time from nomination to confirmation for such nominees. In addition to imposing deadlines on various stages of the confirmation process, the Senate might also consider mechanisms that would enable some judicial nominations to be more quickly acted upon by the full Senate (i.e., receive "fast-track" treatment after the nomination is submitted by the President). Such fast-track treatment might involve the Senate (by statute, standing order or rule) committing to process certain nominations within a certain amount of time after they are submitted by the President. One proposal involves giving fast-track consideration to nominees recommended by bipartisan commissions in their home states. If the President selects an individual from a list of candidates recommended by a bipartisan commission, then the nominee would be given fast-track "protection" during the confirmation process. If, however, the President selects someone not recommended by a bipartisan commission, the nomination would not be given fast-track consideration by the Senate. While such bipartisan commissions are currently used by some Senators, the empirical evidence from President Obama's first term does not suggest that nominees selected by commissions are confirmed more quickly than nominees from states without such commissions. Another option available to the Senate is to consider some judicial nominations as "privileged nominations" for the purpose of potentially shortening the time from nomination to confirmation. Such an approach was recently adopted by the Senate during the 112 th Congress for nominations to 272 positions across various Cabinet agencies, oversight boards and advisory councils, and independent agencies. Specifically, S.Res. 116 , approved by the Senate on June 29, 2011, provides for an alternative confirmation process of nominations to these particular positions. This new approach allows these nominations to bypass formal committee consideration unless a single Senator objects to using the expedited process. The positions included in the resolution tend not to be those associated with controversy and their nominations in the past typically have required little individual floor debate for confirmation. The specific provisions of S.Res. 116 provide that once the Senate receives a nomination to one of the specified 272 positions, it is placed on the Senate's Executive Calendar as a "privileged nomination." Although the nomination is not formally referred to committee, the committee is still responsible for gathering biographical and financial information used to evaluate the nominee. After the chair of the committee of jurisdiction notifies, in writing, the Senate's executive clerk that all the information requested has been received, the nomination remains on the list of "privileged nominations" for 10 session days before being moved to the list of "nominations" on the Executive Calendar . At any time from when the Senate receives the nomination to when the nomination is placed on the list of "nominations" on the calendar (i.e., while the nomination is still pending on the "privileged nominations" list), any Senator can request that the nomination be referred to committee, and not be considered using the new process. The nomination then proceeds using the existing confirmation process, beginning with referral to committee. In this manner, S.Res. 116 utilizes the existing practices of the Senate's unanimous consent process, where objection from even one Senator will prevent the new process from being used. Adopting such a resolution for some judicial nominations might have the effect of shortening the time from nomination to confirmation. While the Senate Judiciary Committee would retain its information-gathering function (and Senators on the committee would be able to signal to other Senators their approval or disapproval of the nominations through informal discussions and floor speeches), removing the committee's need to act on these nominations might expedite the process for nominations that are uncontroversial and would receive unanimous support by the full Senate. The most likely Article III judicial nominations that would be suitable for such an approach are nominations to U.S. district court judgeships. The Senate might afford privileged status using any number of criteria, including whether the nomination was recommended by a bipartisan commission in the nominee's home state; whether the nomination has the support of at least one home state Senator of the opposite party as the President; or whether the nomination is for a vacancy qualifying as a "judicial emergency" by the Judicial Conference of the United States. The Senate might also decide to allow a fixed percentage of U.S. district court nominations to go through the confirmation process as privileged nominations. The Senate, for example, might allow 25% of all district court nominations during any given year to be submitted as privileged nominations; such an approach might, across different presidencies, provide for uniformity, predictability, and relatively speedy Senate approval of certain nominations that are uncontroversial and are supported by all Senators. Treating some judicial nominations as privileged nominations, however, might raise concerns for at least some Senators. First, some Members might be concerned about preserving the role of the Judiciary Committee in having its say on every judicial nomination submitted by the President, including those considered routine or uncontroversial. Second, Senators might not want to signal potential problems with a judicial nomination by requesting that it be taken off the list of privileged nominations on the Calendar and instead be sent to committee. Third, a Senator desiring to lengthen the regular confirmation process for a nominee could do so by waiting to object to the new process until the nomination had been listed for nine days of session on the Calendar as a privileged nomination (and for which all information had been received). The objection would re-start the confirmation process to its initial stages, referral to committee, well after the Senate had received the nomination, instead of immediately upon receipt of the nomination. Nonetheless, such concerns might be addressed in any agreement to expedite the confirmation process for nominations qualifying as privileged nominations (including requiring more than one Senator to object to a nomination being listed on the Calendar as a privileged nomination). Another option the Senate might consider is to treat, during various stages of the confirmation process, district court nominations differently than circuit court nominations. One proposal rests on the premise that the "best mechanism to relieve the mounting pressure on the district courts is to decouple the district judge nomination process from the deeply politicized circuit court nomination process" and that "the whole problem with district judges is that the process has been bound up with practices for circuit judges." Along these lines, the proposal includes three specific changes that might shorten the time from nomination to confirmation for district court nominees. First, the Senate could, for district court nominees, streamline the Judiciary Committee questionnaire so that it is mostly limited to questions related to the nominee's legal experience. The rationale underlying this proposed change is that, arguably, the only consequential questions for a district court nominee are those describing cases that the nominee decided as a judge or handled as a lawyer. Additionally, such questions would still require nominees to provide contact information for judges and counsel involved with the cases on which they have worked. Second, the Senate could eliminate routine committee hearings on district court nominations. The rationale behind this change is that "the hearing generally has served to bog down progress through the Committee of unobjectionable district judge nominations. And, even when both sides have good will in moving nominations forward, the hearing is the variable that injects most uncertainty into the confirmation schedule." Instead, "[w]ithout a hearing, a committee rule could be set with a minimum referral time to the Committee of sixty or ninety days, to be followed by a vote at the next business meeting (or whenever the blue slips have been returned, whichever is later) absent exceptional circumstances in which the majority and minority agree that a special hearing or investigation is required." As the proposal emphasizes, this would be very similar to the process by which nominees to U.S. attorney positions are considered by the Judiciary Committee. Like district court judges, U.S. attorneys, it has been argued, "are key officers in the day-to-day operations of the federal legal system. Yet they receive no hearing, ordinary issues are handled promptly, and nominees are reported speedily." The primary defense of retaining the hearing, it is suggested, "is the opportunity of a conscientious Senator to impress upon nominees the importance of genuine issues of law." However, the proposal considers the "odds that the hearing becomes just another tool of delay are overwhelming," outweighing the need for Senators to emphasize particular concerns or issues to district court nominees. Finally, the proposal emphasizes expediting floor consideration of district court nominations. To this end, it would amend Senate rules to ensure a vote on such nominations shortly after being reported by the Judiciary Committee. One possible way to expedite the process is for the majority leader to be given the privilege "after a district judge nomination has laid over on the floor for one week, to call for an 'expedited' confirmation vote under a procedure requiring some higher threshold—perhaps the greater of sixty Senators or three-quarters of those present and voting. Nominations meeting the threshold would be confirmed; others would be returned to the Senate Executive Calendar for consideration under current rules, by unanimous consent or invocation of cloture." Such a procedure might be useful in reducing the leverage individual Senators have when they withhold their consent to proceed to a district court nomination (particularly those considered uncontroversial), an issue that some Senators have considered especially problematic in recent years. One possible concern with the above proposals for treating district court nominations differently than circuit court nominations is that they are modest in nature (and, thus, may not succeed in significantly reducing the amount of time from nomination to confirmation for many, if not most, district court nominees). Additionally, Senators might consider routine hearings for district court nominees to be of value and, thus, might be reluctant to eliminate them altogether. The Senate, if it determines that the lengthening judicial confirmation process is a problem, might consider various policy options to shorten the process. The Senate, for example, could create time frames for one or more stages of the confirmation process by establishing deadlines for acting on a nomination. Such time frames might have the effect of shortening the confirmation process for judicial nominees as well as standardizing (as much as possible) the process across presidencies. Some potential drawbacks of using time frames include the issue of enforcement (i.e., what happens if a time frame is not followed?) as well as giving the President greater leverage or influence in the selection of judicial nominees. The Senate might also fast-track certain nominations. Some nominations, for example, might be classified as "privileged" nominations and, thus, be acted upon by the Senate in a relatively expedited manner. Such privileged nominations might include U.S. district court nominations for vacancies considered judicial emergencies and/or nominations considered uncontroversial. There might, however, be some drawbacks to fast-tracking some nominations, including the concern of some Members in preserving the role of the Judiciary Committee in having its say on every judicial nomination submitted by the President. Finally, the Senate might treat district court nominations differently than circuit court nominations by streamlining the Judiciary Committee questionnaire for district court nominees, eliminating routine committee hearings for district court nominees, and expediting floor consideration of district court nominees by adopting an amendment to Senate rules that would ensure a vote on such nominations shortly after being reported by the Judiciary Committee. While treating district court nominations differently than circuit court nominations might make sense given differences in the nature of the work done by trial judges versus appellate judges, Senators might, for various reasons, be reluctant to change the process for district court nominees (e.g., Senators might consider routine hearings for district court nominees as valuable in assessing nominees' professional competence or temperament).
|
The process by which lower federal court judges are nominated by the President and considered by the Senate is of continuing interest to Congress. Recent Senate debate over judicial nominations has frequently concerned whether a particular President's judicial nominees, relative to the nominees of other recent Presidents, waited longer for their nominations to be considered by the Senate. This report addresses this issue by (1) providing a statistical analysis of the time from nomination to confirmation for U.S. circuit and district court nominees from Presidents Reagan to Obama; (2) identifying possible consequences of a protracted confirmation process for circuit and district court nominees; and (3) identifying policy options the Senate might consider to shorten the length of time from nomination to confirmation for lower federal court nominees. In general, the mean (average) and median number of days from nomination to confirmation increased during each presidency since President Reagan. For circuit court nominees confirmed during a President's time in office (whether one or two terms), the average number of days elapsed from nomination to confirmation ranged from 68.7 days during the Reagan presidency to 350.6 days during George W. Bush's presidency. The median number of days from nomination to confirmation for circuit court nominees confirmed ranged from 45 days (Reagan) to 229 days (Obama). For district court nominees, the average time between nomination and confirmation ranged from 67.9 days (Reagan) to 220.8 days (Obama). For district court nominees, the median time elapsed ranged from a low of 41 days (Reagan) to 215 days (Obama). There are several potential consequences of a protracted confirmation process for lower federal court nominees. These include (1) consistently high vacancy rates for circuit and district court judgeships as well as a greater number of such vacancies considered "judicial emergencies" by the Judicial Conference of the United States; (2) detrimental effects on the management of the federal courts, including judicial caseloads; (3) greater difficulty in finding highly qualified individuals who are willing to be nominated to the federal bench; (4) the politicization of the confirmation process in a manner that might leave the public with the impression that the ideological or partisan predisposition of the nominee is the primary consideration in determining how the nominee will approach his or her work on the bench. Three policy options discussed in the report include the following: Utilizing time frames for various stages of the confirmation process for U.S. circuit and district court nominees, including the length of time from nomination to committee hearing as well as the length of time from committee report to final Senate action. Expediting the confirmation process for judicial nominations using "fast-track" procedures. Such procedures might include classifying some judicial nominations as "privileged nominations" as is currently done to expedite Senate consideration of nominations to some positions in the executive branch. Treating district court nominations differently than circuit court nominations by changing certain features of the confirmation process for district court nominations. Such changes might result in shortening the time from nomination to confirmation for district court nominees.
|
On May 6, 2007, French voters chose the Gaullist Nicolas Sarkozy to be President of France. In a contentious campaign, he defeated the Socialist Ségolène Royal by a margin of 53.1% to 46.9%. Sarkozy assumed power on May 16. Sarkozy represents a younger generation of leaders at a time when a majority of the French public believes their country is in decline, in part due to enduring low economic growth and high unemployment, in part to an apparent diminishing influence in guiding the course of the European Union (EU). The second round of the presidential elections saw a near-record turnout of 84.9% in a campaign that was closely watched by voters. Sarkozy succeeded in capturing a majority of both the women's vote and the vote of those over 60. He pledged to lower persistent unemployment, deal decisively with issues relating to immigrants, reduce the government bureaucracy, and reform the economy. His Gaullist predecessor, Jacques Chirac, had made similar promises but proved unable to implement effective change. The first round of the elections eliminated extremists on the right and the left. Sarkozy finished with 31.17% of the vote, followed by Royal with 25.87%. The third-place finisher, François Bayrou of the centrist Union for French Democracy (UDF), finished third with 18.57% of the vote, triple the support that he received in the 2002 presidential elections. The racist and xenophobic candidate, Jean-Marie Le Pen, gained 10.44% of the vote, a sharp drop form this showing in 2002. Royal courted UDF voters in the second round, but her appeal did not succeed, as they split their vote. The two-round legislative elections, completed on June 17, gave Sarkozy's party, the Union for a Popular Movement (UMP), a solid but reduced majority. In the 577-seat National Assembly, the UMP now holds 313 seats, and is supported by 32 deputies from other parties. The Socialist Party holds 227 seats. Since 1981, France has had only two presidents, the Socialist François Mitterrand and the Gaullist Jacques Chirac, each a formidable political figure who dominated his respective party. In 2002, presidential terms were shortened from seven years to five years; there are no limits on the number of terms a president may serve. Legislative elections now follow the presidential elections by a month. Under the Fifth Republic (1958-present), France has had a strong presidential system, significantly different from many European parliamentary systems. Fifth Republic structures were meant to avoid the ever-changing parliamentary governments of the Fourth Republic (1946-1958), when the country needed but rarely found strong leadership after the Second World War and during the Algerian war for independence (1954-1962), a conflict that led to instability and violence in France as well as in Algeria. The President is elected by a national vote and enjoys clear command of national security and the armed forces. Although the President appoints a prime minister who names a cabinet, it is the President who shapes all major policy initiatives and is the unquestioned political leader of the government. Compared with the United States, France is a highly centralized country, not only in political authority but also in economic structures. Although some industries have been privatized in recent years, the state continues to control or to influence many key industries to a degree unknown in the United States. Even the country's main road and rail systems run through or emanate from Paris. Important domestic and foreign policy issues were at play in the campaign. Integration of the large Muslim minority, now nearly 10% of the population and mostly North African in origin, has been a focal point of discussion for a decade, but most pointedly since the attacks of September 11, 2001, on the United States and riots in the suburbs, where most Muslims live, of several major French cities in 2005. Control of immigration, was another key electoral issue. A related issue was high unemployment, plaguing the country for years. In foreign policy, the unstable Middle East and the possible rise of a nuclear-armed Iran considerable attention from the key candidates. France's role in the European Union was also a question of importance to the population. Sarkozy's campaign was successful because he presented a clear program of reform to the electorate and appealed to National Front voters concerned about immigration, crime, and the economy. He also effectively managed his party's militants, who helped to bring his message to the population. Royal lost because she at times seemed uncertain of her message, because she sometimes cast herself defensively, as the person to prevent Sarkozy from gaining power, and because her own party was divided over her candidacy. Relations between the Bush Administration and France have been difficult since the run-up to the U.S. invasion of Iraq in March 2003. While the United States and France cooperate closely on some issues, such as counterterrorism and instability in Lebanon, President Chirac strongly opposed the invasion of Iraq and raised international criticism of Administration policy, leading to sharp rejoinders from Administration officials and some Members of Congress. Officials in both countries are hoping that the 2007 French elections will lead to an improved bilateral atmosphere on several issues, some of which are discussed in this report. France has been an important contributor to a range of NATO and EU missions, and an improved relationship could relieve strain on U.S. strategic resources. Over the past year, polls, several books, and media commentary have indicated a widespread view in France that the country is enduring a decline in economic, political, and intellectual vigor and influence. GDP growth was only 2% in 2006, and unemployment is now 8.5%, a percentage point above the eurozone average. In a May 2005 referendum, French voters failed to approve a proposed new EU treaty, commonly referred to as the EU constitution, a development that, even if many voters were expressing displeasure primarily with their government, reduced French leverage to demonstrate leadership in the Union. As a result, there are calls for a "renewal" from both the right and the left. The Gaullist Party and the Socialist Party nominated their candidates from within the party structures. There are no national primaries in France. For most of the Fifth Republic, individuals who emerged as a party's candidate rose through the ranks and were the consensus choice of those who ran the party structures. The election season of 2006-2007 unfolded somewhat differently. Nicolas Sarkozy is a controversial figure in the Gaullist Party. The son of a Hungarian immigrant, Sarkozy was helped through the ranks by Chirac. He is not a graduate of the National School of Administration (ENA), the elite institution that provides France with many of its most important leaders. He broke with Chirac in the 1995 presidential elections when he endorsed a Chirac rival, who lost. Nonetheless, his forceful, aggressive style generated a political following. He became head of the Union for a Popular Movement (UMP), the umbrella party centered around the Gaullists, and built a reputation for being tough on immigration and crime as France's interior minister. He prevailed as the party's choice for the presidency, bolstered by the faltering image of his principal rival, Prime Minister Dominique de Villepin, politically damaged by an alleged scandal and an effort to loosen a law to allow the dismissal of young workers. At a late moment, Chirac gave Sarkozy a tepid endorsement. Sarkozy is part of a new generation of French leaders. Although supportive of the European Union, he is less wedded to it than earlier and older post-war French leaders. He is also part of a generation of leaders who were too young to be formed by the massive national strike of 1968 that shut down the country in a call for reform. After the first round of elections, he criticized the heirs of 1968 by saying that they had destroyed the values of hierarchy in France. His opponents on the left quickly condemned his remarks as an attack on the French "social model," which has had a strong safety net in place for nearly 40 years. Sarkozy is a well-known figure in France. As an important political lieutenant of President Chirac, he helped to continue the UMP as a major force in French politics. He has a clear persona among the voters, who see him as decisive, hard-working, and emphatic in his views. He cast himself as an "outsider" by calling for a "rupture" with past practices in leading the country. At the same time, those who have worked closely with him describe him as a "deal maker," implying a practicality not always publicly visible. As Interior Minister in 2005, Sarkozy referred to young rioters in the suburbs of several major French cities as "scum" and said they should be washed away "with a power hose." Critics of such language contend that the rioters were largely economically disadvantaged and were often North African Muslim youth ostracized by elements of French society. In 2006 he promised to deport more illegal immigrants than were deported in 2005, a pledge he carried out. At the same time, he urged Muslim youth to become more involved in French society and promised to begin a program of "positive discrimination" to ensure their entry into public institutions and the job market as gateways into broader society. The announcement of his election brought young people into the streets in several cities, with nearly 400 cars burned the night of May 7 and several hundred people taken by the police for questioning. Sarkozy, 52, began his campaign for the presidency in earnest in late 2006 and at first sought to build a more moderate image. The UMP nominated him in January 2007. In a speech before the party faithful, he said that he had changed. He recounted difficult moments in his personal life and said that, because of certain failures, he had become a milder, more inclusive leader. In his speeches, he ranged across a variety of issues, for which he developed often detailed positions. At the same time, his image as tough on illegal immigration and crime shadowed him closely; it gathered supporters from the extreme right and reassured those who believe that there are too many foreigners in France. In early March 2007, Sarkozy, unable to put significant distance between himself and his principal rivals for the presidency, reverted to a harder line. If elected, he said, he would establish a ministry of "Immigration and National Identity," a proposal that appeared to be an effort to pull in more voters from the extreme right. The proposal led some to question whether such a ministry was meant to intimidate immigrants to accept vague, undefined prescriptions of "Frenchness." A month earlier, he told an audience, "If you want to become French, then you must be proud of France." He refused a demand from the Algerian government, as a requirement for final agreement to a friendship treaty, that France apologize for its era of colonization in Algeria and for brutal measures taken by some French forces in Algeria's war for independence. He said that most French citizens who went to Algeria during the era of colonization "were neither monsters nor exploiters ... but men who believed in good faith that they were serving an ideal of civilization." Sarkozy has laid out a plan to revitalize the French economy, but his message has been mixed. Critics in his own party and on the left have branded him as too "liberal," or free market. The Organization for Economic Cooperation and Development has long held that the French economy should loosen regulations on the hiring and dismissal of workers to build a flexible labor marketplace better able to infuse workers with new skills into the economy. Sarkozy supports a more "flexible" employment contract that would allow employers to fire workers more easily. He has criticized the 35-hour work week, put into law by a Socialist government, as inhibiting employees who wish to work more and earn more. He is promising tax-free income for those who work beyond 35 hours. His message on the international economy is more restrictive. He opposes the acquisition or takeover of French "strategic" companies by foreign entities. He condemned the purchase in 2006 of Arcelor, a French steel company, by the Dutch company Mittal. During the campaign, Sarkozy said that "free trade" is a "policy of naïveté." In 2004, as Finance Minister, he brokered a deal to merge the two French companies Aventis and Sanofi to ward off a takeover by a Swiss company. More recently, he said, "If I am president, then France will have a real industrial policy." After his election, he said that the EU must "protect" national industries. He has blamed French unemployment in part on the European Central Bank's tight monetary policy, which, in his view, keeps the Euro at an artificially high level compared with the yen and the dollar, and thereby harms exports and economic growth. Sarkozy presents himself as a friend of the United States who will nonetheless not be slavish to U.S. foreign policy objectives. In September 2006, he gave a speech in Washington in which he acknowledged that the U.S.-French relationship would always be "complicated." He expressed his admiration for American culture, openness, and entrepreneurship. He proclaimed himself an "Atlanticist,"and argued that a stronger EU would not be a rival but a better partner to the United States in solving problems around the world. Sarkozy criticized French condemnation of the U.S. invasion of Iraq as needlessly negative and political, a possible swipe at President Chirac, who called Sarkozy's speech "lamentable." After his election, Sarkozy again stated his friendship for the United States, but added that "friendship is accepting the fact that friends think differently." He said that the United States has a duty to lead the effort to combat global warming. Sarkozy's foreign policy positions, however, have not centered on the United States. He views Iran as the greatest danger to French interests and a highly destabilizing influence in the Middle East. Sarkozy supports the efforts of the "EU-3" (France, Britain, and Germany) and the United States to use economic sanctions to dissuade Iran from developing nuclear weapons, which he views as a direct threat to Israel's existence. Sarkozy has pledged close relations with Israel. Unlike President Chirac, and many European leaders, Sarkozy refers to Hezbollah as "terrorists." At the same time, he proposed in June that a conference on Lebanon's future be held; his government invited a Hezbollah member to the conference. The French government does not officially view Hezbollah as a terrorist organization because Hezbollah has democratically elected members in the Lebanese parliament, and its political wing has taken steps, such as social assistance to those in need of jobs and health care, to aid segments of the population. Since the late 1950s, the most important French leaders have strongly embraced the European Union. Sarkozy, like his rival Royal, lacks this passion for the EU. As already noted, he places blame for slow French economic growth at the doorstep of the EU and has pledged to use a "diplomatic offensive" to persuade the EU to pursue a stronger anti-dumping policy and the European Central Bank to lower the value of the Euro to boost trade and employment. He believes that the EU constitution, defeated in a referendum in France in 2005, should be put in a simplified form before the French Parliament for debate and possible passage. Sarkozy opposes Turkish membership in the EU, stating simply that "Turkey is not a European country." Sarkozy's government is considering blocking the EU from negotiating a "chapter" on European Monetary Union with Ankara, a step that might relegate Turkey from the status of a prospective membership to one of a special partnership. Sarkozy believes that western leaders should be more critical in their assessments of developments in Russia and China. He believes that good trade relations with the two countries are important, but has sharply criticized Russia over human rights violations in Chechnya, and China over treatment of its dissidents. Sarkozy has been critical of President Chirac's use of the French armed forces. To protect the country's key interests, Sarkozy argues that French forces must be carefully marshaled and not overextended. He has said that he would not allow French troops to become "bogged down" in an operation such as the one in the Ivory Coast, a reference to a French military presence there meant to bring stability. Throughout his campaign he has indicated that, if elected, he will reduce France's military footprint in Africa. He has expressed "regret" at Chirac's removal of French special forces from Afghanistan, a view implying support for the U.S. and NATO effort to stabilize that country. At the same time, Sarkozy has said that the French army "is not an expeditionary corps that is supposed to play the role of firemen and gendarmes in the four corners of the world." He supports continued increases in the French defense budget to reach a figure equaling or exceeding 2% of GDP a year, in line with an informal prescription by NATO for member states. Although Sarkozy expresses admiration for U.S. values and supports a major U.S. role in the world, he has called the U.S. invasion of Iraq "an historic mistake" that has allowed Iran to expand its power in the region. He has chided the American public and urged them to "be more interested in the world." Sarkozy has criticized anti-Americanism in France, and has added that although he will be a friend to the United States, he will follow France's traditionally independent foreign policy. Sarkozy has indicated that he will take a very active role in day-to-day management of his government. He appointed a close advisor, François Fillon, as his prime minister. Fillon is a moderate in the Gaullist Party, with considerable experience both in foreign policy and in education. He has traveled to the United States on a number of occasions. Sarkozy has created an advisory body, similar to the U.S. National Security Council, for foreign policy. He named Jean-David Levitte, ambassador to the United States since 2003, as the head of the council. Sarkozy also named Bernard Kouchner as his foreign minister. Kouchner, a member of the Socialist Party, is a physician who was the co-founder of Doctors without Borders. Kouchner is known for his strong humanitarian sentiments; he supported the U.S. invasion of Iraq on grounds that the United States was justified in overthrowing a tyrant who had murdered and humiliated his own people. Kouchner's paternal grandparents were Russian Jews who fled to France in the early 20 th century, only to die in Auschwitz. Kouchner is regarded as a supporter of NATO and the United States. Ségolène Royal began her presidential campaign in 2005 using new tactics in an effort to gain national recognition. In 2004, she defeated former Gaullist Prime Minister Pierre Raffarin for the presidency of the Poitou-Charentes region, a feat that made her a prominent figure in the Socialist Party. She has served primarily in junior ministerial positions under previous Socialist governments and developed a reputation for boldness and assertiveness. She is a graduate of the National School of Administration. Navigating the internal party structures to leapfrog prominent rivals for the nomination such as Laurent Fabius, a former prime minister, and Dominique Strauss-Kahn, a well-regarded former finance minister, was a formidable undertaking. Royal, 53, developed a campaign based on direct contact with the voters, a strategy designed to circumvent to some degree but also to influence the internal party process for the nomination. In some ways, her campaign was a roll of the political dice. Traditionally, Socialist candidates wait their turn, with the party nomination going to a senior figure of long experience. Royal sought instead to jump the line. If she could demonstrate a national appeal, the party bosses, known popularly as "elephants," might find difficulty in denying her the nomination. She reportedly antagonized some of the elephants when she said, "I am tied to no network, no money source, no lobby, no major media, no large commercial enterprise." She omitted any debt to the Socialist Party structure. The elephants manage a large national network of party militants , primarily local elected officials such as mayors and town council members, who are influential in their communities. Circumventing the elephants risked losing parts of this network. Royal's former partner, François Hollande, is chairman of the Socialist Party and one of the elephants. He seemed to undercut her early in the campaign when he openly opposed her tax plan, which he found too moderate. Royal never succeeded in bringing her party together, a central reason for her loss. Royal sounded a generally moderate message, concentrating on the home and family, and developed an interactive website, where she carried on a dialogue with voters and featured debates and discussions of policy issues by prominent officials, local leaders, and others. A member of the National Assembly, Royal raised issues of interest to the French population on the website and solicited the public's opinion. Her campaign of "participatory democracy" was controversial. She held meetings across France with public groups where she pledged to listen to the voice of the average French person before coming to settled policy positions, a practice sharply different from that of previous Socialist candidates and Sarkozy. In a country where voters are used to Socialist Party leaders presenting highly defined and finely tuned positions on policy questions to the public, this tactic is unusual. Her political challenge was to listen carefully, but at the same time to demonstrate leadership and creative thinking in guiding the public to resolution of important issues. Even after she bested her party rivals and won the nomination in November 2006, she continued her "listening campaign" and, in the view of some party observers, was slow to articulate a formal position on key issues. For example, when initially asked whether she supported Turkish membership in the EU, an idea opposed by the majority of the French population, she seemed to some to respond disingenuously by saying that she would "listen to the French people" and submit the matter to a referendum, a vote likely to be negative. Such apparent indecisiveness was a factor leading to a sharp decline in her standing in the polls in January and February 2007. Like Sarkozy, Royal exhibited passion neither for the European Union nor for the legacy of 1968. She staked out a position, described below, on the EU constitution likely to have left it in limbo had she been elected. Although she voiced respect for those leading the social upheaval of 1968, she avoided a strong endorsement of its heirs by noting that she was only a secondary-school student at the time of the events. Royal also addressed the issue of immigration and integration of Muslims into French society. In the Socialist Party tradition, she insisted that France remain a secular country and that young Muslims learn to speak French well and perform well in French schools. She opposed a system of "positive discrimination" (affirmative action), promoted by Sarkozy, for immigrants. At the same time, she supported policy initiatives to assist many young people in France. She pledged to increase the number of teachers, raise the minimum wage by 20% by 2012, and inaugurate a system of state-funded first jobs. Royal had a tough message meant to bring greater order and discipline to the public school system. She would have sent troublesome students to military-style "boot camps" to educate them about appropriate social conduct. This suggestion brought criticism from elements of the Socialist Party, but appealed to parts of the center and right on the political spectrum. Royal was reportedly raised in a strict environment, and she is the daughter of a military family that lived in a former colony. Royal's views on how to reinvigorate the economy were in sharp contrast to those of Sarkozy. She pledged to scrap the "flexible contract," which allows short-term hiring and eases the firing of employees, for small businesses. She would have extended the 35-hour work week to a larger part of the workforce. She would also have re-nationalized the large utility, Electricité de France, and merged it with the state-owned company Gaz de France to create a public sector company. Such a policy would have run counter to EU efforts to persuade member governments to privatize state enterprises. She agreed with Sarkozy that the European Central Bank should be persuaded to weaken the Euro in order to generate more exports and expand the economy. Royal has no experience in foreign policy, and she made several slips that brought criticism. However, most of her views were conventional within the general French approach to key issues. Like Sarkozy, she believed that France should maintain its independent nuclear force, and like Sarkozy, she also believes that France should spend at least 2% of GDP a year on defense. Several stumbles on foreign policy may have damaged her standing in the polls. She reportedly called for a "sovereign" Quebec, a view long ago abandoned by most French nationalists. The Canadian prime minister rebuked her for the comment. While visiting Lebanon, a Hezbollah member of the Lebanese Parliament, in a group meeting with her, compared Israel to the Nazis. She criticized some of his remarks, but did not refer to this particular comment. After she was taken to task by her political opponents in France, she said that the interpreter had not translated the remark, made in Arabic, likening Israel to Nazi Germany. She condemned the comments by the Hezbollah representative several days later. Royal described herself as a "committed European" but she is clearly not an ardent supporter of the EU. She did not support a second vote in France on the proposed EU constitution, preferring instead a debate and then a referendum on a new "Protocol" capturing the essence of several aspects of the constitution, especially matters related to "social progress," the role of public services, and protection of the environment. Because there is no consensus throughout the EU on social issues, such a protocol has no chance of passage in Europe. She moderated her views on Turkey and supported Turkey's membership in the EU if it achieves the progress towards full democracy laid out by the EU Commission. She believed that Turkey would add an important geostrategic advantage to the EU and strike a blow against those who accept or support a "clash of civilizations." Royal was sharply critical of Bush Administration foreign policy. She described as "unilateralist" the 2003 U.S. invasion of Iraq. A campaign document, drafted by an aide, on the Socialist Party website described Sarkozy as "a Bush clone" whose "nourishing milk is American neo-conservatism." Referring to Sarkozy, the document asks, "Is France ready to vote in 2007 for an American neo-conservative with a French passport?" After the first round vote, Royal added that, "I am not for a Europe that aligns with the U.S." Such comments may have been designed to tap into widely held sentiments in France critical of the Bush Administration and, more generally, a broad anti-Americanism that has increased in the past several years. Royal was not specific in her assessment of NATO's tasks and its future, but she has said that it is "doing too much, moving into new fields that it should not be pursuing." Such a view may be in line with a position evident across much of the political spectrum that NATO should concentrate on military issues and build collective defense, rather than venture into political areas such as state-building, more in the realm of responsibility of the European Union. Sarkozy appears to have won because he pledged 'reform' of the French economy and because he forcefully laid out clear positions on a range of subjects. He toughened his already hard line on limiting immigration and cracking down on crime. He projected an energy and a decisiveness that seemed to many voters lacking in the previous generation of French leaders. His well-publicized rift with President Chirac, now highly unpopular, may in the end have helped him by giving some credibility to his claim to be an outsider. In the end, he was able to overcome the negative perception that many hold of him, as he succeeded in gaining half the voters who supported the centrist François Bayrou in the first round. Royal introduced a new, more direct style of politics to France in her campaign of "participatory democracy." However, observers assert she was unable to define herself and some of her ideas clearly. It did not seem to many voters that she was offering something starkly different from Socialist candidates of the past, given the spending programs and implicit tax increases at the center of her economic policies. The Socialist Party has lost the last three presidential elections, in 1995, 2002, and now, 2007. Royal has said that she will challenge Hollande for leadership of the party, a move regarded as an effort to modernize the party and move it towards the center. Many observers believe that the party must accept globalization and modernize its views on state intervention in the economy to prevent fragmentation of the party. Under the revised electoral law that governed the 2002 as well as the current elections, legislative elections followed the second round presidential vote in two rounds, on June 10 and 17. A high point of popularity for a French president is often early in a term, a factor that the UMP hoped would enhance chances for an increased parliamentary majority. As noted above, the UMP in fact lost seats in the legislative elections. Before the second round of legislative elections, a minister mentioned that the government was contemplating a rise in the consumer tax. This announcement may have triggered opposition to some of the UMP's candidates. The UMP lost 46 seats, compared to the previous parliament. Thirty-two center-right deputies from other parties will likely support the UMP, but it enjoys a majority in the 577-seat legislature even without this group. The Socialists gained seats, adding 78 deputies for a total of 227. François Bayrou, who finished third in the presidential elections, saw his party dwindle to 4 seats. The racist National Front Party of Jean-Marie Le Pen won no seats. The essence of the U.S.-French relationship is unlikely to change substantively under Sarkozy's presidency. Trade disputes will continue to be managed through the European Union. Some U.S. officials believe that Sarkozy will be more "practical" in discussing the EU's European Security and Defense Policy (ESDP) with the United States; they believe that President Chirac has impeded cooperation between NATO and the EU by insisting that the United States, rather than NATO, engage in discussions over strategic issues with the Union, and by pressing for an "EU caucus" in NATO, where EU member states would present a united position on selected issues to the United States and NATO governments not in the Union. At the same time, any relationship between allies is a two-way street. Just as some U.S. officials believe that President Chirac has been an impediment to improved relations, many observers in France, in the wake of the U.S. invasion of Iraq and highly politicized criticism of France emanating from parts of the U.S. government and media, believe that only the end of the Bush Administration will lead to a moment when the political atmosphere between the two countries can improve. Sarkozy expresses admiration for the United States, but many in the Gaullist Party and in the general population remain disdainful of the Bush Administration. Despite sharp differences with the Bush Administration, the Chirac presidency worked closely with the United States on several key issues. These efforts relieved pressure on U.S. resources by contributing to a sharing of the burden for missions important to U.S. and allied security. By all accounts, U.S.-French cooperation against terrorism, primarily through EU structures but also bilaterally, is excellent. Sarkozy, as Interior Minister, was intimately involved in this cooperative effort. France, like the United States, is deeply critical of the Syrian government, and the two countries have worked together to reduce Syria's influence in Lebanon and to shore up the Lebanese government. Sarkozy announced after his election that France would once again engage Syria in an effort to stabilize Lebanon. At the same time, he had tough words for the Syrian government, and said that France will support the continuing U.N. investigation into possible Syrian involvement in the murder of former Lebanese prime minister Rafiq Hariri. On the other hand, some French officials believe that the Bush Administration should have used its influence to restrain Israel in its response to attacks by Hezbollah in summer 2006, a response that badly battered the Lebanese economy and political leadership. As noted above, France is one of the EU-3 countries working with the United States to block Iran's nuclear ambitions through negotiations and by imposing and maintaining economic sanctions. France also contributes to NATO's International Security Assistance Force (ISAF) in Afghanistan, where French forces provide security in Kabul and train elements of the Afghan army. Sarkozy has said that France will keep its forces in Afghanistan, but "not indefinitely." U.S. officials believe that France continues to modernize its armed forces to be more "expeditionary," or capable of distant missions in an era of global terrorism and proliferation of weapons of mass destruction. France also plays a role in the EU stabilization mission in Bosnia-Hercegovina and the NATO mission in Kosovo. Sarkozy believes that French forces are overextended, largely in peacekeeping missions. Should he withdraw such forces from current missions, there will be more pressure on the United States and other governments to fill in this shortfall with forces of their own.
|
On May 6, 2007, the Gaullist Nicolas Sarkozy defeated the Socialist candidate Ségolène Royal in the second round of the French elections to become President of France. He will serve a five-year term. His party lost seats but maintained a solid majority in subsequent legislative elections. Since 1981, France has had only two presidents. There is a sense of malaise in the country, in part due to high unemployment and slow economic growth. Sarkozy represents a younger generation of leaders. Sarkozy casts himself as a tough-minded former Interior Minister. His campaign built on his reputation as hard on illegal immigration and insistent on greater efforts by the country's large Muslim community to better integrate itself into French life. Royal pursued a campaign meant to place her directly in touch with French voters. In doing so, she circumvented some of the steps normally necessary to gain the Socialist Party nomination. This campaign strategy put her at odds with some of the Party elders. She gambled that her campaign of "participatory democracy" would appeal to a range of voters beyond the Socialist Party. In the end, she failed to deliver a clear message to French voters and to unite her own party. Foreign policy played a secondary role in the elections. Sarkozy and Royal stressed the growing danger of Iran. Both candidates supported French participation in U.N., NATO, and EU security and stabilization missions, but there were disagreements with the United States over some elements of NATO's mission and future. Both candidates supported the EU, but neither brought to EU issues the passion of previous post-war French leaders. Sarkozy presents himself as a friend of the United States and an admirer of American culture but added that France under his leadership would assert its usual independence. Royal was sharply critical of the Bush Administration and contended that U.S. "unilateralism" in recent years has damaged bilateral relations and increased instability in the Middle East. It is possible that Sarkozy will pursue a practical and non-ideological posture towards the United States. He is unlikely to alter the U.S.-French relationship in a stark manner. Cooperation over counterterrorism measures, multinational operations in Lebanon, the Balkans, and Afghanistan, and good trade relations are likely to continue. This report will be updated to reflect the outcome of the presidential and legislative elections. See also CRS Report RL32464, France: Factors Shaping Foreign Policy, and Issues in U.S.-French Relations, by [author name scrubbed].
|
Capital gain arises when an asset is sold and consists of the difference between the basis (normally the acquisition price) and the sales price. Corporate stock accounts for 20% to 80% of taxable gains, depending on stock market performance. Real estate is the remaining major source of capital gains, although gain also arises from other assets (e.g., timber sales and collectibles). The appreciation in value can be real or reflect inflation. Corporate stock appreciates both because the firm's assets increase with reinvested earnings and because general price levels are rising. Appreciation in the value of property may simply reflect inflation. For depreciable assets, some of the gain may reflect the possibility that the property was depreciated too quickly. If the return to capital gains were to be effectively taxed at the statutory tax rate in the manner of other income, real gains would have to be taxed in the year they accrue. Current practice departs from this approach. Gains are not taxed until realized, benefitting from the deferral of taxes. (Taxes on interest income are due as the interest is accrued.) Gains on an asset held until death may be passed on to heirs with the tax forgiven; if the asset is then sold, the gain is sales price less market value at the time of death, a treatment referred to as a "step-up in basis." Taxes on long-term capital gains (on assets held for at least a year) are imposed at rates that correspond to pre-2018 brackets: a 0% rate for those whose income placed them in the regular 15% bracket or less (now in the 12% bracket), and 15% for taxpayers in higher brackets, except for those in the 39.6% bracket. The tax revision adopted in December 2018 ( P.L. 115-97 ) maintained the links to the income level corresponding to the rate brackets in prior law. Therefore, the tax rates on capital gains are affected only by changes in the deductions to arrive at taxable income and the use of a different method of indexing for inflation. Under the new law, the original 10% and 15% brackets are replaced by a single 12% rate bracket that ends at the same point as the end of the 15% bracket. There is no 39.6% bracket (the top rate is 37% and begins at a higher level than the top bracket under previous law). In 2017, the 39.6% bracket began with taxable income of $470,700 for joint returns and $418,400 for single returns. Gain arising from prior depreciation deductions is taxed at ordinary rates, but there is a 25% ceiling rate on the gain from prior straight-line depreciation on real property. Gain from collectibles is taxed at 28%. There is also an exclusion of $500,000 ($250,000 for single returns) for gains on home sales. Health reform legislation in 2010 provided for a tax of 3.8% (the same level as the Medicare rate of 3.8% on labor income) on high-income taxpayers on various forms of passive income, including capital gains. The tax applies to passive income in excess of $250,000 for joint returns and $200,000 for single returns. Gains in partnership interest derived from the performance of investment services (carried interest) are treated as long-term capital gains if held for at least three years. In contrast to these provisions that benefit capital gains, capital gains are penalized because many of the gains that are subject to tax arise from inflation and therefore do not reflect real income. Capital gains were taxed when the income tax (with rates up to 7%) was imposed in 1913. An alternative rate of 12.5% was allowed in 1921 (the regular top rate was 73%). Tax rates were cut several times during the 1920s. Capital gain exclusions based on holding period were enacted in 1924, and modified in 1938, to deal with bunching of gains in one year. In 1942 a 50% exclusion was adopted, with an alternative rate of 25%. Over time, the top rate on ordinary income varied, rising to 94% in the mid-1940s, and then dropping to 70% after 1964. In 1969 a new minimum tax increased the gains tax for some; the 25% alternative tax was repealed. In 1978 the minimum tax on capital gains was repealed and the exclusion increased to 60% with a maximum rate of 28% (0.4 times 0.7). The top rate on ordinary income was reduced to 50% in 1981, reducing the capital gains rate to 20% (0.4 times 0.5). The Tax Reform Act of 1986 reduced tax rates further, but, in order to maintain distributional neutrality, eliminated some tax preferences, including the exclusion for capital gains. This treatment brought the rate for high-income individuals in line with the rate on ordinary income—28%. In 1989, President Bush proposed a top rate of 15%, halving top rates. The Ways and Means Committee considered two proposals: Chairman Rostenkowski proposed to index capital gains, and Representatives Jenkins, Flippo, and Archer proposed a 30% capital gains exclusion through 1991 followed by inflation indexation. This latter measure was approved by the committee, but was not enacted. In 1990, the President proposed a 30% exclusion, setting the rate at 19.6% for high-income individuals. The House also passed a 50% exclusion with a lifetime maximum ceiling and a $1,000 annual exclusion, but this provision was not enacted into law. When rates on high-income individuals were set at 31%, however, the capital gains rate was capped at 28%. In 1991, the President again proposed a 30% exclusion, but no action was taken. In 1992, the President proposed a 45% exclusion. The House adopted a proposal for indexation for inflation for newly acquired assets: the Senate passed a separate set of graduated rates on capital gains that tended to benefit more moderate-income individuals. This latter provision was included in a bill ( H.R. 4210 ) containing many other tax provisions that was vetoed by the President. No changes were proposed by President Clinton or adopted in 1993 and 1994, with the exception of a narrowly targeted benefit for small business stock adopted in 1993. The value of the tax cap was increased, however, in 1993, when new brackets of 36% and 39.6% were added for ordinary income. In 1994, the "Contract With America" proposed a 50% exclusion for capital gains, and indexing the basis for all subsequent inflation, while eliminating the 28% cap; this exclusion would be about a 40% reduction on average from current rates. The Ways and Means Committee reported out H.R. 1215 , which restricted inflation indexing to newly acquired assets (individuals could "mark to market"—pay tax on the difference between fair market value and basis as if the property were sold to qualify for indexation), did not allow indexation to create losses, and provided a flat 25% tax rate for corporations. The 1995 reconciliation bill ( H.R. 2491 ) that was vetoed by the President included these revisions but delayed the indexation provision until 2002. During the 1996 presidential election, Republican nominee Robert J. Dole proposed a slightly larger capital gains cut, and both candidates supported elimination of capital gains taxes on virtually all gains from home sales. In 1997, President Clinton and Congress agreed to a tax cut as part of the reconciliation. The Administration tax cut proposal included the change in tax treatment of owner-occupied housing. The House bill included a reduction in the 15% and 28% rates to 10% and 20%, about a 30% cut. Capital gains would also be indexed for assets acquired after 2000 and held for three years; mark-to-market would also be allowed. The Senate and the final bill did not include indexing. Under the final legislation, there was a maximum tax of 20% on capital gains held for a year. This change also would have taxed gain from assets held five years and acquired after 2000 at a maximum rate of 18%. For gain in the 15% bracket and below, an 8% rate would apply to any gain on assets held for five years and sold after 2000, with no required acquisition date. Under law prior to 1997, several rules permitted avoidance or deferral of the tax on gain on owner-occupied housing, including a provision allowing deferral of gain until a subsequent house is sold (rollover treatment) and a provision allowing a one-time exclusion of $125,000 on gain for those 55 and over. These provisions were replaced with a general $500,000 exclusion ($250,000 for a single individual), which cost only slightly more in revenue. The capital gains issue was briefly revisited in 1998, when the holding period for long-term gains was moved back from the 18 months set in 1997 to the one-year period that has typically applied. The 1999 House bill would have cut the rates to 15% and 10%: the conference version cut rates to 18% and 8% and proposed indexing of future gains, but the bill was vetoed. Capital gains were discussed during the consideration of the economic stimulus bill at the end of 2002, but not included in any legislative proposal (and no proposal was adopted). The temporary provisions for lower rates of 15% for 2003-2008 for those in the higher brackets and to 5% in 2003-2007 and 0% in 2008 for taxpayers in the 15% bracket or lower were adopted in 2003. H.R. 4297 , adopted in 2006, extended these lower rates for two more years. P.L. 111-312 , enacted in 2010, extended the lower rates for an additional two years, through 2010. The American Taxpayer Relief Act of 2012, P.L. 112-240 , made these lower rates permanent except for very high incomes. Health reform legislation in 2010 provided for a tax of 3.8% on high-income taxpayers on various forms of passive income, including capital gains. The tax applies to passive income in excess of $250,000 for joint returns and $200,000 for single returns. The tax revision in 2017 made numerous changes to individual tax deductions and rates, but kept the different rates of capital gains linked to the old rate brackets. (These individual changes expire after 2025.) The capital gains rate for a given income could be affected by changes in itemized and standard deductions and the repeal of personal exemptions, which will alter the point at which taxable income begins. The revision also introduced a different measure of inflation, which will lead to narrower rate brackets and standard deductions and will lead, over time, to somewhat higher capital gains taxes. Gains in partnership interest derived from the performance of investment services (carried interest) are treated as long-term capital gains if held for at least three years (rather than the one-year period in prior law). Over the past several years, a debate has ensued regarding the revenue cost of cutting capital gains taxes. For example, when the President proposed a 30% exclusion in 1990, Treasury estimates showed a $12 billion gain in revenue over the first five years, while the Joint Committee on Taxation found a revenue loss of approximately equal size. Although the estimates seemed quite different, they both incorporated significant expected increases in the amount of gains realized as a result of the tax cut. For example, the Treasury would have estimated a revenue loss of $80 billion over five years with no behavioral response, and the Joint Tax Committee a loss of $100 billion. (The gap between these static estimates arose from differences in projections of expected capital gains, a volatile series that is quite difficult to estimate.) Empirical evidence on capital gains realizations does not clearly point to a specific response and revenue cost. Recent research suggests long-run responses may be more modest than those suggested by the economics literature during the 1990 debate, but the short-run response is still difficult to ascertain. Any revenue feedback effect will be smaller the larger the tax reduction and any feedback that reduces revenues will be larger the larger the tax increase, under the presumption that the response rises with the tax rate. When the tax reduction is large, although there will be a larger response, any induced revenues will be taxed at the new lower rates. Thus, a 50% exclusion will not have as large a feedback effect relative to the static estimate as a 30% exclusion. Moreover, allowing a prospective tax cut that depends on selling and acquiring a new asset to qualify (or marking to market) as is the case for the reduction from 20% to 18% for five-year property causes a gain in the short run as well. Arguments have also been made that a capital gains tax cut will induce additional savings, also resulting in a feedback effect as taxes are imposed on new income. This effect is uncertain, as it is not clear that an increase in the rate of return will increase savings (savings can decrease if the income effect is more powerful than the substitution effect) and what the magnitude of the response might be. There is also a debate about the effect of the capital gains tax on growth through its effect on innovation. Regardless of these empirical uncertainties, any effect of savings on taxable income in the short run is likely to be quite small due to the slow rate of capital accumulation. (Net savings are typically only about 2% to 3% of the capital stock, so that even a 10% increase in the savings rate would result in only a 2/10 to 3/10 of a percent first-year increase in the capital stock.) A related argument is that the tax cut will increase asset values; such an effect is only temporary, however, and will, if it occurs, only shift revenues from the future to the present. The tax burden on an investment is influenced by both the tax rate and any benefits allowed or penalties imposed. One way to measure this tax burden is to calculate a marginal effective tax rate that captures in a single number all of the factors that affect tax burden. It is the percentage difference between the before- and after-tax return to investment, or the estimated statutory rate that would be applied to economic income to give the taxpayer the same burden as the combination of tax benefits and penalties. The effective tax rate on capital gains can be either higher or lower than the statutory rate, depending on the inflation rate relative to the real appreciation rate and the holding period. Also, assets held until death are not subject to tax. For example, assuming a 20% statutory tax rate, the gain on a growth stock (paying no dividends) with a real appreciation rate of 7% and an inflation rate of 3% would, if held for 1 year, 7 years, 20 years, and until death, be subject respectively to tax rates of 27%, 22%, 14%, and 0%. With no inflation and a 20% rate, the rates would be 19%, 16%, 12%, and 0%; inflation penalizes assets held a shorter period more heavily than assets held for a longer period. Because less than half of gains that are accrued are realized, the effective tax rate is probably lower than the statutory tax rate. These benefits are larger for individuals in the highest tax brackets because the capital gains tax rate is capped at 15% or 20%, while ordinary tax rates can be as high as 37%. One argument in favor of reducing the capital gains tax is the lock-in effect. If this effect is large, the tax introduces significant distortions in behavior with relatively little revenue gain. Another way to reduce lock-in is accrual taxation (i.e., tax gains on a current basis as accrued), but this approach is only feasible when assets can be easily valued (e.g., publicly traded corporate stock). Another way to reduce lock-in is to tax gains passed on at death. These solutions may face technical problems, and taxation of gains at death has been unpopular. For owner-occupied housing, although there were many ways to avoid the tax under current law, the rules may have resulted in individuals remaining in houses that are too large if economic circumstances have declined (for example, through job loss or retirement or from a preference for a smaller home, or if there is relocation to a lower-cost area). A case might be made for lower capital gains taxes on corporate stock because corporate equity capital is subject to heavy taxation. This heavy taxation encourages corporations to take on too much debt and directs too much capital to the noncorporate sector. Alternatively, lower capital gains taxes increase the relative penalty that applies to dividends and introduce tax distortions in the decisions of the firm to retain earnings. This latter effect, however, does not occur under the temporary tax cuts that benefit dividends as well as capital gains. In addition, most corporate stock is held by tax-exempt or foreign investors not subject to capital gains taxes. Arguments have also been made that lower gains taxes will increase economic growth and entrepreneurship. Although evidence on the effect of tax cuts on savings rates and, thus, economic growth is difficult to obtain, most evidence does not indicate a large response of savings to an increase in the rate of return. Indeed, not all studies find a positive response, because a higher rate of return may allow individuals to save less while reaching their desired goal. A more effective route to increasing savings may be to take revenues that might otherwise finance a tax cut and reduce the debt. Although arguments are made that lower gains taxes stimulate innovation and entrepreneurship, there is little evidence in history to connect periods of technical advance with lower taxes or even high rates of return. The extent to which entrepreneurs take tax considerations into account is unclear; however, there is some reason to doubt that capital gains taxes are important in obtaining large amounts of venture capital, in part because much of this capital is supplied by those not subject to the capital gains tax (i.e., pension funds, foreign investors). Moreover, there is no evidence that longer corporate stock holding periods lead to more investments in long-term assets, including R&D, a rationale for lowering rates for assets with longer holding periods. (Note that indexing, initially proposed, and then dropped, favors assets with shorter holding periods.) A major complaint made by some about lower gains rates cut is that they primarily benefit very high-income individuals. Capital gains are concentrated among higher-income individuals because these individuals tend to own capital and because they are likely to own capital that generates capital gains. The Tax Policy Center has estimated, for 2017, that 92.5% of the benefit of lower tax rates on capital gains and dividends (dividends are also eligible for the lower rates) accrue to the top quintile of the income distribution, and 73% accrue to the top 1%. The benefit of the lower rates on capital gains alone would be more concentrated because a larger proportion of capital gains accrues to those with higher incomes, compared with dividends. A study by the Joint Committee on Taxation found that 76.1% of the total of dividends and capital gains is received by those with $200,000 of income, compared with 84.1% of capital gains alone. The distributional effects of the capital gains relief for homes are somewhat less concentrated at the higher end (although lower-income individuals are much less likely to own homes). The revisions may also enhance horizontal equity by treating taxpayers in different circumstances more evenly. Critics of lower capital gains taxes cite the contribution of preferential capital gains treatment to tax sheltering activities and complexity. For example, individuals may borrow (while deducting interest in full) to make investments that are eligible for lower capital gains tax rates, thereby earning high rates of return. These effects are, however, constrained in some cases (i.e., a passive loss restriction limits the deductions allowed in real estate ventures). Capital gains differentials complicate the tax law, especially as applied to depreciable assets where capital gains treatment can create incentives for churning assets unless recapture provisions are adopted. Indexing capital gains for inflation is more complicated than a simple exclusion, since different basis adjustments must apply to different vintages of assets and proper indexing of gains on depreciable property is especially difficult. Thus, foregoing indexing probably kept the tax law simpler.
|
Taxes on long-term capital gains (on assets held for at least a year) are imposed at rates that correspond to pre-2018 brackets: a 0% rate for those whose income placed them in the regular 15% bracket or less (now in regular bracket of 12%), and 15% for taxpayers in higher brackets, except for those in the 39.6% bracket. The tax revision adopted in December 2018 (P.L. 115-97) maintained the links to the income level corresponding to the rate brackets in prior law. Therefore, the tax rates on capital gains are affected only by changes in the deductions to arrive at taxable income and the use of a different method of indexing for inflation. Under the new law, the original 10% and 15% brackets are replaced by a single 12% rate bracket that ends at the same point as the end of the 15% bracket. There is no 39.6% bracket (the top rate is 37% and begins at a higher level than the top bracket under previous law). In 2017, the 39.6% bracket began with taxable income of $470,700 for joint returns and $418,400 for single returns. There is also an exclusion of $500,000 ($250,000 for single returns) for gains on home sales. Tax legislation in 1997 reduced capital gains taxes on several types of assets, imposing a 20% maximum tax rate on long-term gains, a rate temporarily reduced to 15% for 2003-2008, which was extended for two additional years in 2006. Legislation enacted in December 2010 extended the lower rates for an additional two years, thorough 2010. The American Taxpayer Relief Act of 2012 (P.L. 112-240) made the lower rates permanent except for very high-income taxpayers. Health reform legislation in 2010 provided for a tax at Medicare rates of 3.8% on high-income taxpayers on various forms of passive income, including capital gains. The tax applies to passive income in excess of $250,000 for joint returns and $200,000 for single returns. The capital gains tax had been a tax cut target since the 1986 Tax Reform Act treated capital gains as ordinary income. An argument for lower capital gains taxes is reduction of the lock-in effect. Some also believe that lower capital gains taxes will cost little compared to the benefits they bring and that lower taxes induce additional economic growth, although the magnitude of these potential effects is in some dispute. Others criticize lower capital gains taxes as benefitting higher-income individuals and express concerns about the budget effects, particularly in future years. Another criticism of lower rates is the possible role of a larger capital gains tax differential in encouraging tax sheltering activities and adding complexity to the tax law.
|
Congressional interest in U.S. energy policy has focused in part on ways through which the United States could secure more economical and reliable fossil fuel resources both domestically and internationally. Recent expansion in natural gas production, primarily as a result of new or improved technologies (e.g., hydraulic fracturing) used on unconventional resources (e.g., shale, tight sands, and coal-bed methane), has made natural gas an increasingly significant component in the U.S. energy supply. While the practice of hydraulic fracturing is not new, relatively recent innovations have incorporated processes such as directional drilling, high-volume slick-water injection, and multistage fractures to get to previously unrecoverable resources. As a result, the United States has again become the largest producer of natural gas in the world. The U.S. Energy Information Administration (EIA) projects unconventional gas activity to more than double from 2010 to 2040, and forecasts that it will make up almost 80% of total U.S. natural gas production by 2040. In addition, some analysts believe that by significantly expanding the domestic gas supply, the exploitation of new unconventional resources has the potential to reshape energy policy at national and international levels—altering geopolitics and energy security, recasting the economics of energy technology investment decisions, and shifting trends in greenhouse gas (GHG) emissions. Many in both the public and private sector have advocated for the increased production and use of natural gas because the resource is domestically available, economically recoverable, and considered a potential "bridge" fuel to a less polluting and lower GHG-intensive economy. Natural gas is cleaner burning than its hydrocarbon rivals, emitting, on average, about half as much carbon dioxide as coal and one-quarter less than oil when consumed in a typical electric utility plant. Further, natural gas combustion emits no mercury—a persistent, bioaccumulative neurotoxin—virtually no particulate matter, and less sulfur dioxide and nitrogen oxides, on average, than either coal or oil. For these reasons, pollution control measures in natural gas systems have traditionally received less attention relative to those in other hydrocarbon industries. However, the recent increase in natural gas production, specifically from unconventional resources, has raised a new set of concerns regarding environmental impacts. These concerns centered initially on water quality issues, including the potential contamination of groundwater and surface water from hydraulic fracturing and related production activities. They have since incorporated other issues, such as water management practices (both consumption and discharge), land use changes, induced seismicity, and air pollution. The new set of questions about hydraulic fracturing in unconventional reservoirs has led, in part, to various grassroots movements, some political opposition, and calls for additional regulatory actions, moratoria, and/or bans at the local, state, and federal levels. Currently, the development of natural gas in the United States is regulated under a complex set of local, state, and federal laws that addresses many—but not all—aspects of exploration, production, and distribution. State and local authorities are responsible for virtually all of the day-to-day regulation and oversight of natural gas systems. The organization of this oversight within each gas-producing jurisdiction varies considerably. In general, each state has one or more regulatory agencies that may permit wells, including their design, location, spacing, operation, and abandonment, and may regulate for environmental compliance. With respect to pollution controls, state laws may address many aspects of water management and disposal, air emissions, underground injection, wildlife impacts, surface disturbance, and worker health and safety. Furthermore, several federal statutes address pollution control measures in natural gas systems; and, where applicable, these controls are largely implemented by state and local authorities. For example, the Clean Water Act (CWA) regulates surface discharges of water associated with natural gas drilling and production, as well as contaminated storm water runoff from production sites. The Safe Drinking Water Act (SDWA) regulates the underground injection of wastewater from crude oil and natural gas production, and the underground injection of fluids used in hydraulic fracturing if the fluids contain diesel fuel. The Clean Air Act (CAA) limits emissions from associated engines and gas processing equipment, as well as some natural gas extraction, production, and processing activities. Natural gas is a nonrenewable fossil fuel that is used both as an energy source (for heating, transportation, and electricity generation) and as a chemical feedstock (for such varied products as plastic, fertilizer, antifreeze, and fabrics). Raw natural gas is commonly recovered from geologic formations in the ground through drilling and extraction activities by the oil and gas industry. This industry includes operations in the extraction and production of crude oil and natural gas, as well as the processing, transmission, and distribution of natural gas. For both operational and regulatory reasons, the sector is commonly separated into four major segments: (1) crude oil and natural gas production, (2) natural gas processing, (3) natural gas transmission and storage, and (4) natural gas distribution (see Figure 1 ). This report uses these basic categories to track the various activities in natural gas systems, including the operations, emissions, and regulations discussed below. While the focus of this report is on the production sector, it also highlights air quality issues in other sectors, where appropriate. Below is a brief outline of the crude oil and natural gas industry. For more detail regarding specific activities or equipment, see the glossary of terms provided in Table C -1 . Production (Upstream). Production operations include the wells and all related processes used in the extraction, production, recovery, lifting, stabilization, separation, and treating of oil and/or natural gas (including condensate). Production operations span the initial well drilling, hydraulic fracturing, well completion, and workover activities and cover all the portable non-self-propelled apparatus associated with those operations. Production sites include not only the ''pads'' where the wells are located, but also the stand-alone sites where oil, condensate, produced water, and gas from several wells may be separated, stored, and treated, as well as the low pressure, small diameter, gathering pipelines and related components that collect and transport the oil, gas, and other materials and wastes from the wells to the refineries or natural gas processing plants. Processing (Midstream). Natural gas is primarily made up of methane. However, in its raw state, natural gas is a mixture of various hydrocarbons and may contain trace amounts of other chemical substances that must be removed before distribution. The additional hydrocarbons are often referred to as natural gas liquids (NGL). They are sold separately and have a variety of different uses. Raw natural gas may also contain water vapor, nonhydrocarbon compounds, and other chemical substances. Processing operations are used to separate out the additional components from raw natural gas to produce ''pipeline quality'' or "dry" natural gas for consumption. Transmission and Storage (Downstream) . Dry natural gas leaves the processing segment and enters the transmission segment. Pipelines in the natural gas transmission segment can be interstate pipelines, that carry natural gas across state boundaries, or intrastate pipelines, that transport the gas within a single state. While interstate pipelines may be of a larger diameter and operate at a higher pressure, the basic components are the same. To ensure that the natural gas flowing through any pipeline remains pressurized, compressor stations are required at regular intervals. Further, to ensure proper load balancing during the delivery and receipt of natural gas, the transmission segment often includes storage facilities, typically consisting of both man-made and natural sites, such as depleted gas reservoirs and/or salt dome caverns. Distribution . The distribution segment is the final step in delivering natural gas to customers. The natural gas enters the distribution segment from delivery points located on interstate and intrastate transmission pipelines and then flows to business and household customers. Nationwide, natural gas distribution systems consist of thousands of miles of pipes, including mains and service lines to the customers. Distribution systems also include compressor and metering stations, which allow companies to both move and monitor the natural gas in the system. The delivery point where the natural gas leaves the transmission segment and enters the distribution segment is often called the ''citygate.'' Typically, the citygate serves as the transfer point of ownership from producers to utilities. Raw natural gas is a mixture of various hydrocarbons (primarily methane) and may contain trace amounts of other chemical substances that must be removed before distribution. Air pollutants associated with the natural gas industry may be emitted through the release of natural gas vapors (either purposefully or accidently), the combustion of natural gas (either for use or for safety/disposal), the combustion of other fuel resources (for process heat, power, and electricity), and the discharge of particulate matter during construction, transportation, and associated operations. Sources of emissions include pad, road, and pipeline construction; drilling, completion, and flowback activities that occur during the development of a well; and gas processing and transmission equipment such as controllers, compressors, dehydrators, pipelines, and storage vessels. Pollutants include, most prominently, methane and volatile organic compounds, of which the natural gas industry is one of the highest emitting industrial sectors in the United States. Pollutants also include nitrogen oxides, sulfur dioxide, particulate matter, and various forms of hazardous air toxics, including n-hexane, the BTEX compounds (i.e., benzene, toluene, ethylbenzene, and xylene), and hydrogen sulfide. Natural gas systems release air emissions in several ways. This report categorizes these emissions into three types: fugitive , combusted , and associated . Fugitive . Fugitive refers to the natural gas vapors that are released to the atmosphere during industry operations. Fugitive emissions can be either intentional (i.e., vented) or unintentional (i.e., leaked). Intentional emissions are releases that are designed specifically into the system: for example, emissions from vents or blow-downs used to guard against over-pressuring; or gas-driven equipment used to regulate pressure, store, or transport the resource. Conversely, unintentional emissions are releases that result from uncontrolled leaks in the system: for example, emissions from routine wear, tear, and corrosion; improper installation or maintenance of equipment; or the overpressure of gases or liquids in the system. Fugitive natural gas is primarily a mixture of low molecular-weight hydrocarbon compounds that are gaseous in form at normal conditions. While the principal component of natural gas is methane (CH 4 ), it may contain smaller amounts of other hydrocarbons, such as ethane, propane, and butane, as well as heavier hydrocarbons. These nonmethane hydrocarbons include types of volatile organic compounds (VOCs), classified as ozone (i.e., smog) precursors, as well as, in some cases, hazardous (i.e., toxic) air pollutants (HAPs). Nonhydrocarbon gases, such as carbon dioxide (CO 2 ), helium (He), hydrogen sulfide (H 2 S), nitrogen (N 2 ), and water vapor (H 2 O), may also be present in any proportion to the total hydrocarbon content. The chemical composition of raw natural gas varies greatly across resource reservoirs, and the gas may or may not be "associated" with crude oil resources. When natural gas is found to be primarily methane, it is referred to as "dry" or "pipeline quality" gas. When natural gas is found bearing higher percentages of heavier hydrocarbons, nonhydrocarbon gases, and/or water vapor, it is commonly referred to as "wet," "rich," or "hot" gas. Similarly, quantities of VOCs, HAPs, and H 2 S can vary significantly depending upon the resource reservoir. VOC and HAP compositions typically account for only a small percentage of natural gas mixtures; however, this ratio increases the "wetter" the gas. Natural gas mixtures with a higher percentage of H 2 S are generally referred to as "sour" or "acid" gas. Combusted. Combusted refers to the byproducts that are formed from the burning of natural gas during industry operations. Combusted emissions are commonly released through either the flaring of natural gas for safety and health precautions or the combustion of natural gas for process heat, power, and electricity in the system (e.g., for compressors, dehydrators, and other machinery). The chemical process of combusting natural gas releases several different kinds of air pollutants, including carbon dioxide (CO 2 ), carbon monoxide (CO), nitrogen oxides (NO x ), and trace amounts of sulfur dioxide (SO 2 ) and particulate matter (PM). Flaring is a means to eliminate natural gas that may be impracticable to use, capture, or transport. As with venting, the primary purpose of flaring is to act as a safety device to minimize explosive conditions. Gas may be flared at many points in the system; however, it is most common during the drilling and well completion phases. Natural gas combustion is generally considered a greater pollution control mechanism than the venting of natural gas, because the process serves to incinerate many of the VOCs and HAPs that would otherwise be released directly into the atmosphere. Similarly, natural gas combustion is generally considered as "cleaner" than other fossil fuel combustion with respect to various criteria pollutants and greenhouse gas (GHG) emissions. Associated. Associated refers to secondary sources of emissions that arise from associated operations in natural gas systems. Associated emissions may result from the combustion of other fossil fuels (i.e., other than the natural gas stream) to power equipment, machinery, and transportation, as well as the associated release of dust and particulate matter from construction and road use. Associated emissions have the potential to contribute significantly to air pollution. The focus of this report is on fugitive and combusted natural gas emissions. While there may be significant emissions from the natural gas sector as a result of the combustion of other fossil fuels for process heat, power, and transportation, as well as the associated release of particulate matter from construction and road use, the primary focus of this report is on air quality issues related to the resource itself (i.e., the fugitive release of natural gas and its combustion during operations). It is this release of natural gas—and the pollutants contained within it—that makes air quality considerations in the crude oil and natural gas sector unique from other industrial-, construction-, and transportation-intensive sectors. Natural gas systems include many activities and pieces of equipment that have the potential to emit air pollutants. Most of these emissions sources are common to both conventional and unconventional natural gas development. Drilling. Fugitive natural gas and other air pollutants may escape to the atmosphere during initial drilling operations through the circulation of drilling fluids back to the surface. Further, emissions from combusted natural gas—including CO 2 , NO x , and potentially SO 2 —may also be released at the well site due to both engine combustion and flaring activities. These include "well test flaring," which occurs during the drilling and testing of oil and gas wells, and "solution gas flaring," which occurs during the disposal of associated gas produced along with crude oil (as is the case currently with oil production in the Bakken formation). Well Completions. Well completions contain several processes which have the potential to emit air pollutants. For example, hydraulic fracturing uses pressurized fluids containing any combination of water, proppant, and added chemicals to penetrate and produce natural gas from tight formations (e.g., shale, sand, or coal formations). The process requires a high rate, extended flowback period to expel fracture fluids and solids from the well. Gas may escape with these fluids during flowback or impoundment, allowing emissions of methane and VOCs to be released to the atmosphere. Conversely, if the flowback gas is captured, separated from the fluids, and flared, emissions of nitrous oxides and carbon dioxide may be released to the atmosphere. EPA estimates that well completions involving hydraulic fracturing can vent substantially more natural gas—approximately 230 times more—than well completions not involving hydraulic fracturing, if not controlled by reduction equipment. Other sources from industry and academia estimate these emissions levels differently, in part because the data are limited. Compressors. There are many locations throughout the natural gas sector where compression is required to move gas along the pipeline. This is accomplished by different machinery such as combustion turbines, reciprocating internal combustion engines, and electric motors. Both the turbine-powered centrifugal compressors and the reciprocating internal combustion compressors may use a small portion of the natural gas they compress to fuel the turbine. Both are potential sources of fugitive VOCs and methane emissions as well as significant sources of combusted emissions. Centrifugal compressors require seals around the rotating shaft to prevent gases from escaping where the shaft exits the casing. The seals in some compressors use oil (e.g., "wet seal compressors"), and they commonly vent the absorbed gas to the atmosphere when they are purged. Reciprocating compressors, on the other hand, leak natural gas throughout the course of their normal operation, with the highest volume of gas loss associated with worn down piston rod packing systems. Using dry-seal centrifugal systems or periodically replacing worn down rod packing systems are the most effective ways of controlling emissions from gas-driven compressors. Conversely, where available, electric motors can be used to operate compressors. This type of compression does not require the use of any of the natural gas from the pipeline, but it does require a source of electricity. Controllers. Pneumatic controllers are automated instruments widely used in the natural gas sector for maintaining pressure, temperature, and flow rate conditions in the system. In many situations, the pneumatic controllers make use of the available high-pressure natural gas in the system to regulate these conditions. In these "gas-driven" pneumatic controllers, natural gas may be released intermittently with every valve movement or continuously from the valve control pilot. Gas driven pneumatic controllers are typically characterized as either "high-bleed" or "low-bleed," where a high-bleed device releases at least 6 cubic feet of gas per hour. Conversely, "non-gas driven" pneumatic controllers use sources of power other than pressurized natural gas, greatly reducing levels of emissions. Examples include solar, electric, and instrument air. Storage Vessels. After being separated from the natural gas stream, crude oil, condensate, and produced water are typically stored in fixed-roof storage vessels. These vessels, which are operated at or near atmospheric pressure conditions, can release various emissions to the atmosphere as a result of working, breathing, and flash losses. Working losses occur due to the emptying and filling of storage tanks. Breathing losses are the release of gas associated with daily temperature fluctuations and other equilibrium effects. Flash losses occur when a liquid is transferred from a vessel with higher pressure to a vessel with lower pressure, thus allowing entrained gases or a portion of the liquid to vaporize or flash. Typically, the larger the pressure drop, the more flash emissions will occur in the storage stage. The two ways of controlling tanks with significant emissions are to install vapor recovery units (VRU) or to route the emissions from the tanks to control devices (i.e., flares). Dehydrators. Once natural gas has been separated from any liquid materials or products (e.g., crude oil, condensate, or produced water), residual entrained water is removed from the natural gas by dehydration. One of the most widely used natural gas dehydration processes is glycol dehydration. Glycol dehydration is an absorption process in which a liquid absorbent (glycol) directly contacts the natural gas stream and absorbs both the entrained water vapor as well as a number of selected hydrocarbons, including BTEX, n-hexane, and other HAPs. During the recirculation stages, the hydrocarbons are boiled off along with the water and are either vented to the atmosphere or directed to a control device. General Equipment and Pipeline Leaks. Fugitive emissions can emanate from valves, pump seals, flanges, compressor seals, pressure relief valves, open-ended lines, and other process and operation components at any point during operations. Leaks may be due to routine wear, tear, and corrosion; improper installation or maintenance; or the overpressure of gases or liquids in the system. Because of the large number of valves, pumps, and other components within a natural gas production, processing, or transmission facility, equipment leaks collectively can be a significant source of emissions. Further, there are over 300,000 miles of transmission pipelines alone in the United States, and these pieces of equipment exist throughout the system. Workovers, Maintenance, and Upsets. Periodically, wells require restimulation workovers or routine maintenance—such as the unloading of liquids or blowdowns—in order to reestablish productive gas flows. These activities, depending upon their methods, may release significant amounts of fugitives into the atmosphere. Further, all activities are susceptible to occasional upsets and accidental losses. Through provisions in the Clean Air Act (CAA), the U.S. Environmental Protection Agency (EPA) classifies air pollutants under several different categories, including the following: Criteria Pollutants . Common emissions that can harm human health or the environment, or cause property damage, including ground-level ozone (i.e., smog), nitrogen oxides, sulfur dioxide, carbon monoxide, particulate matter, and lead, Hazardous Air Pollutants . Toxic chemicals that are known or suspected to cause cancer or other serious health effects, such as reproductive diseases or birth defects, Greenhouse Gas Pollutants . Chemical compounds that trap heat in the atmosphere and contribute to the forcing of climate change. The "Criteria" and "Hazardous Air Pollutant" categories are identified and regulated under specific provisions of the CAA. In contrast, greenhouse gases may be regulated under several different ones. The natural gas industry produces emissions from each of these categories, some of which may overlap (e.g., benzene is a volatile organic compound [VOC]; and it is considered both a ground-level ozone-producing criteria pollutant and a carcinogenic hazardous air pollutant [HAP]). See Figure 2 for a comparison of air pollution emissions from the natural gas industry against those of other U.S. industrial sectors. Methane (CH 4 ) . Methane—the principal component of natural gas—is both a precursor to ground-level ozone formation (i.e., smog) and a potent greenhouse gas (GHG), albeit with a shorter climate-affecting time horizon than carbon dioxide. Every process in natural gas systems has the potential to emit methane. EPA's Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-201 1 (published April 15, 2013) estimates 2011 methane emissions from "Natural Gas Systems" to be 358 billion standard cubic feet (bscf), or 1.5% of the industry's gross national production that year. In 2011, natural gas systems represented nearly 25% of the total methane emissions from all domestic sources and accounted for about 2% of all GHG emissions in the United States. In each year since 1990, natural gas systems were cited as being the single largest contributor to U.S. anthropogenic (i.e., man-made) methane emissions. Because of methane's effects on climate, EPA has found that it, along with five other well-mixed greenhouse gases, endangers public health and welfare within the meaning of the Clean Air Act. Volatile Organic Compounds (VOCs )—A Ground-L evel Ozone (O 3 ) Precursor. The crude oil and natural gas sector is currently one of the largest sources of VOC emissions in the United States, accounting for approximately 12% of VOC emissions nationwide (and representing 67% of VOC emissions released by industrial source categories). VOCs—in the form of various hydrocarbons—are emitted throughout a wide range of natural gas operations and equipment. The interaction between VOCs and NO x in the atmosphere contributes to the formation of ozone (i.e., smog). EPA quantifies several health effects associated with exposure to ozone, including premature death, heart failure, chronic respiratory damage, and premature aging of the lungs. Ozone may also exacerbate existing respiratory illnesses, such as asthma and emphysema, or cause chest pain, coughing, throat irritation, and congestion. Nitrogen Oxides (NO x )—A Ground-Level Ozone (O 3 ) Precursor. Significant amounts of NO x are emitted at natural gas sites through the combustion of natural gas and other fossil fuels (e.g., diesel). This combustion occurs during several activities, including (1) the flaring of natural gas during drilling and well completions, (2) the combustion of natural gas to drive the compressors that move the product through the system, and (3) the combustion of fuels in engines, drills, heaters, boilers, and other production, construction, and transportation equipment. In addition to ozone formation (see VOCs description above), current scientific evidence links short-term NO x exposures with adverse respiratory effects including airway inflammation in healthy people and increased respiratory symptoms in people with asthma. Carbon Monoxide (CO). Similar to NO x , CO is emitted from combustion processes in stationary and mobile sources. CO can cause harmful health effects by reducing oxygen delivery to the body's organs (like the heart and brain) and tissues. Sulfur Dioxide (SO 2 ) . SO 2 is emitted from crude oil and natural gas production and processing operations that handle and treat sulfur-rich, or "sour," gas. Current scientific evidence links short-term exposures to SO 2 with an array of adverse respiratory effects including bronchoconstriction and increased asthma symptoms. Particulate Matter (PM). PM may occur from dust or soil entering the air during well-pad construction, traffic on access roads, and diesel exhaust from drilling machinery, vehicles, and other engines. PM is linked to respiratory and cardiovascular problems, including aggravated asthma attacks, chronic bronchitis, decreased lung function, heart attacks, and premature death. Hazardous Air Pollutants (HAPs). HAPs, also known as air toxics, are those pollutants that are known or suspected to cause cancer or other serious health effects, such as reproductive diseases, or birth defects. Of the HAPs emitted from natural gas systems, VOCs are the largest group, and typically evaporate easily into the air. The most common HAPs in natural gas systems are n-hexane, the BTEX compounds (benzene, toluene, ethylbenzene, and xylenes), and hydrogen sulfide. HAPs are found primarily in natural gas itself, and are emitted from equipment leaks and from various processing, compressing, transmission, distribution, or storage operations. They are also a byproduct of fuel combustion and may be components in various chemical additives. The Clean Air Act (CAA) seeks to protect human health and the environment from emissions that pollute ambient, or outdoor, air. It requires the U.S. Environmental Protection Agency (EPA) to establish minimum national standards for air emissions from various source categories (sources in the "Crude Oil and Natural Gas Production," and the "Natural Gas Transmission and Storage" sectors are included under these categories), and assigns primary responsibility to the states to assure compliance with the standards. EPA has largely delegated day-to-day responsibility for CAA implementation to all 50 states, including permitting, monitoring, inspections, and enforcement; and in many cases, states have further delegated program implementation to local governments. Sections of the CAA which are most relevant to air quality issues in the natural gas industry are discussed below. Some of the regulations implementing these sections have been revised by federal air standards promulgated by EPA on August 16, 2012. The paragraphs below summarize relevant sections of the CAA prior to these revisions. For a summary of the 2012 air standards and their relationship to the prior ones, see the subsequent section, " 2012 Federal Air Standards for Crude Oil and Natural Gas Systems ," as well as Appendix A . National Ambient Air Quality Standards (NAAQS). Section 109 of the CAA requires EPA to establish NAAQS for air pollutants that may reasonably be anticipated to endanger public health or welfare, and whose presence in ambient air results from numerous or diverse sources. Using this authority, EPA has promulgated NAAQS for sulfur dioxide (SO 2 ), particulate matter (PM 2.5 and PM 10 ), nitrogen dioxide (NO 2 ), carbon monoxide (CO), ozone, and lead. States are required to implement specified air pollution control plans to monitor these pollutants and ensure the NAAQS are met, or "attained." Additional measures are required in areas not meeting the standards, referred to as "nonattainment areas." "Nonattainment" findings for ground-level ozone, nitrogen oxides, and sulfur dioxide in areas with crude oil and natural gas production may result in states establishing specific pollution controls that could affect the industry. Permits. The 1990 CAA Amendments add Title V (i.e., "5"), which requires major sources of air pollution to obtain operating permits. Primary responsibility for Title V permitting has been delegated by EPA to state and local authorities. Sources subject to the permit requirements generally include new or modified sources that emit or have the potential to emit 100 tons per year of any regulated pollutant, plus new or existing "area sources" that emit or have the potential to emit lesser specified amounts of hazardous air pollutants. In "nonattainment" areas, the permit requirements may include sources which emit as little as 50, 25, or 10 tons per year of VOCs, depending on the severity of the region's nonattainment status ("serious," "severe," or "extreme" respectively). A Title V permit must, among other things, list all emissions limitations and standards applicable to the source, ensure that monitoring and recordkeeping are sufficient to demonstrate compliance, and require the payment of fees. Currently, most crude oil and natural gas production activities upstream from the processing plant are not classified as "major sources" under EPA Title V operating permits. Greenhouse Gas Reporting. In the FY2008 Consolidated Appropriations Act ( H.R. 2764 ; P.L. 110-161 ), Congress directs EPA to develop regulations that establish a mandatory GHG reporting program that applies to emissions that are "above appropriate thresholds in all sectors of the economy." EPA issued the Mandatory Reporting of Greenhouse Gases Rule (MRR) which became effective on December 29, 2009, and included reporting requirements for facilities and suppliers in 32 source categories. Affected facilities in the petroleum and natural gas industry include onshore petroleum and natural gas production, offshore petroleum and natural gas production, natural gas processing, natural gas transmission compressor stations, underground natural gas storage, liquefied natural gas (LNG) storage, LNG import and export terminals, and natural gas distribution. The rule requires petroleum and natural gas facilities that emit 25,000 metric tons or more of carbon dioxide (CO 2 ) equivalent per year to report annual fugitive emissions of methane and CO 2 from equipment leaks and venting, and annual combusted emissions of CO 2 , methane, and nitrous oxide from gas flaring, from stationary and portable equipment involved in onshore petroleum and natural gas production, and from stationary equipment involved in natural gas distribution. Since methane is the most prominent emission from upstream oil and gas activities, and since the rule requires producers to aggregate emissions from all commonly controlled wells and their associated equipment (e.g., compressors, generators, piping, and storage tanks), many facilities may likely be required to report GHG emissions in coming years. EPA estimates that the rule covers 85% of the total GHG emissions from most of the U.S. petroleum and natural gas industry with approximately 2,800 facilities reporting. On February 5, 2013, EPA released for the first time GHG data for crude oil and natural gas systems collected under industry reporting. Further to this, many states have their own GHG reporting requirements independent of the 2009 federal rules (e.g., the Regional GHG Initiative, the Western Climate Initiative, and California). New Source Performance Standards (NSPS). Section 111 of the CAA requires EPA to promulgate regulations establishing emissions standards that are applicable to new, modified, and reconstructed sources—if such sources cause or contribute significantly to air pollution that may reasonably be anticipated to endanger public health or welfare. A performance standard reflects the degree of emission limitation achievable through the application of the ''best system of emission reduction'' (BSER) which EPA determines has been adequately demonstrated. As new technology advances are made, EPA is required to revise and update NSPS applicable to designated sources. The following federal NSPS may apply to crude oil and natural gas systems (some parts have been rewritten by the August 16, 2012, standards; see the next section and Appendix A for further discussion): 40 C.F.R. Part 60, Subpart JJJJ—Standards of Performance for Stationary Spark Ignition (SI) Internal Combustion Engines (ICE). Subpart JJJJ applies to manufacturers, owners, and operators of SI ICE, which affects new, modified, and reconstructed stationary SI ICE (i.e., generators, pumps, and compressors), combusting any fuel (i.e., gasoline, natural gas, LPG, landfill gas, digester gas etc.), except combustion turbines. The applicable emissions standards are based on engine type, fuel type, and manufacturing date. The regulated pollutants are NO x , CO, and VOCs, and there is a sulfur limit on gasoline. Subpart JJJJ applies to facilities operating spark ignition engines at compressor stations; 40 C.F.R. Part 60, Subpart IIII—Standards of Performance for Stationary Compression Ignition (CI) ICEs. Subpart IIII applies to manufacturers, owners, and operators of CI ICE (diesel), which affects new, modified, and reconstructed (commencing after July 11, 2005) stationary CI ICE (i.e., generators, pumps, and compressors), except combustion turbines. The applicable emissions standards (phased in Tiers with increasing levels of stringency) are based on engine type and model year. The regulated pollutants are NO x , PM, CO, and non-methane hydrocarbons (NMHC), while the emissions of sulfur oxides (SO x ) are reduced through the use of low sulfur fuel. Particulate emissions are also reduced by standards. Subpart IIII applies to facilities operating compression ignition engines at compressor stations; 40 C.F.R. Part 60, Subpart KKK—Standards of Performance for Equipment Leaks of VOCs from Onshore Natural Gas Processing Plants. Subpart KKK applies to gas processing plants that are engaged in the extraction of natural gas liquids from field gas and contains provisions for VOCs leak detection and repair (LDAR) (this section was revised by the 2012 air standards); 40 C.F.R. Part 60, Subpart LLL—Standards of Performance for Onshore Natural Gas Processing: SO 2 Emissions. Subpart LLL governs emissions of SO 2 from gas processing plants, specifically gas sweetening units (which remove H 2 S and CO 2 from sour gas) and sulfur recovery units (which recover elemental sulfur) (this section was revised by the 2012 air standards); and 40 C.F.R. Part 60 Subpart Kb—Standards of Performance for Volatile Organic Liquid Storage Vessels (Including Petroleum Liquid Storage Vessels) for which construction, reconstruction, or modification commenced after July 23, 1984. National Emission Standards for Haz ardous Air Pollutants (NESHAPs ). Section 112 of the CAA requires EPA to promulgate regulations establishing standards to control emissions of hazardous air pollutants (HAPs). NESHAPs are applicable to both new and existing sources of HAPs, and there are NESHAPs for both "major" sources and "area" sources of HAPs. A "major" source of HAPs is one with the potential to emit in excess of 10 tons per year (tpy) of any single HAPs or 25 tpy of two or more HAPs combined. Conversely, an "area" source of HAPs is a stationary source of HAPs that is not major. The aim is to develop technology-based standards which require levels met by the best existing facilities (commonly referred to as maximum achievable control technology, or MACT, standards). The pollutants of concern in the oil and gas sector are primarily the BTEX compounds, formaldehyde, and n-hexane. The following federal NESHAPs may apply to crude oil and natural gas systems (some parts have been rewritten by the August 16, 2012, standards; see the next section and Appendix A for further discussion): 40 C.F.R. Part 63, Subpart ZZZZ—National Emission Standards for Hazardous Air Pollutants for Reciprocating Internal Combustion Engines (RICE); 40 C.F.R. Part 63, Subpart H—National Emission Standards for Organic Hazardous Air Pollutants for Equipment Leaks. Subpart H applies to equipment that contacts fluids with a HAPs concentration of 5%; 40 C.F.R. Part 63, Subpart HH—NESHAPs from Oil and Natural Gas Production Facilities. Subpart HH controls air toxics from oil and natural gas production operations and contains provisions for both major sources and area sources of HAPs. Emission sources affected by this regulation are tanks with flash emissions (major sources only), equipment leaks (major sources only), and glycol dehydrators (major and area sources) (this section was revised by the 2012 air standards); 40 C.F.R. Part 63, Subpart HHH—NESHAPs from Natural Gas Transmission and Storage Facilities. Subpart HHH controls air toxics from natural gas transmission and storage operations. It affects glycol dehydrators located at major sources of HAPs (this section was revised by the 2012 air standards); and 40 C.F.R. Part 61, Subpart V—National Emission Standard for Equipment Leaks (Fugitive Emission Sources). Subpart V applies to equipment that contacts fluids with a volatile HAPs concentration of 10%. On January 14, 2009, two non-governmental organizations filed a complaint under the citizen suit provision of the CAA, alleging that EPA failed to meet its obligations under CAA Sections 111(b)(1)(B), 112(d)(6) and 112(f)(2) to take actions relative to the review/revision of the NSPS and the NESHAPs with respect to the "Crude Oil and Natural Gas Production" source category. On February 4, 2010, the U.S. Court of Appeals for the D.C. Circuit entered a consent decree requiring EPA to sign proposed standards and/or determinations not to issue standards by January 31, 2011 (modified to July 28, 2011), and to take final action by November 30, 2011 (modified to April 17, 2012). EPA proposed a new set of air standards for the "Crude Oil and Natural Gas Production" sector and the "Natural Gas Transmission and Storage" sector on July 28, 2011, and held three public hearings for the proposal. After several court-agreed extensions, the final rules establishing the new standards were signed by the Administrator on April 17, 2012, were published in the Federal Register on August 16, 2012, and became effective on October 15, 2012. A summary of the 2012 federal air standards is provided below. For a detailed comparison of the 2012 federal air standards against the prior federal air standards, see Appendix A . The 2012 NSPS for the "Crude Oil and Natural Gas Production" and the "Natural Gas Transmission and Storage" source categories regulate volatile organic compounds (VOCs) emissions from gas wells, centrifugal compressors, reciprocating compressors, pneumatic controllers, storage vessels, and leaking components at onshore natural gas processing plants, as well as sulfur dioxide (SO 2 ) emissions from onshore natural gas processing plants. Prior to the 2012 standards, processing plants were the only source category regulated at the federal level. The 2012 standards include the following: Gas W ells. The rule covers any gas well that is "an onshore well drilled principally for production of natural gas" and is "hydraulically fractured." Oil wells (i.e., wells drilled principally for the production of crude oil) or conventional gas wells (i.e., wells drilled without hydraulic fracturing for the production of natural gas) are not subject to the rule. For fractured and refractured gas wells, the rule requires owners/operators to use "reduced emissions completions"—also known as "REC" or "green completions"—to reduce VOCs emissions during well completions. A REC is defined by EPA as "a well completion following fracturing or refracturing where gas flowback that is otherwise vented is captured, cleaned, and routed to the flow line or collection system, re-injected into the well or another well, used as an on-site fuel source, or used for other useful purpose that a purchased fuel or raw material would serve, with no direct release to the atmosphere" (see graphic in Figure 3 ). To provide industry enough time to order and manufacture the necessary REC equipment, the NSPS establishes two phases for compliance. Owners and/or operators may use either REC or completion combustion devices (e.g., flaring) until January 1, 2015. After January 1, 2015, REC will be required. The rule exempts exploratory, delineation, and low-pressure gas wells from the REC requirement, stipulating the use of completion combustion devices instead. Storage V essels. The rule requires individual storage vessels in the crude oil and natural gas production segment and the natural gas processing, transmission, and storage segments with emissions equal to or greater than 6 tons per year (tpy) to achieve at least 95% reduction of uncontrolled VOCs emissions. Certain C ontrollers. The rule sets a natural gas bleed rate limit of 6 standard cubic feet per hour (scfh) for individual, continuous bleed, natural gas-driven pneumatic controllers located between the wellhead and the point at which the gas enters the transmission and storage segment. For individual, continuous bleed, natural gas-driven pneumatic controllers located at natural gas processing plants, the rule sets a natural gas bleed limit of zero scfh. Certain C ompressors. The rule requires a 95% reduction of VOCs emissions from wet seal centrifugal compressors located between the wellhead and the point at which the gas enters the transmission and storage segment. The rule also requires measures intended to reduce VOCs emissions from reciprocating compressors located between the wellhead and the point where natural gas enters the natural gas transmission and storage segment. Owners and/or operators of these compressors must replace the rod packing systems within the compressors based on specified usage or time. Onshore Natural Gas P rocessing P lants. The rule revises the existing NSPS requirements for leak detection and repair (LDAR) to reflect the procedures and leak thresholds established in the NSPS for equipment leaks of VOCs emissions in the synthetic organic chemicals manufacturing industry. This rule also revises the existing NSPS requirements for SO 2 emission reductions based on sulfur feed rate and sulfur content of gas. The 2012 rules revise the NESHAPs for glycol dehydration unit process vents and leak detection and repair (LDAR) requirements and retain the existing NESHAPs for storage vessels. The 2012 standards include the following: Glycol D ehydration U nits . The rule establishes MACT standards for "small" glycol dehydration units, which were unregulated under the initial NESHAPs. Covered glycol dehydrators now include those with an actual annual average natural gas flow rate less than 85,000 standard cubic meters per day (scmd) or actual average benzene emissions less than 0.9 megagrams per year (Mg/yr), and they must meet unit-specific limits for benzene, toluene, ethylbenzene, and xylene (collectively, "BTEX"). Leak Detection and R epair . The rule lowers the leak definition for valves at natural gas processing plants from 10,000 parts per million (ppm) to 500 ppm for major sources at crude oil and natural gas production facilities, thus requiring the application of LDAR procedures at this level. With the release of the 2012 air standards for the crude oil and natural gas production, transmission, and storage sectors, EPA constituted a federally required minimum level of control for various source categories. States have the flexibility to put their own programs in place or implement existing programs as long as they are at least as protective as the federal standards. Attainment Planning. EPA has designated attainment and nonattainment areas for the 2008 ozone National Ambient Air Quality Standards (NAAQS). Some of these areas have significant crude oil and natural gas activities. States with ozone nonattainment areas are required to submit modified state implementation plans (SIP) in 2015 and to attain the standard by 2015 and 2018 for areas classified as "marginal" and "moderate," respectively. A few areas classified as "serious" nonattainment must attain by 2021. As the 2012 air standards may likely help states make progress in attaining the ozone NAAQS in nonattainment areas where there is significant well development, states are allowed to include the federal NSPS as a federally enforceable strategy in their nonattainment SIP. States may "take credit" for the NSPS in their SIP towards meeting two requirements: (1) the 2012 standards are expected to achieve 95% control of VOCs emissions from new gas wells, making it easier for states to obtain the overall reduction in emissions they need to attain the ozone NAAQS without adding any federal or state permitting requirements; and (2) SIPs in "moderate" and "serious" areas must also show "reasonable further progress" in controlling emissions in the years before they attain the ozone NAAQS. In most areas, states may choose to measure this progress relative to emissions in 2011. In areas that had wells drilled in 2011 and will continue to have more wells drilled in the years ahead, the 95% control from the NSPS may provide emission reductions that can be credited toward the reasonable further progress requirement. In areas that had no or few wells drilled in 2011 but that will see drilling activity in the future, the 95% control from the NSPS may ensure that emissions from new well development do not impede meeting the reasonable further progress requirement. Permitting. The 2012 NSPS regulates all new and modified gas wells whether or not they attain existing thresholds that define a "major source" for pre-construction permit and Title V operating permit purposes. In the absence of the NSPS, some hydraulically fractured gas wells could have emissions above these thresholds in some ozone nonattainment areas. Wells complying with the 2012 NSPS, however, most likely will not trigger major source permitting thresholds. Wells complying with the 2012 NSPS may also have emissions low enough to avoid needing a minor source permit from the state, as the NSPS provides a path (i.e., REC) for existing wells that are refractured to avoid falling under the scope of the NSPS at all, thereby avoiding any automatic requirement to get a state minor source permit. Nevertheless, states may still include modified wells in their minor source permitting rules if they choose. Natural gas is a product of—and thus a source of revenue for—the oil and gas industry. It is also a main source of pollution for the industry when it is emitted into the atmosphere. Due to this unique linkage, pollution abatement has the potential to translate into economic benefits for the industry, as producers can offset compliance costs with the value of natural gas and condensate recovered and sold at market. EPA reports the environmental and the economic benefits of the 2012 air standards as follows: VOC s R e ductions of 190,000 to 290,000 Tons A nnually. VOCs emissions reductions of nearly 95% from hydraulically fractured gas wells are expected to help reduce ground-level ozone (i.e., smog) in areas where crude oil and natural gas production occurs. Air Toxics R educ tions of 12,000 to 20,000 Tons A nnually. The 2012 rules are intended to protect against potential cancer risks from emissions of several air toxics, including the BTEX compounds. Methane R eductions of 1.0 Million to 1.7 Million Short Tons A nnually. (Equivalent to 19 to 33 million metric tons of CO 2 equivalent (CO 2 e).) While not targeted by the 2012 rules, methane reductions from new and modified well completions and other activities would yield an additional environmental co-benefit. Industry Costs of $170 Million A nnually. EPA estimates the rule will cost producers about $170 million annually in 2015 (in 2008$). Industry and third party sources have estimated anywhere from $450 million to over $2.8 billion, depending upon assumptions regarding the number of wells subject to compliance, the cost of REC equipment and rentals, and the number and cost of completion combustion requirements. Net Cost Savings for Industry of $11 Million to $19 M illion. EPA estimates that compliance costs would be offset by the sales of the captured methane and natural gas liquids, resulting in a net gain of $11 million to $19 million in 2015. EPA's cost-benefit analysis, as put forth in its Regulatory Impact Analysis for the proposed air standards, has been critiqued as both too high and too low by industry and environmental stakeholders, respectively. Industry stresses that the economic analyses must include the full variety of conditions (e.g., the full range of VOCs content found across different reservoirs) in upstream production activities to support all the costs of compliance with the proposed rule; and that the analysis does not fully take into account the effect that operational standards (i.e., the requirements for additional green completions and other abatement equipment) will have on the production and growth of the industry in the near term. Industry claims that fluctuations in the market price of recovered products may also serve to further depress EPA's revenue estimates. Conversely, environmental stakeholders argue that the costs of control used by EPA are conservative estimates and do not properly account for the full social and environmental benefits created by the capture of methane. On April 12, 2013, EPA announced proposed amendments to the 2012 federal air standards for the oil and gas sector. The proposed rule reconsiders certain issues related to implementation of the storage vessel provisions and adjusts compliance dates to allow more time for the availability of control devices. In summary, the proposed rule grants reconsideration of the following: (1) an extension to the implementation date for the storage vessel provisions (from October 15, 2013, to April 15, 2014, for new and modified sources after April 12, 2013); (2) definition of "storage vessel" (to clarify that it refers only to vessels containing crude oil, condensate, intermediate hydrocarbon liquids, or produced water); (3) definition of "storage vessel affected facility" (to include the 6 tpy VOC emission threshold); (4) requirements for storage vessels constructed, modified, or reconstructed during the period from the NSPS proposal date, August 23, 2011, to April 12, 2013 (to remove the requirement for control devices and to require instead notification to regulatory agencies by October 15, 2013, of the existence and location of the vessels); (5) an alternative mass-based standard for storage vessels after extended periods of low uncontrolled emissions (to include a sustained uncontrolled VOC emission rate of less than 4 tpy as an alternative emission limit to the 95% control in the final NSPS under specified circumstances). The expansion of both industry production and government regulation of natural gas systems has sparked discussion on a number of outstanding issues. Some of the more significant debates involving air quality concerns are outlined in the sections below. According to EPA, the 2012 federal air standards are designed to provide minimum requirements for emissions of air pollutants from the crude oil and natural gas sector that can both protect human health and the environment and allow for continued growth in production. However, some believe that state and local governments are better positioned to develop these emission standards. They claim that states can more readily address the regional and state-specific character of many crude oil and natural gas activities, including differences in geology, hydrology, climate, topography, industry characteristics, development history, state legal structures, population density, and local economics, and the effects these components have on air quality. They argue that federal rules add unnecessary and often repetitive requirements on the industry, which may increase project costs and delays with little added benefit. Others, attesting to the "patchwork" of state and local requirements, support the need for the federal government to institute minimum standards for emissions that are consistent, predictable, and reach across state lines. They claim a federal standard would extend regulatory certainties to the industry and would best ensure health and environmental protections for all stakeholders. They also contend that many state laws and state agencies are still gaining experience with unconventional oil and natural gas development, and that industry is operating under insufficient and outdated rules. In light of these considerations, Congress may choose to re-examine proposed and/or existing federal requirements apropos of existing state and local regulations, or introduce new federal requirements if deemed necessary. Currently, states lead the day-to-day permitting, monitoring, and enforcement of crude oil and natural gas development, and any federal requirements that might apply have typically been delegated to the states. In general, each state has one or more regulatory agencies that may permit wells, including their design, location, spacing, operation, and abandonment, and may regulate for environmental compliance, including water management and disposal, air emissions, underground injection, wildlife impacts, surface disturbance, and worker health and safety. The organization of regulatory agencies within the various oil and gas producing states varies considerably. In many cases, state agencies were established initially to provide a structure to facilitate—not regulate—oil and gas development. These facilitatory agencies served primarily to provide a central state system for administering resource claims and mediating disputes. In some instances, these agencies have taken on oversight activities for environmental protection. In other instances, they have operated alongside a separate agency that has been mandated to prevent environmental pollution and public health impacts. For example, Colorado provides multiple state agencies with different authorities to regulate industry operations. The Colorado Department of Public Health and Environment (CDPHE) and the Colorado Department of Natural Resources maintain separate but complementary oversight of industry operations. Colorado's Air Quality Control Commission (under CDPHE) has regulations to address emissions from tanks, engines, compressors, and associated equipment. Colorado's Oil and Gas Conservation Commission has regulations pertaining to such issues as well completions, odors, noise, and drill rig setbacks. Conversely, Pennsylvania's Department of Environmental Protection (DEP) Office of Oil and Gas Management is responsible for all statewide oil and gas programs. The office manages activities both to facilitate the exploration, development, and recovery of Pennsylvania's oil and gas reservoirs while also overseeing the protection of the commonwealth's natural resources and environment. The office develops policy and programs for the regulation of oil and gas development pursuant to the commonwealth's Oil and Gas Act, the Coal and Gas Resource Coordination Act, and the Oil and Gas Conservation Law. It oversees the oil and gas permitting and inspection programs, develops statewide regulation and standards, conducts training programs for industry, and works with the Interstate Oil and Gas Compact Commission and the Technical Advisory Board. All crude oil and natural gas producing states have laws in place related to oil and gas development. Most state requirements are written into rules or regulations. Requirements may also be added to permits on a case-by-case basis as a result of findings from environmental reviews, on-the-ground inspections, public comments, or commission hearings. For example, emissions from oil and gas development in Colorado are governed primarily by statutory provisions of the Oil and Gas Conservation Act (Colo. Rev. Stat. §34-60-100, et seq.), Colorado's Air Pollution and Prevention Control Act (§25-7-100, et seq.), and Water Quality Control Act (§25-8-100, et seq.). In other states, such as Montana or Texas, emissions from oil and gas development are addressed most prominently during permitting, registration, and authorization activities (e.g., Montana Department of Environmental Quality, Air Quality Permits [MAQP], under Rule 17.8.752, and Montana Registration Requirements, under Rule 17.8.1711[1][a]; or Texas Commission on Environmental Quality, Permit by Rule [PBR], Standard Permit, and New Source Review [NSR] Permit, under Title 30, Texas Administration Code, Chapter 116, et seq. ) . Most state oil and gas regulations were written well before unconventional natural gas development became widespread. A number of major gas producing states have recently revised regulations, with particular focus on emerging areas of concern, including disclosure of hydraulic fracturing chemicals, well construction and operation to prevent aquifer contamination, and management of waste from flowback and produced water. Similarly, many states and counties have some regulatory structures to address air quality issues based on each jurisdiction's individual circumstance. Some states and counties have adopted relatively stringent standards, while others have not. Some have rules proposed or are in the process of revising or implementing them. Others are considering rolling back existing regulations. EPA's 2012 federal air standards were drawn primarily from existing requirements found in the state codes of Colorado and Wyoming. For a comparison of EPA's 2012 air standards for source categories in the crude oil and natural gas industry to those from selected states, see Table A -4 of this report. Critics of federal oversight maintain that the states have long regulated oil and gas exploration and production and are best positioned to continue to do so as they have established governing structures and trained staff in place. They argue that a distant federal bureaucracy unfamiliar with local conditions is rarely the best entity to ensure environmental needs are balanced with economic growth and job creation. They claim that states can more readily address the regional and state-specific character of many crude oil and natural gas activities, including differences in geology, hydrology, climate, topography, industry characteristics, development history, state legal structures, population density, and local economics. Critics argue that federal rules add unnecessary and often repetitive requirements on the industry, which may increase project costs and delays with little added benefit. They claim federal rules would require increased federal resources and skilled staff to administer regulations for oil and gas development (or, as is sometimes the case, to administer federal requirements redundantly alongside existing state programs). They contend that a well-run state permitting and regulatory program can adjust more quickly, is better positioned to meet the challenges presented by constantly developing technologies, and can effectively administer rules across private, state, and federal lands. Others note that it has neither been the practice nor the intention of EPA to administer regulations for oil and gas development at the state level. However, seeing the patchwork mix of state and local requirements, they have called for the federal government to institute a minimum nationwide standard for emissions from the crude oil and natural gas sector. Proponents of federal oversight contend that many state laws and state agencies are still gaining experience with unconventional oil and natural gas development, and that industry is operating under insufficient and outdated rules. They claim that many of the agencies that regulate development at the state level are underfunded and understaffed, are tasked with the dual purposes of developing the state's resources and protecting the state's environment, and thus, are caught between policing and promoting the industry. They suggest that state agencies and state regulators are often overwhelmed by oil and gas companies, which are generally national or international in scope, and start with the advantage of sheer size. They point to examples where state regulators have failed to seek large penalties for violations or track enforcement data, and cite statistics that show 40% of state drilling regulators have industry ties. A 2012 report, released by a non-governmental environmental organization, surveyed active oil and gas wells in six states and summarized the findings as follows: (1) over half (or close to 350,000 active wells in 2010) are operating with no independent inspections to determine whether they are in compliance with state rules; (2) when inspections do uncover rule violations, the violations often are not formally recorded; (3) when violations are recorded, they result in few penalties; (4) when penalties are assessed, they provide little incentive for companies to not offend again (noting that no state assessed annual fines that added up to the average value of a single gas well, about $2.9 million). The 2012 federal air standards focus primarily on the upstream sectors of the oil and gas industry and cover only some of the pollutants and potential sources of emissions. The standards regulate emissions of VOCs from some, but not all, of the equipment and activities at onshore natural gas well sites, gathering and boosting stations, and processing plants. Similarly, the standards regulate emissions of SO 2 from sweetening units at some natural gas processing plants, as well as HAPs from some dehydration units and storage facilities in the sector. Some pollutants from natural gas systems remain uncovered by any federal law or regulation, and critics point specifically to methane emissions from the midstream and downstream sectors, as well as hydrogen sulfide, as the most significant omissions. The scope of the 2012 federal standards are the result of several factors, including (1) EPA-conducted cost-benefit and risk analyses, (2) stakeholder comments provided to the agency during rulemaking, and (3) statutory limitations placed upon the agency by provisions in the CAA. In light of these considerations, Congress may decide to re-examine ways in which oversight activities address the most significant pollutants and point sources. While the 2012 air standards for crude oil and natural gas systems are more detailed and comprehensive than previous standards, several pollutants and sources in the sector remain uncovered. The 2012 standards do not directly cover emissions of the following pollutants in the sector: methane, nitrogen oxides, particulate matter, and hydrogen sulfide (although reductions in some of these pollutants may occur as a co-benefit of VOCs and SO 2 reductions). Many observers have noted, however, that the 2012 standards, as written, use natural gas emissions as a surrogate for VOCs and H 2 S/SO 2 emissions. Some argue that basing standards on the volume of natural gas emissions as opposed to the content of VOCs in the gas does not adequately account for the geographic variability of VOCs within the resource (e.g., EPA calculated cost effectiveness based on a national average of 3.7% VOCs by volume [18% by weight] for natural gas streams; however, many streams may produce little or no VOCs). Critics of the rule maintain that requiring standards for natural gas emissions as opposed to VOCs content essentially regulates the industry for methane as opposed to VOCs. From this perspective, requiring an operational standard (e.g., reduced emissions completions) instead of a performance standard (e.g., a VOCs threshold) may impose unnecessary compliance costs in some instances. The 2012 standards do address the smaller volume of VOCs in natural gas streams after the processing stage by exempting many activities and pieces of equipment in the transmission, storage, and distribution sectors of the industry. Further, the 2012 standards do not cover emissions from the following sources in the sector: all oil wells; all off-shore sources; all coal-bed methane production facilities; all field engines, drilling rig engines, and turbines; well-head and transmission and storage segment compressors; well-head activities such as liquids unloading; all heater-treaters; all pneumatic devices other than controllers; storage vessels such as skid-mounted, mobile, well cellars, sumps, and produced water ponds; and LDAR for non-processing plant facilities. Additionally, the 2012 standards do not cover VOCs or SO 2 emissions from existing sources, unless they are classified as HAPs. Finally, the 2012 standards assume non-gas-driven controllers cannot replace gas-driven controllers as "best system of emission reduction" (BSER) for regulatory purposes; low-bleed controllers cannot replace high-bleed controllers as BSER; centrifugal compressors cannot replace reciprocating compressors as BSER; and vapor recovery units cannot replace combustion devices as BSER. Many of these sources may still emit significant quantities of pollutants; however, EPA has determined that standards on these sources are either technically or economically unfeasible. The 2012 federal air standards exempt well completions, pneumatic controllers, compressors, and storage vessels from "major source" determination with respect to CAA Title V permit requirements. Viewed at the component level, these smaller "emissions units" at natural gas facilities may not generate enough pollution on their own to be classified as "major sources." However, it may be possible that an entire natural gas operation (e.g., a well site, a field, or a station) is a "major source" (i.e., one that emits typically 10 tons to 250 tons per year, depending upon the pollutant and the area's attainment status). Determining which equipment and activities should be grouped together, or "aggregated," in the crude oil and natural gas sector for permitting purposes remains an open issue for the states, the courts, EPA, and the regulated entities. In light of these considerations, Congress may further assess EPA's requirements for major source categories in upstream oil and gas activities. The past few decades have seen several developments in the evaluation of crude oil and natural gas facilities at multiple locations for possible aggregation into a single source for permitting purposes. The ability of EPA and the state permitting authorities to aggregate multiple operations into a single major source permit is founded upon the definition of "stationary source" within the CAA. The CAA defines a "stationary source" as "any building, structure, facility, or installation which emits or may emit any air pollutant." Alabama Power Co. v. Costle established boundaries on the scope of a source such that "(1) it must carry out reasonably the purposes of New Source Review/Prevention of Significant Deterioration (NSR/PSD); (2) it must approximate a common sense notion of 'plant'; and (3) it must avoid aggregating pollutant-emitting activities that as a group would not fit within the ordinary meaning of 'building,' 'structure,' 'facility,' or 'installation.'" In response, in the 1980 revisions to the PSD regulations, EPA clarified that emissions from operations may be aggregated and considered a single major source for PSD permitting if they meet each of the following three criteria: (1) the sources are located on one or more "contiguous or adjacent" properties, (2) the sources are under common control of the same person (or persons under common control), and (3) the sources belong to a single major industrial grouping (same two digit major Standard Industrial Classification (SIC) code). Only if all three criteria are met will the CAA permitting authority aggregate the operations into a single NSR/PSD permit. After the 1990 CAA Amendments created the Title V Operating Permit Program, this three-factor analysis was extended to Title V major source permitting. The source definition established by EPA was intended to aggregate only "major projects that would cause air quality deterioration" but "avoid review of projects that would not increase deterioration significantly." EPA has recently addressed the issue of CAA source determinations in the oil and gas industry in a 2009 guidance document from the EPA Office of Air and Radiation (the "McCarthy Memo"). The McCarthy Memo withdrew earlier guidance from EPA which concluded that the three prong aggregation analysis for oil and gas activities should begin by looking at and focusing most heavily on the proximity of the surface locations. This emphasis on proximity may have been a result of previous actions by EPA that interpreted "contiguous and adjacent" as meaning "functionally interdependent" (e.g., sources connected by pipelines, conveyors, roads, and other means by which materials and products or intermediate products are transferred between them). The McCarthy Memo attempted to negotiate a path between the broad mandate of "functional interdependence" and the more narrow use of "proximity." It recognized that source determinations in the oil and gas industry continue to be complex, and re-emphasized that the regulations list all three criteria to be used in the analysis. It then acknowledged that there would be cases in which proximity is the "overwhelming factor," but the agency is not going to pre-judge that by using a simplified approach, and that "reasoned decision-making" of each of the relevant factors needs to occur on a case-by-case basis. EPA's three prong aggregation analysis for oil and gas activities was recently challenged in the case of Summit Petroleum Corp. v. EPA before the U.S. Court of Appeals for the 6 th Circuit. In an August 7, 2012, decision, the 6 th Circuit rejected 2-1 the agency's "functional interrelationship" analysis used to support its definition of "adjacency," vacating EPA's determination that a Michigan natural gas plant and its production wells constitute a single major source. Further, on October 29, the court issued an order denying EPA's motion to rehear the case. The denial cements the appellate court's ruling, remanding the issue back to EPA, and ordering the agency to conduct a new analysis of the Michigan facilities using physical proximity as the sole basis for determining adjacency. In response, EPA has stated that relying on physical proximity alone may lead both to "absurd results" and increased regulatory burdens under the NSR and PSD programs. The agency announced that it plans to implement the 6 th Circuit's ruling solely in the 6 th Circuit states of Michigan, Ohio, Tennessee, and Kentucky. Contrary to this, source determinations for NESHAPs in the sector are clearly outlined in the CAA. In Section 112(n)(4), Congress specifically exempted upstream oil and gas operations from aggregation in several ways. First, with respect to the "major source" category, Section 112(n)(4) of the CAA provides that, notwithstanding the general definition of "major source," emissions from any oil or gas exploration or production well (with its associated equipment) and emissions from any pipeline compressor or pump station shall not be aggregated with emissions from other similar units, whether or not such units are in a contiguous area or under common control, to determine whether such units or stations are major sources, and in the case of any oil or gas exploration or production well (with its associated equipment), such emissions shall not be aggregated for any purpose under this section. Second, with respect to the "area source" category, Section 112(n)(4) provides that the Administrator shall not list oil and gas production wells (with its associated equipment) as an area source category under subsection (c), except that the Administrator may establish an area source category for oil and gas production wells located in any metropolitan statistical area or consolidated metropolitan statistical area with a population in excess of 1 million, if the Administrator determines that emissions of hazardous air pollutants from such wells present more than a negligible risk of adverse effects to public health. At the time, the 101 st Congress (1990) found that oil and gas wells, and associated equipment and gas processing, have generally very low emissions of air toxics. Furthermore, these operations are typically located in remote areas, with wells and equipment widely dispersed geographically, rather than concentrated in a single area. For these reasons, it is very unlikely that oil and gas sources would present a significant risk to human health and it is not expected that this source category would need to be a listed category designated for regulation. In response, EPA wrote in the 1999 preamble that the definition of facility should "lead to an aggregation of emissions in major source determinations that is reasonable, consistent with the intent of the Act, and easily implementable." Consequently, EPA determined it was not appropriate to aggregate crude oil and natural gas facilities at that time. The 2012 federal air standards are based on EPA's emission estimates for the crude oil and natural gas sector. While emissions from certain activities and equipment lend themselves to credible estimates, others—specifically fugitive emissions from production activities such as hydraulically fractured well completions, flowback, and produced water ponds—are more difficult to evaluate, have fewer data available, and remain under considerable debate. Currently, the primary source of information on emissions from the sector is a methane study published in 1996 by EPA and the Gas Research Institute (GRI). EPA annually calculates industry emissions using the methodology derived from this report, and while many of the factors have been representative over the period of 1992 to the present, several have been recalculated due to new information. EPA's inventory has been criticized by industry groups and other sources, many of which have put forth competing, and sometimes conflicting, estimates over the past few years. At this time, a comprehensive national inventory that directly measures the quantity and composition of fugitive emissions from natural gas systems does not exist. Until there is an adequate and reliable assessment of industry-wide emissions, the benefits, costs, and basis for regulation may remain uncertain. In light of these considerations, Congress may examine ways in which to best facilitate more comprehensive and technically accurate emissions estimates. By definition, "fugitive" emissions are those which are elusive and transitory. Thus, the single greatest difficulty in estimating emissions from natural gas systems is acquiring comprehensive and consistent measurement data. Currently, the most comprehensive study of emissions in the industry is more than a decade old, uses emissions factors and activity levels to calculate data, and focuses primarily on methane. EPA has initiated a more detailed inventory of the oil and gas sector's GHG emissions (i.e., methane and CO 2 ) under the agency's GHG Reporting Rule, and the first data for major sources were released in February 2013. National emissions inventories for criteria and hazardous air pollutants, however, are distinct from GHG inventories and are complicated by the fact that concentrations of these chemicals vary geographically across resource reservoirs. A few states have begun the process of acquiring emissions inventories from upstream production activities (e.g., Texas, Pennsylvania, California, and Colorado, as well as a national survey to be conducted by the University of Texas at Austin), but few have presented or harmonized this information. There are also many examples of local emissions inventories, commissioned by a range of stakeholders—from regional and municipal agencies to community groups and academic institutions. None are fully consistent with shared measurement practices and each use different techniques for their data collection. It is for these reasons that the first recommendation in the report released by the U.S. Secretary of Energy Advisory Board Shale Gas Production Subcommittee is to "immediately launch projects to design and rapidly implement measurement systems to collect comprehensive methane and other emissions data." Currently, the primary source of information on emissions in the natural gas industry is a methane study published in 1996 by EPA and the Gas Research Institute (GRI). At the time, the EPA/GRI study was conducted to assess the GHG emissions from various U.S. industrial sectors to assist in data analysis for the Intergovernmental Panel on Climate Change and emissions reporting for U.S. commitments to the United Nations Framework Convention on Climate Change. The study focuses on 1992 (as a base year) and uses three primary methodologies to generate emissions factors from over 100 different sources within the industry. The methods include (1) "component measurement," wherein emissions are measured directly from a large number of randomly selected pieces of equipment to determine an average emission factor for each type; (2) "tracer gas," wherein facility-wide emissions are calculated by releasing a tracer gas at a known and constant rate near the facility and measuring the downwind concentrations of the tracer and methane; and (3) "leak statistics," wherein emissions are measured for a large number of pipeline leaks to determine an average emissions rate per leak as a function of pipe material, age, operating pressure, and environmental characteristics. Total industry emissions are then estimated by multiplying these emissions factors by the activity levels for each system component (i.e., the number of wellheads, compressors, processing plants, miles of pipeline in operation, and other components) across the entire industry. The EPA/GRI study estimates that the industry emitted 314 ± 105 billion standard cubic feet (bscf) of methane in 1992 (i.e., 127 ± 42 million metric tons of carbon dioxide equivalent [MMtCO 2 e], or 1.42% ± 0.47% of the industry's gross national production that year). Roughly 60% of the industry's methane emissions are estimated to be from fugitive sources, about 30% from venting, and about 8% from combustion. Results of the EPA/GRI study, by source categories, are reported in Table 1 . EPA annually calculates emissions estimates for the industry using the methodology from the 1996 EPA/GRI study. Since its publication, activity data for some of the components in the system have been updated based on publicly available information. For other sources where annual activity data are not available or have not been reported by industry, EPA has developed a set of industry activity factor drivers to assist in modeling. While many of the emissions factors modeled by the EPA/GRI study were considered representative over the period of 1992 to the present, several factors have been re-calculated since publication. Most notably, emissions factors for gas well cleanups, condensate storage tanks, and centrifugal compressors have been revised due to new information. Emissions factors for gas well completions in unconventional resources with hydraulic fracturing—which were not industry practice at the time of the EPA/GRI study—have also been added to the inventory. With these revisions, EPA estimates that the industry emitted 247.7 million metric tons of carbon dioxide equivalent (MMtCO 2 e) greenhouse gases in 2010, of which 215.4 MMtCO 2 e was methane (i.e., 532 bscf of methane, or 2.4% of the industry's gross national production that year). The emissions estimates EPA uses for hydraulically fractured well completions and re-completions come from data provided by industry sources at several EPA Natural Gas STAR technology transfer workshops between 2004 and 2007. Using the reported data in its 2010 Background Technical Support Document, Greenhouse Gas Emissions Reporting from the Petroleum and Natural Gas Industry , EPA creates separate categories for conventional and unconventional well completions, and increases its estimate of methane emissions from both categories from 0.02 metric tons per well completion to 0.71 metric tons per conventional well and 177 metric tons per unconventional well (or 37 thousand cubic feet [Mcf]/completion and 9,175 Mcf/completion respectively). EPA assumes a 3-10 day flowback period with an uncontrolled release of methane. Further, EPA assumes that 51% of the fugitive emissions from hydraulically fractured well completions are flared—and the rest vented—based upon state and local regulations for control devices that are currently in place. EPA's methodology for estimating methane emissions from hydraulically fractured well completions has been criticized by a number of sources. A detailed critique of EPA's numbers can be found in IHS CERA's 2011 report, Mismeasuring Methane: Estimating Greenhouse Gas Emissions from Upstream Natural Gas Development. CERA's main concerns involve the small sample size for emissions data and the unsupported assumptions on venting practices. Further, several industry sources have reported competing emissions estimates, including the American Petroleum Institute and the America's Natural Gas Alliance (which list total industry emissions at half of EPA's estimate due to a re-calculation of emissions factors and activity levels for liquids unloading and re-fractured well completions), URS (which estimates emissions of 765 Mcf of gas on a per well basis compared to EPA's 9,175 Mcf), and Devon Energy Company (which reports data from eight of its operators demonstrating that flowback periods last on average only 3.5 days compared to EPA's estimated 3-10 days). As with any self-selected and self-reported survey, it is difficult to determine how representative these samples are of overall industry practice. Other published studies use different methodologies for the calculation of leakage (e.g., satellite observations, ambient measurements, and dispersion modeling). A National Oceanographic and Atmospheric Administration (NOAA) study analyzes daily air samples collected at the Boulder Atmospheric Observatory in Weld County in northeastern Colorado and concludes that fugitive natural gas emissions from drilling operations range from 2.3% to 7.7% of industry's gross annual production. The study uses an extensive data set of ambient concentrations of methane and related hydrocarbons in the vicinity of oil and gas operations in the region, along with the known emissions profiles for these gases from oil and gas operations, to infer the emissions from the industry. In December 2012, the research team reported updated Colorado data that support the earlier work, as well as preliminary results from a field study in the Uinta Basin of Utah suggesting even higher rates of methane leakage at 9% of the total production. On February 5, 2013, the industry-reported dataset for GHG emissions collected under EPA's Greenhouse Gas Reporting Program (GHGRP) was released for the first time for crude oil and natural gas systems. The data show 2011 GHG emissions from over 1,800 facilities in the crude oil and natural gas sector, including production, processing, transmission, and distribution. In total, these facilities accounted for GHG emissions of 225 MMtCO 2 e. Of note in the reporting: (1) The crude oil and natural gas sector is the second-largest stationary source of U.S. GHG emissions, behind power plants; (2) CO 2 emissions from the crude oil and natural gas sector account for 142 MMtCO 2 e, and methane emissions account for 83 MMtCO 2 e; (3) Onshore crude oil and natural gas production is the largest contributor, covering approximately 41% of reported emissions; (4) Emissions from onshore production facilities are primarily methane (such as leaks from equipment and vented emissions) while emissions from natural gas transmission and processing facilities are primarily CO 2 (such as combustion emissions associated with compressors); and (5) While the total emissions of CO 2 e reported by industry is consistent with the total emissions previously reported by EPA's national inventory, the ratio of CO 2 to methane emissions is notably different, with more CO 2 (and less methane) reported by the industry than estimated by EPA. The agency has instituted a multi-step data verification process for the GHGRP and intends to review the data on an ongoing basis, anticipating that the overall data quality will increase over time as facilities become familiar with the calculation methods and begin using more direct measurement. Using the data reported by industry under comments to the 2012 air standards as well as under the GHG Reporting Program, EPA again revised its calculations for the sector in its Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2011 , released April 15, 2013. For the 2011 inventory, EPA revisits its calculations for liquid unloading—the process of flushing excess water from a drilling well which the agency had estimated contributed as much as 51% of the total CH 4 emissions from the sector (an estimate that was disputed by many industry operators) and makes other changes, including its count of the number of active wells and its methodology for estimating emissions from hydraulic fracturing and refracturing well completions. With these revisions, EPA estimates that the industry emitted 177.0 MMtCO 2 e greenhouse gases in 2011, of which 144.7 MMtCO 2 e was methane (i.e., 358 bscf of methane, or 1.5% of the industry's gross national production that year). As debate continues over the level of methane emissions from natural gas production activities, a full assessment of VOCs, HAPs, hydrogen sulfide, and other aromatic hydrocarbons becomes even more complicated, since the concentrations of these chemicals can vary greatly from reservoir to reservoir. Thus, an accurate assessment of the levels of VOCs, SO 2 , and HAPs emissions from various production activities would require not only an accurate measurement of natural gas emissions but a full accounting of the component compositions of the gas across the geographic variability of the resource. The 2012 federal air standards are based on EPA's expectations that the avoided emissions under the rules would result in improvements in air quality and reductions in health effects associated with exposure to HAPs, ozone, and methane. However, the relationship between air pollution from natural gas systems and its impacts on human health and the environment has never been fully quantified and assessed. EPA acknowledges this shortcoming in the rule's proposal, stating that a full quantification of health benefits for the 2012 standards could not be accomplished due to the "unavailability of data and the lack of published epidemiological studies correlating crude oil and natural gas production to respective health outcomes." Various stakeholders assert that the lack of published and peer-reviewed literature makes it challenging to scientifically assess the impacts of natural gas operations. Some contend that this uncertainty argues against additional pollution controls at this time. Others maintain that the relevant question for determining whether pollution controls are necessary is whether natural gas systems impact an area's ability to attain air quality standards (NAAQS). In light of these considerations, Congress may wish to evaluate whether existing requirements are adequate to address concerns over the human health and environmental impacts of oil and gas activities, or, if different requirements are necessary. Quantifying the extent to which crude oil and natural gas systems contribute to air pollution is a complicated task, due in part to the difficulties in modeling the direct and indirect impacts of emissions reductions from a single industrial sector on the greater environment. Although there are many different methodologies that can be used to assess emissions from the industry, each is burdened with unique disadvantages. Thus, while science has demonstrated that emissions of VOCs and NO x contribute to the generation of ground-level ozone (i.e., smog), emissions of various organic air toxics can pose a threat to human health, and emissions of methane produce ground-level ozone and force climate change, comprehensive epidemiological studies correlating the emissions from natural gas systems to specific long-range and cumulative health outcomes are virtually nonexistent. It should be noted that such studies are generally difficult, rare, and expensive to conduct, requiring data that are typically absent or inadequate for assessment (e.g., precise and accurate estimates of emissions, fate and transport, and exposure levels, as well as impacts data on relatively large populations of exposed individuals over long durations of time). More common, instead, are localized studies or anecdotal reports—by stakeholders who live and work near oil and gas operations—of general air quality issues such as haze, odor, or ill health. These studies are countered by industry and/or agency reports that present information on recommended practices, regulatory compliance, and a history of monitored and reported environmental stewardship. Various stakeholders assert that the lack of published and peer-reviewed literature makes it challenging to scientifically assess the impacts of oil and gas drilling operations. The Centers for Disease Control and Prevention warns that the science on the impacts of natural gas drilling on health and the environment is "not yet clear," stating that there is "not enough information to say with certainty whether shale gas drilling poses a threat to public health," and that "more research is needed for us to understand public health impacts from natural gas drilling and new gas drilling technologies." Similarly, a recent report by GAO examines the available studies of air quality at shale gas development sites and finds that they are "generally anecdotal, short-term, and focused on a particular site or geographic location." Thus, they "do not provide the information needed to determine the overall cumulative effect that shale oil and gas activities have on air quality." GAO concludes that "the cumulative effect shale oil and gas activities have on air quality will be largely determined by the amount of development and the rate at which it occurs, and the ability to measure this will depend on the availability of accurate information on emission levels. However ... data on the severity or amount of pollutants released by oil and gas development, including the amount of fugitive emissions, are limited." It is for these reasons that the final recommendation in the report released by the U.S. Secretary of Energy Advisory Board Shale Gas Production Subcommittee is to advise federal, regional, state, and local jurisdictions "to place greater effort on examining [the] cumulative impacts" from "drilling and production operations, support infrastructure (pipelines, road networks, etc.) and related activities [which] can overwhelm ecosystems and communities." Some federal, state, and local agencies have embarked upon or are considering further investigation into the human health and environmental impacts of oil and gas production. These include the U.S. Department of Health and Human Services, and the states of Colorado and Maryland, among others. Examples of published studies on the human health and environmental impacts of oil and gas production are as follows: Many studies report that at each stage of natural gas production, VOCs—including BTEX and other hydrocarbons—and methane can escape and mix with nitrogen oxides from the exhaust of diesel-fueled equipment, and, in the presence of sunlight, produce ground-level ozone (i.e., smog). Several areas of the country with heavy concentrations of drilling suffer from serious ozone problems. For example, new oil and gas development has begun across sections of the Rocky Mountains that may be connected to the rise in ozone pollution. A 2005 Western Governors' Association report finds that crude oil and natural gas production operations released more than 430,000 tons of VOCs in Colorado, New Mexico, Utah, Wyoming, and Montana in 2002. The report projects that operations in these states would more than double their VOCs emissions in 15 years, releasing more than 965,000 tons annually by 2018. This release would equal the average amount of VOCs emitted annually from approximately 50,000 gas stations or by more than 25 million passenger cars, each driven 12,500 miles. A 2008 analysis by the Colorado Department of Public Health and Environment concludes that smog forming emissions from Colorado's crude oil and natural gas operations exceed vehicle emissions for the entire state. In 2009, the governor of Wyoming recommended that the state designate Wyoming's Upper Green River Basin as an ozone nonattainment area. An extended assessment by the Wyoming Department of Environmental Quality finds the state's ozone pollution problems are "primarily due to local emissions from oil and gas ... development activities: drilling, production, storage, transport, and treating." Recently, northeastern Utah recorded unprecedented ozone levels in the Uintah Basin, with more than 68 exceedances of the federal health standard during the first three months of 2010, and over 24 exceedances during the winter of 2011. The Bureau of Land Management identifies oil and gas activities in the region as the primary cause of the ozone pollution. Further, a 2009 study concludes that numerous "Class I areas" in the Rocky Mountain region—a designation reserved for national parks, wilderness areas, and other such lands—are likely to be impacted by increased ozone pollution as a result of oil and gas development, including Mesa Verde National Park and Weminuche Wilderness Area in Colorado and San Pedro Parks Wilderness Area, Bandelier Wilderness Area, Pecos Wilderness Area, and Wheeler Peak Wilderness Area in New Mexico. These areas are all near concentrated oil and gas development in the San Juan Basin. However, the evidence linking oil and gas development directly to high ozone levels in the region remains inconclusive. Researchers caution that many factors can contribute to the Rocky Mountains' ozone problems. For example, uniform snow cover reflects and concentrates sunlight, boosting ozone levels, as do temperature inversions that trap pollutants in mountain basins. In support of this point, the interim findings of the 2012 Uintah Basin Winter Ozone & Air Quality Study, released in August 2012, report that there were no exceedances of the eight-hour ozone standard for the basin in 2012, even though higher levels of ozone precursors and VOCs were measured in the region (the lack of sunlight-reflecting snowpack in 2012 is suggested as a possible reason). As another example, the Dallas-Fort Worth area in Texas is home to substantial oil and gas development. Of the nine counties surrounding the Dallas-Fort Worth area that EPA has designated as "nonattainment" for ozone, five contain significant oil and gas development. A 2009 study finds summertime emissions of smog-forming pollutants from oil and gas operations in the Dallas-Fort Worth area exceed emissions from all motor vehicles in the area. A 2012 study finds that emissions from natural gas compressor stations and flares contribute to significant amounts of ground-level ozone and formaldehyde in the Dallas-Fort Worth area, estimating that a single natural gas processing facility in the Barnett shale area could add as much as 3 parts per billion (ppb) to the hourly average ambient ozone. Still, the evidence linking oil and gas development directly to high ozone levels in the region remains inconclusive. In 2009 and 2010, the Texas Commission on Environmental Quality (TCEQ) conducted several large, in-depth surveys of air quality in the six counties surrounding Fort Worth. The TCEQ study identifies a 15% drop in the 8-hour ozone design value, despite a 10-fold increase in natural gas production in the region over the past decade. TCEQ attributes at least part of this reduction to the state's NO x control strategies as well as the prevailing winds. Other studies (e.g., epidemiological studies) focus on the human health impacts of hazardous air pollutants (HAPs) known or suspected to be released by crude oil and natural gas operations. A 2011 survey of existing literature on the topic reported that of the known chemicals used and/or found in natural gas operations, approximately 37% of the chemicals are volatile and may become airborne. The study further noted that if exposures exceed certain levels, over 89% of these chemicals can harm the eyes, skin, sensory organs, respiratory tract, gastrointestinal tract, or liver; 81% can cause harm to the brain and nervous system; 71% can harm the cardiovascular system and blood; and 66% can harm the kidneys. Overall, the hazardous air pollutants produce a profile that displays a higher frequency of health effects than the water soluble chemicals. In addition, because they vaporize, not only can they be inhaled, but they can be ingested or absorbed through the skin, increasing the chance of exposures. Several studies report that sources of HAPs in the oil and gas industry may be numerous. Data from the State of Colorado suggest that there may be more than 26 individual sources of HAPs in the oil and gas sector, including "venting, dehydration, gas processing, compression, leaks from equipment (fugitive emissions), open-pit waste ponds, and land application of volatile wastes." A study of HAPs emissions from natural gas related sources within the city of Fort Worth, TX, documents the following for HAPs emissions: 0.02 to 2 tons per year (tpy) from well pads (including emissions from equipment leaks, produced water and condensate storage and loading, and lift compressors); 0.9 to 8.8 tpy from well pads with compressors; 10 to 25 tpy from compressor stations (including emissions from combustion at the compressor engines or turbines, equipment leaks, storage tanks, glycol dehydrators, flares, and condensate and/or wastewater loading); 47 tpy on average from processing facilities (including emissions from equipment leaks, storage tanks, separator vents, glycol dehydrators, flares, condensate and wastewater loading, compressors, amine treatment and sulfur recovery units); and 0.4 tpy on average from saltwater treatment facilities. Although oil and gas development generally has not occurred in densely populated areas, this is not always the case, particularly with respect to recent expansion in unconventional resources. Several local, state, and national health agencies have expressed concerns about the health impacts of HAPs emissions from oil and gas facilities, including the Center for Disease Control and Prevention (CDC), the Agency for Toxic Substances and Disease Registry (ATSDR), the Association of Occupational and Environmental Clinics (AOEC) and the Pediatric Environmental Health Specialty Unit (PEHSU), the Colorado School of Public Health, the Town of Dish, Texas, the City of Fort Worth, Texas, and the City of Houston, Texas. In particular, the ATSDR investigation was spurred by community health complaints such as dizziness, nausea, respiratory problems, and eye and skin irritation to more severe concerns including cancer. The investigation identifies elevated cancer risk at one site and recommends further investigation into HAPs emissions and risks at all the sites. Similarly, the Colorado School of Public Health identifies air pollution from the crude oil and natural gas activities as contributing to acute and chronic health problems for those living near natural gas drilling sites, stating that "exposures to air pollutants during well completion activities present the greatest potential for health effects." The CSPH analysis, based on three years of monitoring, finds a number of air toxics near the wells including benzene, toluene, ethylbenzene, and xylene. However, critics have taken issue with the Colorado School of Public Health and other studies for a number of reasons including the use of (1) out of date data, (2) unrealistic estimates of emissions from sources, (3) overly conservative risk assessments when viewed in context, and (4) poor study design and input assumptions (e.g., the use of ambient collection methodology in a region populated with other emission sources such as roads, highways, and other industries). In support of this point, other studies have reported little or no health effects from the sector. For example, in 2012, the Houston-based Plains Exploration and Production Company (PXP) released a report that said hydraulic fracturing operations at the Inglewood oil field in the Baldwin Hills area in Los Angeles County posed "no public health or environmental threats." Similarly, in a review of health studies conducted by the Energy Institute at the University of Texas at Austin and published in February 2012, the authors conclude that "none of the studies reviewed ... showed a clear link between shale gas activities and documented adverse health effects, [and] that the gas industry has been using hydraulic fracturing for over 50 years, but the studies examined ... did not find any direct evidence for health impacts on workers in the industry or the public living near oil and gas industry activity." Further, many industry sources have argued that the standards promulgated under the 1999 Crude Oil and Natural Gas Production NESHAPs have demonstrated protection of public health with an ample margin of safety. Critics of EPA's regulatory requirements for air toxics have also expressed concern with the agency's decision to make significant and substantive changes to the agency's residual risk procedures, changes which they assert result in risk estimates between 100 and 1,000 times higher than actual. The contested procedures include (1) the consideration of risk from the total facility, (2) the consideration of risk across selected social, demographic, and economic groups within the population living near the facility, (3) the consideration of the hypothetical risk associated with the level of emissions allowed by the MACT standard, and (4) unreasonable assumptions concerning exposure points, times, and durations. Finally, other studies focus on the impact of greenhouse gas emissions from crude oil and natural gas operations. Many of these studies advocate for the increased production and use of natural gas as a substitute for other fossil fuel resources because it is domestically available, economically recoverable, and considered a potential "bridge" fuel to a less polluting and lower GHG-intensive economy. However, when fugitive emissions of methane from all sectors of the industry are factored into the total life-cycle assessment of the resource, the advantage of natural gas over other fossil fuels is less clear. EPA's Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-20 11 (published April 15, 2013) estimates natural gas systems emitted 144.7 million metric tons of carbon dioxide equivalent (MMtCO 2 e) of methane in 2011, a 10% decrease from 1990 emissions, and 32.3 MMtCO 2 e of non-combustion CO 2 in 2011, a 14% decrease from 1990 emissions. EPA cites improvements in management practices and technology, along with the replacement of older equipment, as helping to stabilize emissions of CO 2 . The decrease in methane emissions is the result of a decrease in emissions from transmission and storage due to increased voluntary reductions and a decrease in distribution emissions due to a decrease in unprotected pipelines. However, natural gas systems in 2011 were cited as being the single largest contributor to U.S. anthropogenic (i.e., man-made) methane emissions, representing nearly 25% of the total methane emissions from all domestic sources and accounting for about 2% of all GHG emissions in the United States. Some recent studies (outlined below) argue that expanding the production and use of natural gas could actually exacerbate rather than help mitigate global warming because methane's global warming potential (GWP) is as much as 20—if not 50—times more potent than carbon dioxide, depending upon the time interval used to express warming impacts. These studies suggest that if significant amounts of methane were to leak during the production of natural gas, the climate forcing of methane could cancel out or even outweigh any benefit gained from switching away from oil or coal combustion processes. Many of the published and publicly available life-cycle GHG emissions assessments of natural gas rely on the 1996 EPA/GRI emissions factors for methane leakage in the industry. EPA's recently updated emissions estimates suggest that leakage from natural gas systems is approximately 1.5% of gross national production. EPA has neither calculated nor stated whether these revisions negate the apparent advantage natural gas has over oil or coal when it comes to climate change. But some researchers, most notably Robert Howarth of Cornell University, have argued that they would. Howarth estimates that emissions from natural gas leakage are likely to be in the range of 3.6% to 7.9% of gross national production over the entire natural gas life-cycle (which includes production, processing, transmission, storage, and distribution). He estimates leakage at the wellhead during both well completion and production to be between 2.2% and 3.8%. At these rates, "the footprint of shale gas is at least 20% greater [than coal] and perhaps more than twice as great on the 20-year horizon and is comparable when compared over 100 years." Others, however, argue that Howarth's analysis is flawed, claiming that he significantly overestimates the fugitive emissions associated with unconventional gas extraction, undervalues the contribution of "green technologies" (e.g., REC) to reducing these emissions, bases the comparison between gas and coal on heat rather than electricity generation (almost the sole use of coal), and assumes a time interval (i.e., 20 years) over which to compute the relative climate impact of gas compared to coal, thus failing to capture the contrast between the long residence time of CO 2 and the short residence time of methane in the atmosphere. The controversy has led to a number of life-cycle GHG assessments comparing natural gas to coal. Most use the emissions measurement data from the 1996 EPA/GRI study as a starting point for their assumptions. For example: Wigley (2011) considers the effects of methane leakage, changes in radiative forcing due to changes in the emissions of sulfur dioxide and carbonaceous aerosols, and differences in the efficiency of electricity production between coal- and gas-fired power generation, to find, on balance, "these factors more than offset [natural gas's] reduction in warming due to reduced CO 2 emissions" such that "when gas replaces coal there is additional warming out to [the year] 2050 with an assumed leakage rate of 0%, and out to 2140 if the leakage rate is as high as 10%." Hultman (2011), however, estimates that for electricity generation, the GHG impacts of shale gas are 11% higher than those of conventional gas, and only half that of coal for standard assumptions. Fulton (2011) concludes that U.S. gas-fired electricity generation emits 47% less GHG than coal using the IPCC's 100-year global warming potential index for methane, instead of the 20-year index used by Howarth. Jiang (2011) estimates that emissions from coal-fired electric generation are so much greater than gas-combustion plants that a fuel switch would reduce climate-forcing emissions as long as leakage in a natural gas system is less than 14% (using the IPCC 100-year GWP) or 7% (using the IPCC 20-year GWP). Alvarez (2012), however, in an assessment similar to Jiang's, concludes that leakage in the natural gas system would only need to be 3.2% before the overall lifecycle emissions estimates for natural gas electricity generation surpassed those of coal in the near term. Further, powering vehicles with natural gas rather than gasoline would not strike the same balance in the near term unless gas producers bring their leakage rate down to a maximum of 1.6%; and replacing diesel with natural gas would cause greater near-term climate impacts unless leak rates were under 1.0%. Alvarez stresses that the climatic effect of replacing other fossil fuels with natural gas may vary widely depending upon the examined time horizon (e.g., 20, 100, or 500 years), the end-use sector (e.g., electricity generation or transportation) and the fuel replaced (e.g., coal, gasoline, or diesel). Natural gas is a product of—and thus a source of revenue for—the oil and gas industry. It is also a main source of pollution from the industry when it is emitted into the atmosphere. Due to this unique linkage, pollution abatement has the potential to translate into economic benefits for the industry, as producers may be able to offset compliance costs with the value of natural gas and its byproducts recovered and sold at market. To capitalize on these incentives, many recovery technologies have been incorporated into industry practices, and have thus served as the basis for several local, state, and federal regulations. The 2012 federal air standards require natural gas producers to use recovery technologies to capture approximately 95% of the methane and VOCs that escape into the air as a result of hydraulic fracturing operations. The agency estimates that the equipment and the activities required to comply with the 2012 standards will cost producers about $170 million a year, but calculates that incorporating the sale of recovered products into the cost will result in an estimated net gain of about $11 million to $19 million a year. The industry disagrees with these estimates and counters with compliance cost estimates at more than $2.5 billion annually. Third parties, such as Bloomberg Government, project a net cost between $316 million and $511 million, or, approximately 1% of industry's annual revenue. All estimates are based on assumptions regarding the quantity of captured emissions, the cost and availability of capital equipment, and the market price for natural gas. In light of these considerations, Congress may opt to examine ways in which to best align the costs of requirements with sustainable resource expansion, industry growth, and job creation. EPA estimates the 2012 air standards would yield a cost savings of $11 million to $19 million in 2015, as pollution abatement costs would be offset by the value of natural gas and condensate recovered and sold at market. EPA's annual cost estimates include (1) cost of capital, (2) operating and maintenance costs, (3) cost of monitoring, inspection, recordkeeping and reporting (MIRR), and (4) associated product recovery credits. All costs are reported in 2008 dollars, and calculated as follows: The total estimated net annual cost to industry to comply with the final amendments in the Crude Oil and Natural Gas Production NESHAPs is approximately $3.3 million. The total estimated net annual cost in the Natural Gas Transmission and Storage NESHAPs is approximately $180,000. The total estimated net annual cost to industry to comply with the final NSPS is approximately $170 million; and, when revenues from additional product recovery are considered, the final NSPS is estimated to result in a net annual engineering cost savings of approximately $15 million. EPA assumes that producers will be paid $4/Mcf for the recovered gas at the wellhead and $70 per barrel for recovered condensate, with about 43 million Mcf (i.e., 43 billion cubic feet) of natural gas and 160,000 barrels of condensate recovered by control requirements in 2015. Further, EPA estimates that the operation cost of 3-10 days of hydraulic fracturing with reduced emissions completions would be $700 to $6,500 per day with an additional $3,500 per well for flare equipment, for an average incremental cost of using the abatement technology of $33,237 per completion. EPA annualizes the cost using a 7% discount rate. The American Petroleum Institute (API), in its comments to EPA on the proposed regulation, included a consultant's report that projects compliance costs of more than $2.5 billion annually after accounting for incremental sales of the fuel. API estimates the cost of flaring emissions to be $90,000 per well, and the operation cost of using (i.e., renting and setting up) reduced emissions completions to be $180,000 per completion. API reports that only 300 REC sets are currently in existence, with the capacity to produce only 4,000 wells a year. Working with EPA's projection that there would be 25,000 new or modified hydraulically fractured wells completed annually, API argues that the equipment prescribed to conduct reduced emission completions would not be available in time to comply with the rule schedule. Further, API contends that EPA's cost analyses are based on "average model facilities" that do not represent all equipment and compliance costs and fail to identify when the controls are no longer economic. At the time of the proposed rule, API's consultant claimed that the proposed air standards could create "a significant slowdown in unconventional resource development ... resulting in less reserve additions, less production, lower royalties to the Federal government and private landowners, and lower severance tax payments to state governments. The delays in drilling result in delays in production, which result in the delays in the economic benefits associated with that production." Other industry commentators have gone further by stating that the full burden of regulations would fall squarely upon the producers, because economic incentives dictate that producers are currently capturing and selling all economically recoverable natural gas. EPA's rule would "divert investments from capital and energy development into regulatory compliance efforts, and impose onerous notification, record keeping, monitoring, reporting, and performance testing requirements that industry will necessarily incur costs to keep up with." In the final Regulatory Impact Assessment issued in April 2012, EPA examines the compliance costs for slightly more than 11,000 hydraulically fractured wells that would be drilled in unconventional formations, and nearly 1,500 that would be re-fractured to stimulate production. Of those, approximately 6,600 are assumed to be using reduced emissions completions voluntarily or under state/local regulations, and an additional 12% would be classified as exploratory, delineation, or low-pressure wells exempt from the 2012 standards, leaving about 4,600 that would be compelled to use REC as a result of federal regulation. API, however, claims that most large producers in the natural gas sector are currently using REC where feasible and "where it makes economic sense." Chesapeake Energy, the number two U.S. gas producer, has said it limits emissions on "a very high percentage" of its wells. Fourth-ranked Devon Energy has stated it uses REC for 91% of its wells. A survey of nine API members working in 29 drilling areas reported their members doing REC on 70% of their wells. America's Natural Gas Alliance (ANGA) submitted a survey to EPA of eight unidentified production companies that report using REC on 93% of their wells in 2011. As with any self-selected and self-reported survey, it is difficult to determine how representative these samples are of overall industry practice. A comparative report by Bloomberg Government—using slightly different values to analyze the available data on affected wells, compliance costs, products recovered, and market prices—calculates that the costs would fall somewhere in between both EPA's and API's projections. In their analysis, the regulation would generate an initial $125 million in spending on new equipment and $383 million in annual rental and service fees beginning in 2015. Factoring in product recovery, the total net costs of compliance would fall between $316 million and $511 million per year depending upon the market price of natural gas—or, more than twice the amount estimated by EPA and less than half that projected by API. This increase would account for approximately 0.5% to 0.7% of the industry's 2011 gas sales, which they determined "may cause a slight reduction in drilling activity." Bloomberg Government noted that EPA's analysis assumed natural gas prices 40% above levels at the time and estimates that prices would need to rise to $10/Mcf to make the value of recovered products equal to the compliance costs. Legislation in the 113 th Congress to amend the Clean Air Act to address emissions from crude oil and natural gas production activities includes the following: The BREATHE Act. On March 14, 2013, Representative Jared Polis (D-CO-2) and 40 co-sponsors introduced H.R. 1154 , a bill "to amend the Clean Air Act to eliminate the exemption for aggregation of emissions from oil and gas development sources, and for other purposes." Dubbed the Bringing Reductions to Energy's Airborne Toxic Health Effects Act, or BREATHE Act, the proposed bill would amend the CAA to (1) include hydrogen sulfide in the list of hazardous air pollutants, and (2) repeal the exemption on aggregating emissions from any oil or gas sources for any purpose relating to hazardous air pollutant emission standards. The bill was referred to the House Committee on Energy and Commerce on March 14, 2013. U.S. natural gas production has grown markedly in recent years. This growth is due in large part to increased activities in unconventional resources brought on by technological advance. Many have advocated for the increased production and use of natural gas in the United States for economic, national security, and environmental reasons. They argue that natural gas is the cleanest-burning fossil fuel, with fewer emissions of carbon dioxide, nitrogen oxide, sulfur dioxide, particulate matter, and mercury than its hydrocarbon rivals (e.g., coal and oil) on a per-unit-of-energy basis. For these reasons, many have looked to natural gas as a "bridge" fuel to a less polluting and lower greenhouse gas-intensive economy. However, the recent expansion in natural gas production in the United States has given rise to a new set of concerns regarding human health and environmental impacts, including impacts on air quality. To address air quality and other environmental issues, the oil and gas industry in the United States has been regulated under a complex set of local, state, and federal laws. Currently, state and local authorities are responsible for virtually all of the day-to-day regulation and oversight of natural gas systems, and many states have passed laws and/or have promulgated rules to address air quality issues based on local needs. Further to this, organizations like the State Review of Oil and Natural Gas Environment Regulations (STRONGER) are available to help states assess the overall framework of environmental regulations supporting oil and gas operations in their regions. At the federal level, EPA has promulgated minimum national standards for VOCs, SO 2 , and HAPs for some source categories in the crude oil and natural gas sector. The federal air standards focus primarily on the production and processing sectors of the industry, and were drawn, in part, from existing requirements found in the state codes of Colorado and Wyoming. Further to this, many producers in the crude oil and natural gas sector have set forth a series of recommended practices. These practices are sustained by the economic incentives provided by capturing the fugitive releases of natural gas and its byproducts to be sold at market. Several voluntary partnerships sponsored by various federal and international agencies also serve to facilitate recommended practices for emissions reductions in the oil and gas industry. EPA's Natural Gas STAR Program, the Global Methane Initiative (formerly the Methane to Markets Partnership), and the World Bank Global Gas Flaring Reduction Partnership are three such programs. Many believe that air standards similar to those promulgated by Colorado, Wyoming, and the federal government are sufficient to control VOC, SO 2 , and HAP emissions from the natural gas production sector. Some argue that the cost of compliance with state and federal air standards could affect industry profits, thereby reducing economic interest to invest and slowing production activities. Others are concerned that some pollutants and some emission sources remain unregulated by any standard, including methane, hydrogen sulfide, oil wells, offshore wells, conventional gas wells, and most operations downstream of the gas processing plant. Debate over the costs of compliance, covered sources and pollutants, and the proper regulatory institutions (i.e., local, state, or federal) continues. Complicating these debates is the fact that a comprehensive national inventory that directly measures the quantity and composition of fugitive emissions from natural gas systems does not exist. This is due to many factors, including costs and technical uncertainties. But, until there is an adequate and reliable assessment of industry-wide emissions, the benefits, costs, and basis for regulation may remain uncertain. Appendix A. Federal Air Standards for Crude Oil and Natural Gas Systems Appendix B. Composition of Fugitive and Combusted Natural Gas Emissions Fugitive Natural Gas Fugitive natural gas is primarily a mixture of low molecular-weight hydrocarbon compounds that are gases at surface pressure and temperature conditions. While the principal component of natural gas is methane (CH 4 ), it may contain smaller amounts of other hydrocarbons, such as ethane, propane, and butane, as well as trace amounts of heavier hydrocarbons. Non-hydrocarbon gases, such as carbon dioxide (CO 2 ), helium (He), hydrogen sulfide (H 2 S), nitrogen (N 2 ), and water vapor (H 2 O), may also be present in any proportion to the total hydrocarbon content (see Table B -1 ). Combusted Natural Gas Combusted natural gas releases carbon dioxide (CO 2 ), carbon monoxide (CO), nitrogen oxides (NOx), and trace amounts of sulfur dioxide (SO 2 ), particulate matter (PM), uncombusted methane (CH 4 ), VOCs, and HAPs. Combusted natural gas is generally regarded as "cleaner" than other fossil fuels with respect to various criteria pollutants and greenhouse gas (GHG) emissions (see EPA's and EIA's data comparisons in Table B -2 ). Coal, fuel oil, and petroleum-based transportation fuels are composed of more complex long-chain hydrocarbon molecules, with higher carbon ratios, and may contain higher nitrogen and sulfur contents as well as increased amounts of ash and particulate matter. By comparison, the combustion of natural gas releases minimal amounts of sulfur dioxide and nitrogen oxides, virtually no ash or particulate matter, and lower levels of carbon dioxide, carbon monoxide, and other reactive hydrocarbons. While comparisons among the emission profiles of natural gas, coal, fuel oil, and transportation fuels are useful in certain contexts, it should be noted that these comparisons are not wholly substitutable, as end-uses of the fuels vary across sectors and pollution control mechanisms are in place for many of the fuels' combustion activities. Appendix C. Glossary of Terms
|
Natural Gas Systems and Air Pollution Congressional interest in U.S. energy policy has focused in part on ways through which the United States could secure more economical and reliable fossil fuel resources both domestically and internationally. Recent expansion in natural gas production, primarily as a result of new or improved technologies (e.g., hydraulic fracturing, directional drilling) used on unconventional resources (e.g., shale, tight sands, and coal-bed methane), has made natural gas an increasingly significant component in the U.S. energy supply. This expansion, however, has prompted renewed questions about the potential impacts of natural gas systems on human health and the environment, including impacts on air quality. Unlike the debate over groundwater contamination or induced seismicity—where questions exist as to whether or not production activities contribute significantly to these impacts—there is little question that natural gas systems emit air pollutants. The concerns, instead, are the following: Which pollutants? How much of each pollutant? From which sources? What are the impacts of the emissions? How much is the cost of abatement? What are the respective roles of federal, state, and local governments? Air pollutants are released by natural gas systems through the leaking, venting, and combustion of natural gas; the combustion of other fossil fuel resources; and the discharge of particulate matter during associated operations. Emission sources include pad, road, and pipeline construction; well drilling, completion, and flowback activities; and gas processing and transmission equipment such as controllers, compressors, dehydrators, pipes, and storage vessels. Pollutants include, most prominently, methane and volatile organic compounds—of which the natural gas industry is one of the highest-emitting industrial sectors in the United States—as well as nitrogen oxides, sulfur dioxide, particulate matter, and various forms of hazardous air pollutants. EPA's 2012 Air Standards The U.S. Environmental Protection Agency (EPA), in response to a consent decree issued by the U.S. Court of Appeals, D.C. Circuit, promulgated air standards for several source categories in the crude oil and natural gas sector on August 16, 2012. These standards—effective October 15, 2012—revised existing rules and promulgated new ones to regulate emissions of volatile organic compounds (VOCs), sulfur dioxide, and hazardous air pollutants (HAPs) from many production and processing activities that had never before been covered by federal oversight. The standards control air pollution, in part, through the capture of fugitive releases of natural gas. Thus, compliance with the standards has the potential to translate into economic benefits, as producers may be able to offset abatement costs with the value of product recovered and sold. Using this assumption, EPA estimated the annual benefits of the standards to be VOC reductions of 190,000 tons, HAP reductions of 12,000 tons, methane reductions of 1.0 million tons, and a net cost savings of $11 million to $19 million after the sale of recovered product. Industry and other stakeholders have disputed these figures as both too high and too low. Moreover, the expansion of both industry production and government regulation of natural gas has sparked discussion on a number of outstanding issues, including the following: defining the roles of local, state, and federal governments, determining the proper coverage of pollutants and sources, establishing comprehensive emissions data, understanding the human health and environmental impacts of emissions, and estimating the costs of pollution abatement. Scope and Purpose of This Report The report begins by briefly outlining the production, processing, transmission, and distribution phases of the natural gas industry, then characterizes the types and sources of pollutants in the sector. It then turns to the role of the federal government in regulating these emissions, including the provisions in the Clean Air Act and the regulatory activities of the EPA. It concludes with an extended discussion of the aforementioned outstanding issues. For an abbreviated version of this report, see CRS Report R42986, Air Quality Issues in Natural Gas Systems: In Brief.
|
In a representative democracy, publicly available information about government activity is seen by many as a vital resource to inform the public, and to ensure accountability and transparency of government action. In the past half-century, in government and beyond, information creation, distribution, retention, and preservation activities have transitioned from a tangible, paper-based process to digital processes managed through computerized information technologies. Information, whether a newspaper, government communication, or congressional bill, is created as a word processing document, spreadsheet, database, or other digital object which then may be rendered as a text, image, or video file. Those files are then distributed through a myriad of outlets ranging from particular software applications and websites to social media platforms. The material may be produced in tangible, printed form, but typically remains in digital formats. Government printing and publishing authorities, generally codified in some chapters of Title 44 of the United States Code ( U.S. Code or U.S.C.), specify the production, dissemination, retention, and availability of government information by or through the Government Publishing Office (GPO). GPO is a legislative branch agency that serves all three branches of the federal government as a centralized resource for gathering, cataloging, producing, providing, authenticating, and preserving published information. The agency's activities are funded through three sources: appropriations, income from executive and judicial branch agencies that pay GPO for information management and distribution services, and sales of products to nongovernmental entities and the general public. GPO's appropriation is included in the annual legislative branch appropriations bill. The bill primarily funds two GPO accounts: Congressional Publishing, and Public Information Programs of the Superintendent of Documents. On occasion, Congress has made further appropriations to the Government Publishing Office Business Operations Revolving Fund. Congress allocates a substantial proportion of the funds appropriated to GPO to Congressional Publishing, which funds the production and dissemination of congressional documents. Established in 1861 as the Government Printing Office, GPO was renamed in 2014. Congress has passed measures making substantial changes to the legislative branch agency's operations on three occasions since its establishment. In 1895, Congress codified the role of the Joint Committee on Printing (JCP), originally established in 1846, to oversee qualifications of "journeymen, apprentices, laborers, and other persons necessary for the work" at GPO along with establishing a number of other technical and administrative oversight responsibilities. The 1895 measure also established printing formats for congressional bills, hearings, and documents, and the Congressional Record that are still in use today. In 1962, Congress created the Federal Depository Library Program (FDLP) within GPO to provide permanent public access to published federal government information. In 1993, GPO was directed to maintain an electronic directory of federal digital information, and to provide online access to the Congressional Record , and the Federal Register . GPO continues to operate on the basis of a number of statutory authorities first granted in the 19 th and 20 th centuries that presume the existence of government information in an ink-on-paper format, because no other format existed when those authorities were enacted. The current version of the U.S. Code available online mentions current JCP authorities in 60 sections; 37 of those sections were originally enacted a century or more ago. Similarly, GPO is subject to 129 Code sections in Title 44, of which 105 were first enacted during or prior to 1917. As a consequence, the law makes reference to the trades that were necessary to make printed products in the 19 th century, but is silent on the contemporary corps of software engineers, data entry technicians, website designers, and librarians whose efforts support the creation and distribution of much of the digital material that comprises government information. Current law also contains detailed requirements for distribution of paper copies of a variety of documents, including bills under consideration throughout the legislative process and other congressional materials, but little detail on the specifics of digital collection, distribution, retention, or preservation. In addition, the current business model under which GPO operates is arguably over-reliant on printing as a means of generating income, and there are no explicit provisions to meet the costs of upgrading technological infrastructure upon which electronic collection, distribution, and preservation rely. With the widespread use of digital technologies and availability of government information in digital form, some have argued that eliminating paper versions of some publications, including the Federal Register , Congressional Record , and other congressional documents, and relying instead on electronic versions, could result in cost and other resource savings. These statements are difficult to verify, due in part to a lack of reliable cost models for enduring digital information management systems. On the printing side, some savings have resulted by reducing the number of printed copies, or by implementing newer production processes. Nevertheless, GPO notes that for the foreseeable future, "some tangible print will continue to be required because of official use, archival purposes, authenticity, specific industry requirements, and segments of the population that either have limited or no access to digital formats, though its use will continue to decline." Others have raised broader questions about the capacity of Title 44 and other information dissemination authorities to enable the provision of government information in an effective and efficient manner. In 1994, for example, what was then designated as the General Accounting Office (GAO) stated that "for all practical purposes, the framework of laws and regulations used to manage many aspects of government publishing has become outdated" and that "[t]he additional technological changes that are expected will only exacerbate this situation." In 2013, the National Academy of Public Administration (NAPA), noted that "GPO's statute is outdated and precedes current technology." In 2017, in testimony before the Committee on House Administration (CHA), Davita Vance-Cooks, who then served as the Director of GPO, suggested that 44 U.S.C. Ch. 19, governing the operations of FDLP, "has been eclipsed in some areas by technology, which today provides for more flexibility and innovation in meeting the public's needs for access to Government information." In light of the technological changes of the past four decades, a relevant question for Congress might arise: To what extent can these 19 th century authorities and work patterns meet the challenges of ubiquitous digital creation of government information? This question is further complicated by the lack of a stable, robust set of digital information resources and management practices like those that were in place when Congress last considered current government information policies. This report examines three areas related to the production, distribution, retention, and management of government information in a primarily digital environment. These areas include the Joint Committee on Printing; the Federal Depository Library Program; and government information management in the future, JCP was established by Congress in 1846 to oversee the management of private printers who competed to provide printing and publishing services to the government. With the creation of GPO in 1861, JCP was charged with overseeing and regulating government printing in all three branches of the national government, and overseeing the new agency in its efforts to provide government-wide printing services. As assigned by Congress, JCP's statutory duties with regard to the management of GPO were (and remain) granular. Some of those responsibilities include overseeing GPO finances, facilities, and staffing for the various printing and other industrial trades necessary to produce printed works when those authorities were conferred in the 19 th century. In statute, JCP is the final authority on wage setting for GPO staff, assessing the quality of paper GPO would purchase, and determining which work GPO might produce within the agency or by contract with outside vendors. The joint committee's authority to oversee and enforce statutory authorities that mandate government printing through GPO was essentially unchallenged for more than a century. This began to change in the 1980s and 1990s following a 1983 Supreme Court decision in Immigration and Naturalization Service v. Chadha . The Court ruled unconstitutional a one-chamber veto because it deviated from the constitutionally specified lawmaking process of bicameral consideration and presentation of legislation by Congress to the President for his consideration. Soon thereafter, a number of executive branch entities, including the Department of Justice (DOJ), Department of Defense (DOD), and the Office of Management and Budget (OMB), began to question JCP's regulatory and statutory authority on the basis of Chadha and enduring concerns about the separation of powers. Of particular interest to those agencies was the requirement specified in 44 U.S.C. 501 that all printing, binding, and blank-book work for every government entity other than the Supreme Court is to be done at GPO. DOJ's Office of Legal Counsel (OLC) concluded that many of JCP's authorities, particularly provisions mandating the joint committee's prior approval before an executive agency could have materials printed outside of GPO, were invalidated by Chadha , and that executive agencies were able to procure printing services from providers other than GPO. With executive agencies free, from the perspective of DOJ and OMB, to fulfill their printing services elsewhere, the production and distribution of government information—meant to be collected, produced, and distributed through GPO and made publicly available—departed to some extent from the policies specified in various chapters of Title 44 of the U.S. Code . Among other consequences, the increase in agency-controlled printing and publishing resulted in an unknown number of "fugitive" government documents and publications that have not been identified or published in GPO's Federal Digital System (FDSys), govinfo, or the collections of FDLP participants, and may not be readily available to policymakers or the general public. In light of governance and operational challenges to the joint committee's activities, in 1995 Congress began a process to eliminate staffing and funding for JCP, with the joint committee last receiving an appropriation for its activities in FY1999. According to searches of a variety of databases, JCP has held organizational meetings for every Congress since the 104 th Congress in 1995, and published details of those meetings for the 108 th and 113 th -115 th Congresses. The committee also published the proceedings of one hearing it held in 1997. In practice, some of the functions related to government information management for which JCP is responsible appear to be executed by the Committee on House Administration (CHA), or the Senate Rules and Administration Committee (SRA), from which JCP draws its membership. In this context, questions have been raised by congressional and other observers related to the efficiency and effectiveness of JCP, and whether or not its responsibilities might formally be performed by other entities. One option could be to maintain existing practices, as they appear to have addressed GPO management and oversight concerns that can be publicly identified. Another option might be to assess the joint committee's authorities to identify those which may have been rendered impracticable due to separation of powers concerns expressed by the executive branch, or obsolete, following the implementation of newer GPO procurement or other more modern business practices, or due to technological or practical changes in printing and publishing. In light of such an assessment, one option might be to terminate JCP and formally reassign its responsibilities to CHA, SRA, GPO, or other government entities as appropriate. Congress established FDLP to provide free public access to federal government information. The program's origins date to 1813, when Congress authorized the printing and distribution of additional copies of the Journals of the House and Senate, and other documents the chambers ordered printed. At various times, the program was expanded to include federal executive branch publications. FDLP is administered under the provisions of Chapter 19 of Title 44 of the U.S. Code by GPO, under the direction of the Superintendent of Documents (SUDOCS), who is appointed by the Director of GPO. The current structure of the FDLP program was established in 1962. Under the law, FDLP libraries receive from SUDOCS tangible copies of new and revised government publications authorized for distribution to depository libraries, and are required to retain them in either printed or micro facsimile form. Depository libraries—which include state, public and private academic, municipal, and federal libraries—are required to make tangible FDLP content available for use by the general public. In support of that effort, depository libraries provide resources to manage collection development, cataloging, bibliographic control, adequate physical facilities, collection security and maintenance, and staffing. Neither statute nor current GPO guidance specifies how depository libraries must deploy those resources in support of FDLP. Ownership of publications provided by SUDOCS to depository libraries remains with the U.S. Government. Observers note that distributing publications to depository libraries has the effects of long-term preservation of federal government information in widely dispersed settings, and providing free, local access to that information. The costs of providing preservation and access are also widely distributed. Depository libraries fall into one of two statutory categories related to the materials they may receive. Under 44 U.S.C. 1912, not more than two depository libraries may be designated as regional depository libraries (hereinafter, regionals) in each state and Puerto Rico. Regional libraries are required to retain tangible government publications permanently, with some exceptions. The FDLP currently has 46 regional libraries. Five states have two regional libraries; seven regionals serve more than one state, territory, or the District of Columbia; and two states have no designated regional library. Arrangements allowing multistate regional libraries do not appear to be sanctioned in 44 U.S.C. Chapter 19, but according to GPO, some multistate agreements date to the years following the passage of the 1962 FDLP program revisions. Selective depository libraries (hereinafter, selectives) are partially defined in Title 44, and include all FDLP participants that are not regional libraries. Whereas regionals receive all FDLP tangible content provided by GPO, selectives may choose among classes of documents made available. Selective libraries that are served by a regional library may dispose of tangible government documents after retaining them for five years, subject to certain conditions. Those selective libraries that are not served by a regional library are required to retain government publications permanently, subject to the same limitations placed on regional libraries. There are approximately 1,100 selective libraries in the FDLP. Table 1 provides the number of depository libraries by decade since 1962. As shown in Figure 1 , the number of libraries participating in the FDLP has declined since the mid-1990s. Authorities governing FDLP are based on a paper-based information creation and distribution environment. The FDLP tangible collection, which incorporates materials dating to 1813, is estimated to contain approximately 2.3 million items. As much as one-third of the tangible collection, including most items created prior to 1976, is not catalogued. Most depository libraries do not have a full complement of depository materials because they joined the program at various times after 1813, and are not required to acquire materials retrospectively or retroactively in the event of collection loss. Some tangible government publications are still distributed to depository libraries but in decreasing quantities. During FY2011, for example, GPO distributed approximately 2 million copies of 10,200 individual tangible items to depository libraries. During FY2016, 989,826 copies of 4,502 items were provided. Under current GPO guidance, every FDLP participant is required to provide the "FDLP Basic Collection," which is composed of a variety of government information collections, including the Budget of the United States Government , the Catalog of Federal Domestic Assistance, and the daily edition of the Congressional Record , among other resources. The resources may be served to users in tangible or digital formats as available. In response to demand from users and some FDLP participants, GPO in 2014 announced changes to focus on the provision of access to online resources by selectives. A "mostly online depository" is a selective that emphasizes selection and provision of access to online depository resources, while providing access to a few resources in tangible formats. An "all online depository" is a selective that does not intend to select or add any tangible depository resources. Under GPO guidance, current selective depository libraries with tangible holdings may transition to become all online over time by choosing not to receive any tangible format items and by removing all tangible depository publications in the library's collection. The emergence of a predominantly digital FDLP may raise questions about the capacity of GPO to manage the program given its existing statutory authorities. Whereas GPO is the central point of distribution for tangible, printed FDLP materials, its responsibilities are potentially more diverse, and may be less explicitly specified, regarding its distribution of digital information. In some instances, GPO carries out activities to distribute digital information that are similar to its actions regarding print materials. In others, GPO provides access to digital content that it does not produce or control. SUDOCS has archiving and permanent retention authorities for tangible materials, which are exercised by the distribution of materials to depository libraries. At the same time, those authorities do not envision digital creation and distribution of government publications. GPO appears to have some authority to manage digital FDLP materials and other aspects of the program, subject to congressional approval. At the same time, explicit digital distribution authorities that provide for online access to publications, including core legislative and regulatory products, do not directly address GPO's retention and preservation responsibilities for digital information. In June 2017, Davita Vance-Cooks, then Director of GPO, charged the Depository Library Council (DLC), a GPO advisory committee, with making recommendations to her for changes in Title 44 related to FDLP, with particular emphasis on Chapter 19, and potential revisions that could provide depository libraries with "more flexibility." In testimony before the Committee on House Administration (CHA), Director Vance-Cooks suggested that 44 U.S.C. Ch. 19, governing the operations of FDLP, "has been eclipsed in some areas by technology, which today provides for more flexibility and innovation in meeting the public's needs for access to Government information." DLC presented its recommendations to Director Vance-Cooks and the depository library community in September and October 2017, respectively, which included the following: Amend and combine existing definitions of government publication and public information intended to be made available to the public to include government information in all formats, allowing those formats be incorporated into FDLP. Require legislative, executive, and judicial branch agencies to deposit authenticated electronic publications with GPO for inclusion in FDLP. Make authenticated digital copies of government publications a format which a regional depository library may hold. Give GPO grant-making and contracting authority, to work with depository libraries to enhance access to government publications. Affirm that the public shall have no-fee access to electronic government information. Incorporate provisions ensuring that the public may use federal electronic information resources with an expectation of privacy. In addition, DLC made several recommendations related to detailed FDLP qualifications and operations, including changes to the process by which selectives choose materials and formats they receive from GPO; amending requirements based on tangible holdings to a standard that a participating library have physical or electronic collections sufficient to demonstrate organizational capacity; changes to the manner in which some selectives might dispose of some government documents; and expanded authorities for regional depositories to share their collections and services across state lines, subject to the approval of Senators in the involved states. The possible concerns related to managing the FDLP program in an environment in which tangible and digital materials coexist are varied. On the tangible side, some participating depositories note that the enduring challenges of tangible collections that have grown out of the available space include storage, cataloging, and access. Digital resources raise questions regarding the security, authentication, custody, and long-term preservation of digital materials. Other areas of possible concern include the management and digitization of tangible materials, permanent retention and preservation of digital content, and costs associated with these activities. These concerns may be addressed in their own right, or in the context of user demand for FDLP information, for which there is no uniform metric over time, or comparatively among current FDLP institutions. Systematic estimates of the usage of tangible FDLP materials are not readily available. This is due in part to the highly decentralized manner in which materials are stored and accessed, differences in the ways depository libraries might track collection use, and the lack of requirements to develop and maintain utilization metrics. There are some suggestions that parts of the collection might be underutilized, due to the lack of cataloging information for much of the collection distributed prior to 1976, when GPO began creating cataloging information. Others suggest that some materials that are cataloged and available receive little engagement because users prefer digital formats. On the other hand, it has been suggested that some tangible items that had not been used were more frequently accessed when made available online. In the absence of any systematic inquiry, it cannot be determined whether the perceived lack of utilization is the result of minimal demand, lack of catalogue information for some materials in the FDLP collection, inadequate communication of the collection's availability, or other, unidentified reasons. Some depository libraries see opportunities to digitize tangible FDLP collections to ensure their preservation and to make them more available to users. Such efforts might provide broader access to the public, assuming that technological infrastructure is in place to ensure sufficient user access to the Internet. Provision of digital government information in digital form could reduce the costs of maintaining a tangible collection, or provide the opportunity to reduce the number of copies of tangible government publications held by depository libraries through consolidation of collections. On the other hand, there is no consensus on what constitutes a sufficient number of paper copies. Further, it is possible that the costs of ongoing maintenance and technology upgrades necessary to support digitized materials could be higher than the current costs to maintain tangible collections. Any effort to digitize or reduce the number of tangible copies appears to be beyond the scope of authorities granted to SUDOCS or depository libraries under current law. Nevertheless, the question of how to retain and preserve government information contained in tangible form alone, and to provide access to that information to all who wish to see it, raises a number of questions. At the outset, these questions may lead in two directions: one related to the retention and preservation of tangible materials in their original form, the second focused on efforts to transition tangibles to digital formats. Questions related to the retention and preservation of materials in tangible formats arise with regard to the following: preservation of decaying tangibles; establishing how many complete, tangible copies may be necessary to ensure permanent retention of records of government activities; and access for the general public when digital materials do not meet user needs. With regard to preservation, it would be necessary to have a more fully cataloged FDLP collection to be able to determine the scope of preservation requirements. There is little consensus on questions about the number of tangible copies to be retained permanently. Some studies note the opportunities to consolidate collections to free up storage space, and potentially reduce costs, while still ensuring that library users' needs are met. Others cite a lack of data to demonstrate how many copies might be needed to meet those needs. Another proposal calls for the creation by GPO of two national retrospective collections, to be housed separately in secure facilities. One study focusing on the number of copies of scholarly journals that must be retained in print form concluded that accurate, analyzable data were not readily available, which might leave decisionmakers "to make best-guess estimates anyway" in determining the appropriate number of permanent retention tangible copies. A number of questions related to the retention and preservation of digitized materials are similar to issues that arise in the consideration of born digital materials. Questions specifically related to digitized tangibles arise in the following areas: the costs of digitizing tangible collections; the authenticity and ownership of digitized versions of tangible publications; the disposition of original publications that are digitized; the extent to which the costs of these efforts represent a resource savings or increase in comparison to current FDLP practices or a redistribution among FDLP participants; and whether these efforts change the extent and nature of public access to government information. In addition to the technical and procedural aspects, any discussion of tangible materials would likely involve consideration of the costs of activities necessary to preserve them in their original manifestations, or to ensure their access through cataloging or digitization. Estimates of the cost of such efforts across the FDLP program do not appear to have been developed. Unlike tangible collections, digital government information is not physically provided to depository libraries, but is provided through the Internet by GPO and its content partners to depository libraries and directly to users with Internet access. The information itself is contained on a server and in any backup facility that may be utilized. For depository libraries, this may raise concerns related to their collection development practices. If digital access is assured, it may be possible to reduce tangible collections. On the other hand, if digital access is not robust, it may be necessary for depository libraries to support access to digital materials while maintaining tangible collections. Potential users may or may not benefit from digital delivery arrangements if their Internet access is not sufficient to access resource intensive, authenticated materials served through FDSys and govinfo. Another set of concerns may focus on the availability of information that is not physically present in depository libraries. Other concerns may arise if available search resources do not yield the information a user seeks. Depository libraries appear largely to have borne the costs of the FDLP program since its establishment. There is no mechanism in 44 U.S.C., Chapter 19, to fund depository costs of managing materials, staff, and physical plant needs, and providing public access. In an era characterized by dwindling resources, particularly in state and local governments and public libraries, the costs of maintaining FDLP tangible collections, which, according to GPO, remain the property of the U.S. Government, have become prohibitive to some depository libraries. The emergence of digital delivery has had cost implications for information providers. Whereas the costs of tangible support rest largely with depository libraries, the costs of providing digital materials, including storage of digital materials, Web development, maintenance, and upgrades, fall on GPO for FDSys and govinfo and other entities that provide FDLP content. In its FY2018 budget request, GPO stated that it "has continued to invest in the IT infrastructure supporting GPO's digital information system." Over time, the costs of digital delivery could require increased commitment of GPO resources from its revolving fund or additional appropriations for GPO and other federal content providers; the absence of those resources could lead agencies to reevaluate service levels in a hybrid system of tangible and digital delivery. These costs may continue to increase as more digital information is created, and older data, software, and hardware must be upgraded to ensure ongoing digital availability, retention, and long-term preservation. There is no publicly available estimate of what those costs might be over time. The manner in which Congress has addressed government printing and publishing practices in the past might offer ideas for how it could oversee government information creation, distribution, and retention moving forward. This does not necessarily mean that legislatively enacting a new information management process, if undertaken, could be achieved in the same manner as past efforts. By the time of the enactment of the Printing Act of 1895, the written word, whether on cave walls or papyrus, or from the mechanical printing press, had been a robust communication technology for 4,000 years. It is possible to see primitive drawings and glyphs in the places humankind first appeared, or early examples of printing created with mechanical presses in their original forms. The handwritten and printed versions of Journals of the House and Senate dating to the First Congress in 1789 are readily available in tangible and digitized form. The 1895 printing act was arguably an expression of the state-of-the-art standard of printing technology and provided a foundation which supported government information distribution for more than a century. This is due in part to the robust nature of some printed materials. Once created, many paper-based documents and records are preserved for centuries because the materials used to create them do not readily deteriorate, assuming resilient materials and environmentally appropriate storage. The technologies supporting these activities, including writing, printing, bindery, and librarianship, are nonproprietary, and skilled practitioners of those crafts are well distributed across the world. In the event of deterioration, and depending on their value, among other variables, tangible materials may be preserved by applying a range of interventions that do not necessarily alter the information they provide. By contrast, in the fourth or fifth decade of transitioning from the tangible written word to ubiquitous digital creation and distribution, the way ahead is not as clear. Consideration of the questions and challenges surrounding the permanent retention of digital information has occurred, but solutions that are widely accepted or implemented have not been identified. The questions are challenging, because less is known about the long-term, archival retention and preservation of digitized or born digital materials than about the preservation of information in paper or other tangible formats. There are some similarities; as with preserving the "right" number of tangible copies of a given work for permanent retention, there is no widespread agreement about the number of manifestations of digital items that should be kept. But there are also substantial differences in approaches necessary to preserve digital materials. Some born digital materials—such as databases, websites, and publications—may be dynamic, and their content more readily changed than tangible materials. This may raise questions about version control, or necessitate the development of strategies for identifying and capturing different versions of materials in their entirety for archival preservation. Further, instead of a fixed standard as is available for tangible products, digital preservation relies on a combination of risk analysis, and differentiated preservation techniques dictated in part by the object or goals of the preservation effort. Whereas a printed document or book sits on a shelf, digital production and retention relies on three interrelated factors for its creation: hardware, an operating system, and software applications. These separate but interdependent technologies and processes interact to create a "document," whether it is printed or retained digitally. Over the past half century, all three items have evolved, with some early hardware such as mainframe computers, or the non-networked personal computer; operating systems and programming languages, including DOS, or COBOL; and software, including WordStar word processing or Eudora email, having gone from ascendance to obsolescence. In some cases, changes to hardware, operating systems, or software have resulted in the loss of access to the digital output they were used to create. Whenever there is a hardware, operating system, or software change, it is sometimes necessary to reformat the digital output so it can be accessed by successor systems. Some earlier digitally created materials can be retrieved from previous information technology appliances or storage media, but sometimes the newer technologies are unable to render them in their original forms. In addition to the retention challenges, this also may raise concerns about document authenticity as well as preservation, at least in the manner the term applies to tangible materials, or necessitate investigation of additional technological solutions. As a consequence, as long as there is no stable digital equivalent to an information distribution model based on words on paper in an official format, any effort to establish standards for the production and retention of digital materials might run the risk of privileging a current standard (e.g., XML or the widespread use of PDF). A potential consequence of such an effort might be to limit the technologies that can be used only to those that conform to a standard enacted into law. This might be seen by some as replacing the current approach to printing and publication management in Title 44 with one that might reasonably be seen as unlikely to last for more than a century in the way the printing standards set in 1895 have. Further, locking in a standard might deny Congress, GPO, the rest of the United States Government, and American citizens the potential benefits of further digital innovation that might arise as newer, and potentially more enduring, technologies are established or demonstrated to support long-term retention of government information. Instead of enacting fixed standards as it did in 1895, Congress could consider a process by which the potential adoption of newer technologies and approaches reflective of emerging information management practices might be specified in statute. An option to consider might be a manner of assessing the utility and effectiveness of current standards by which government information is produced, distributed, and retained as a way of identifying future needs. Current practices could also be assessed against the emergence of future technological refinement, expansion, or change related to government information. These technology and management assessment efforts could be accomplished by a government agency, or by an external panel of individuals who are experts in the fields related to producing, distributing, and preserving information in digital environments. If such an approach is chosen, and when a technology determination process is established, it could prove an enduring approach to facilitating the apparent need to regularly update and manage digital information technology processes, since it is unclear when or if they will reach a level of maturity that printing had by the end of the 19 th century.
|
In the past half-century, in government and beyond, information creation, distribution, retention, and preservation activities have transitioned from a tangible, paper-based process to digital processes managed through computerized information technologies. Information is created as a digital object which then may be rendered as a text, image, or video file. Those files are then distributed through a myriad of outlets ranging from particular software applications and websites to social media platforms. The material may be produced in tangible, printed form, but typically remains in digital formats. The Government Publishing Office (GPO) is a legislative branch agency that serves all three branches of the national government as a centralized resource for gathering, cataloging, producing, providing, authenticating, and preserving published information. The agency is overseen by the Joint Committee on Printing (JCP), which in 1895 was charged with overseeing and regulating U.S. government printing. GPO operates on the basis of a number of statutory authorities first granted in the 19th and 20th centuries that presume the existence of government information in an ink-on-paper format, because no other format existed when those authorities were enacted. GPO's activities include the Federal Depository Library Program (FDLP), which provides permanent public access to published federal government information, and which last received legislative consideration in 1962. In light of the governance and technological changes of the past four decades, a relevant question for Congress might arise: To what extent can decades-old authorities and work patterns meet the challenges of digital government information? For example, the widespread availability of government information in digital form has led some to question whether paper versions of some publications might be eliminated in favor of digital versions, but others note that paper versions are still required for a variety of reasons. Another area of concern focuses on questions about the capacity of current information dissemination authorities to enable the provision of digital government information in an effective and efficient manner. With regard to information retention, the emergence of a predominantly digital FDLP may raise questions about the capacity of GPO to manage the program given its existing statutory authorities. These questions are further complicated by the lack of a stable, robust set of digital information resources and management practices like those that were in place when Congress last considered current government information policies. The 1895 printing act was arguably an expression of the state-of-the-art standard of printing technology and provided a foundation which supported government information distribution for more than a century. By contrast, in the fourth or fifth decade of transitioning from the tangible written word to ubiquitous digital creation and distribution, the way ahead is not as clear, due in part to a lack of widely understood and accepted standards for managing digital information. This report examines three areas related to the production, distribution, retention, and management of government information in a primarily digital environment. These areas include the Joint Committee on Printing; the Federal Depository Library Program; and government information management in the future.
|
Congressman Christopher H. Smith introduced H.R. 2601 on May 24, 2005. The Subcommittee on Africa, Global Human Rights and International Relations held a markupsession on May 26 and forwarded the bill on to the full committee the same day. The HouseInternational Relations Committee held markup sessions on June 8 and 9. The House InternationalRelations Committee completed its full committee markup on June 9, 2005. The bill was reportedon July 13 ( H.Rept. 109-168 ). House floor debate occurred the week of July 18, 2005. Earlier in 2005, Senator Lugar introduced a Senate version of the foreign relationsauthorization legislation ( S. 600 ) on March 10. The measure was reported to the Senatethe same day ( S.Rept. 109-35 ). On April 5 and 6, the Senate debated the bill at which time thecombination of numerous amendments on the bill, world events (the death of the Pope),nominations, and filibusters on judges put off action on the measure. Congress is required by law to authorize the spending of appropriations for the StateDepartment and foreign policy activities every two years. The authorization acts as a ceiling for theappropriations. The foreign relations authorization process dovetails with the annual appropriationprocess for the Department of State (within the Science, State, Justice, Commerce and RelatedAgency Appropriation in the House and the State-Foreign Operations Appropriation in the Senate)and foreign assistance activities (within the Foreign Operations Appropriation in both House andSenate). In the past 10 years, Congress has had an inconsistent record on getting a stand-alone foreignrelations authorization bill passed and signed into law. During the two decades prior to thegovernment shutdown of November 1995, virtually every Congress enacted stand-alone foreignrelations authorization laws. Since 1995, however, Congress has waived the requirement to provideauthorization prior to expenditures more times than it has met the requirement. The mostrecently-enacted stand-alone authorization Act was for FY2003 ( P.L. 107-228 / H.R. 1646 ) signed September 30, 2002. (See Appendix II for foreign relations authorization history.) Since foreign relations authorization legislation is typically passed the first session of eachCongress, the Senate Foreign Relation Committee and the House International Relations Committeeof the 109th Congress began working on their bills early in 2005. The foreign relations authorizationlegislation typically provides authority for State Department spending for such activities as salariesand other operating expenses, passport and visa processing, embassy and Foreign Service activities,as well as public diplomacy and international broadcasting. In addition, the legislation oftenbecomes a convenient vehicle for numerous foreign policy-related issues, such as nonproliferation,human rights, international family planning policy, and international health and environment issues. Congress can influence U.S. foreign policy regarding specific regions or countries via this biannuallegislation, as well. The foreign relations authorization bills introduced in the 109th Congress House and Senatediffer significantly. Both contain similar provisions for the State Department spending levels, theoperation, organization and personnel of State. S. 600 goes beyond that to include titleson: 1) authorizing foreign assistance programs, 2) radiological terrorism security, 3) global pathogensurveillance, 4) safe water, 5) protection of vulnerable populations during humanitarian emergencies,and 6) reconstruction and stabilization issues. H.R. 2601 includes measures on: 1)democracy promotion, 2) U.N. reform, 3) export controls and security assistance, and 4)nonproliferation. Because of Congress' inability to get an authorization bill to the President's deskin some Congresses, some Members in both House and Senate Committees are determined toproduce foreign policy authorization legislation this year, since they see it as one of their primaryresponsibilities. Titles in both bills include State Department Authorizations of Appropriations; StateDepartment Authorities and Activities; Organization and Personnel of the Department of State,International Organizations; and International Broadcasting (Board of Governors). The two billshave no foreign assistance measures in common, as there are no substantive foreign assistanceprovisions in the H.R. 2601 . By law, authorization to spend funds for foreign policy agencies and programs is requiredprior to expenditure of Foreign Operations and State Department appropriations. In effect, theauthorizing legislation sets spending ceilings for the foreign policy agency appropriations for thenext two years. (See Table 1 in Appendix III of this report.) CRS Products: CRS Report RL31370 , State Department and Related Agencies: FY2005 Appropriations andFY2006 Request. In addition to providing the required authority for the Department of State and relatedagencies to spend specified levels of appropriations (see Table 1 in the Appendix for appropriationand authorization levels), H.R. 2601 and S. 600 both contain measuresranging from authorizing an international litigation fund, medical reimbursement issues,accountability review boards not required to convene in the case of serious injury or loss of life inAfghanistan or Iraq, and the designation of the federal building in Kingston, Jamaica to be referredto as the Colin L. Powell Residential Plaza. On these issues, both bills have similar provisions, noneof which appear controversial at this time. Sec. 214 of S. 600 has a provision giving authority to the Secretary of State toenhance the U.S. diplomacy center with museum and educational outreach services. Sec. 215 of thebill would require the Secretary of State to establish scholarship programs with colleges anduniversities primarily within eligible countries for students to pursue degree programs and Englishlanguage proficiency in the Islamic world. The House does not have a comparable measure. Section 215 of H.R. 2601 , on the other hand, contains a provision to make $5million available for Cuban human rights dissidents, pro-democracy activists, and independent civilsociety members to participate in the Fulbright, Humphrey, and other exchange programs. TheSenate has no comparable language. Education allowances, increased post differential and danger pay allowances, home leave,the Fellowship Hope Program, suspension of Foreign Service members without pay, limitedappointments in the Foreign Service, are in both H.R. 2601 and S. 600 . The Broadcasting Board of Governors (BBG) was established by the U.S. InternationalBroadcasting Act of 1994 ( P.L. 103-236 , Title III) to consolidate the international broadcastingactivities of the U.S. government, while maintaining international broadcasting as an activityindependent from the former U.S. Information Agency (USIA) and the Department of State. TheBBG consists of a 9-member board appointed by the President with the advice and consent of theSenate. Its responsibilities include direction and oversight of all nonmilitary internationalbroadcasting, including the Voice of America, Radio Free Europe/Radio Liberty, Cuba Broadcasting,Radio Free Asia, and the Middle East Broadcasting Network. Middle East Broadcasting. (1) The Middle East BroadcastingNetworks (MBN) consist of two TV channels -- Alhurra and Alhurra Iraq -- and Radio Sawa. Allthree entities, established by the Broadcasting Board of Governors to promote U.S. views andcounter U.S.-perceived distortions in existing regional broadcasting, began broadcasting in FY2004. Virtually identical measures in both H.R. 2601 and S. 600 wouldauthorize grants that are made for broadcasting activities under the U.S. International BroadcastingAct of 1994 ( P.L. 103-236 , Title III) to be extended to the Middle East Broadcasting Networks,subject to specified limitations and restrictions. For example, the BBG must take responsibility forthe direction of the MBN, the MBN shall not be deemed a federal agency or instrumentality, and theMBN is subject to financial and inspector general audits. CRS Products: CRS Report RS21565 , The Middle East Television Network: An Overview . Cuba Broadcasting. (2) U.S.-government sponsoredradio and television broadcasts to Cuba -- Radio and TV Marti -- began in 1985 and 1990respectively, and have had the objective of providing accurate and uncensored news to the Cubanpeople. From FY1984 through FY2005, Congress has appropriated about $493 million forbroadcasting to Cuba, with about $300 million for Radio Marti and $193 million for TV Marti. Cuban jamming of the broadcasts -- especially TV Marti -- has been a problem since their inception.Critics assert that TV Marti has no audience because of the jamming. In May 2004, the BushAdministration's Commission for Assistance for a Free Cuba called for the immediate deploymentof the EC-130E/J Commando Solo airborne platform (3) for airborne radio and television broadcasts to Cuba in order toovercome Cuban jamming. The aircraft has been used periodically since August 2004 to transmitRadio and TV Marti programming. The Commission also called for funds "to acquire and refit adedicated airborne platform for full-time transmission of Radio and TV Marti into Cuba." Thiswould not be a military aircraft, but an aircraft acquired and operated by the Broadcasting Board ofGovernors' Office of Cuba Broadcasting (OCB). For FY2006, the Administration is requesting $37.7 million for Cuba broadcasting, about a$10 million increase from the $27.6 million appropriated for FY2005. The increase is for theBroadcasting Board of Governors to acquire and outfit an aircraft for dedicated airborne radio andtelevision broadcasts to Cuba. According to the budget request, the aircraft would support 4 hoursa day of Radio and TV Marti broadcasts with the goal of overcoming Cuban government jamming. Both H.R. 2601 and S. 600 , in Section 503 of each bill, wouldauthorize the OCB to use additional AM frequencies as well as FM and shortwave frequencies forRadio Marti in order to help overcome Cuban jamming. H.R. 2601 (Section 106) wouldauthorize the Administration's full request of $37.7 million for Cuba broadcasting for FY2006 and$29.9 million for FY2007, including funds for an aircraft to improve radio and televisiontransmission and reception. S. 600 (Section 111) would authorize funding for Cubabroadcasting under the International Broadcasting Operations account, but without a specificearmark. During Senate floor consideration of S. 600 on April 6, 2005, the Senate rejected S.Amdt. 284 (Dorgan), by a vote of 65-35 that would have prohibited funds from beingused for television broadcasting to Cuba. In other legislative action, the report to the House-passed version of H.R. 2862 ( H.Rept. 109-118 ), the FY2006 Science, State, Justice, Commerce, and Related AgenciesAppropriations Act, includes a committee recommendation for $27.9 million for Cuba broadcasting,$10 million below the Administration's request. According to the report, the Committee does notprovide funding for an aircraft to transmit Radio and TV Marti programming, but assumes thecontinuation of periodic Commando Solo flights, operating within U.S. air space, for suchtransmissions. The House approved H.R. 2862 on June 16, 2005. In the Senate,appropriations for Cuba broadcasting is included in the Senate version of the FY2006 ForeignOperations appropriations bill, H.R. 3057 ( S.Rept. 109-96 ). As approved by the Senateon July 20, 2005, the bill would provide $37.7 million for Cuba broadcasting, including funds foran aircraft to transmit Radio and TV Marti programming. During July 19, 2005 floor consideration,the Senate defeated (33-66) S.Amdt. 1294 (Dorgan) that would have eliminated fundingfor television broadcasting to Cuba. CRS Products : CRS Report RL32730 , Cuba: Issues for the 109th Congress . S. 600 (Sec. 811) and H.R. 2601 (Sec. 1101, as passed by theHouse) (5) contain broadlyrelated provisions that call for reports to Congress on U.S. strategies for combating internationalterrorism in Western Africa, but the two reports' regional and programmatic foci differ, as do theirrespective reporting requirements. The proposal in H.R. 2601 focuses specifically on the"Sahara region" and "the plan" of the U.S. government "to expand the Pan Sahel Initiative" (PSI) intoa "robust" counter-terrorism (CT) effort, "the Trans-Sahara Counter Terrorism Initiative" (TSCTI).The report would be submitted by the Secretary of State in classified form within 120 days after thepassage of H.R. 2601. It would require: a list of TSCTI participant countries; types ofsecurity assistance necessary to create rapid reaction security forces in them; a description of trainingto ensure respect for human rights and civilian authority by these forces and other recipient countryentities; and a description of public diplomacy and "related assistance that will be provided topromote development and counter radical Islamist elements that may be gaining a foothold in theregion." The measure would require all relevant U.S. government agencies to "cooperate fully with,and assist in the implementation of" TSCTI. The measure in S. 600 focuses on a broader region, West Africa, whichcommonly is taken to include both sub-Saharan Sahel and coastal countries in Western Africa. Itwould require that the Secretary of State, in consultation with other relevant agencies, submit areport to Congress on a "strategy for combating terrorism in West Africa during the three-yearperiod" six months after passage of S. 600. The strategy would contain a "comprehensiveassessment" of international terrorist organization activities in West Africa; "an interagency plan fordealing with" the threat of such activities and a description of resources necessary to implement it;and an analysis of "the expected level of cooperation" that countries in West Africa and elsewherewould provide toward that end. The report would also describe "planned coordination" between theplanned strategy and all other regional counter-terrorism efforts, including PSI and the East AfricaCounter-Terrorism Initiative (EACTI), and any other similar regional programs, including in NorthAfrica. Background. Armed activities by groups allegedto have connections with Al Qaeda have been reported in the Sahel region of West Africa. Othergroups, such as Hizballah and Hamas, have reportedly provided social services and other types ofaid in this region. The United States has provided security assistance to regional governments tocounter such groups. One such program is the Pan Sahel Initiative, a regional CT, border security,and regional security cooperation program that has provided military training and related equipmentto the governments of Mali, Niger, Chad and Mauritania. PSI is intended to create military rapidreaction and patrol forces in these countries to bolster their capacity to protect and govern theirlengthy, porous frontiers and sparsely inhabited, arid hinterlands. It seeks to provide them with anenhanced ability to counter in-country insurgencies, interdict transnational terrorist and armedreligious extremists, smugglers of contraband goods and/or persons, bandits, and other criminalelements, and halt their activities. The bulk of PSI activities took place between 2002 and 2004, andwere funded with $6.85 million in FY2002 and FY2003 Peacekeeping Operations (PKO) funds. There was no PSI funding in FY2004. Further PSI sustainment activities may be pursued using anunspecified portion of $3.968 million in FY2005 Africa Coastal/Border Security Program ForeignMilitary Financing (FMF) funds. A possible expansion of PSI, dubbed Trans-Sahara Counter Terrorism Initiative (TSCTI),is under consideration by the Bush Administration. TSCTI would reportedly include a geographicalexpansion of the kind of CT training provided under PSI, to include Algeria, Morocco, Tunisia,Nigeria, and Senegal; a broadening of TSCTI assistance, to include development assistance (DA)and increased regional U.S. public diplomacy efforts; and a rise in program funding, to $132 millionfor first year start-up costs, and about $125 million per year in subsequent years, for a five to six yearprogram. (6) According toState Department officials, TSCTI is at present technically a conceptual plan only, but has reportedlybeen agreed upon by key U.S. implementing agencies at the deputy principal level. TheAdministration has sought Congressional approval to use a mix of about $11 million in StateDepartment and $5 million in Defense Department FY2005 and FY2006 funds to initiate TSCTIstart-up activities. It may then request full TSCTI funding under its FY2007 budget proposal.Despite the State Department's view that TSCTI is not yet a fully-fledged program, U.S. EuropeanCommand (EUCOM) already uses the term TSCTI to describe its activities under PSI (whichEUCOM documents have described as "formerly known" as PSI), as well as some training exercises. These include Exercise Flintlock, a June 2005 effort in which U.S. special operations forces providedseven Saharan host country armed forces with tactical military training aimed at improving regionalsecurity and stability. EUCOM's decision to use this term before TSCTI was fully authorized by theState Department reportedly created tensions between it and the Defense Department. There is no shortage of humanitarian emergencies worldwide stemming from naturaldisasters or manmade conflicts. As a result of these crises, population movements often occur withinthe affected country or flow to those countries that are within close proximity. Definitions of statusare assigned to various groups and may include refugees, internally displaced persons, statelesspersons, and vulnerable populations (such as women, children, and the elderly). All can emerge asgroups requiring particular protection, the basis of which may be found under internationalhumanitarian law, and emergency assistance, which is typically provided by U.N. agencies,governments, international organizations and non-governmental organizations. Different aspects of this problem are addressed in S. 600 and H.R. 2601 . S. 600, Title XXVIII Protection of Vulnerable Populations During HumanitarianEmergencies , focuses on women and children and the development of strategies to protect them fromexploitation and abuse before, during, and following a crisis. It outlines three categories -- Programand Policy Coordination, Prevention and Preparedness, and Protection Mechanisms. In H.R.2601, under Section 104 Migration and Refugee Assistance, the bill authorizes thedevelopment of a two-year pilot program to study the problems specific to refugee populationshoused long term in camps or other settlements and to consider ways to improve their livingconditions, provide protection mechanisms, and enhance their basic human rights. Of the amountsin this section, H.R. 2601 authorizes $3 million in FY2006 and $3 million in FY2007 foremergency aid to internally displaced people of Burma. CRS Products: CRS Report RL31689 , U.S. International Refugee Assistance: Issues for Congress ; CRS Report RL31690(pdf) , United Nations High Commissioner for Refugees (UNHCR) ; CRS Report RL31269 , Refugee Admissions and Resettlement Policy ; and CRS Report RL32714, International Disasters and Humanitarian Assistance: U.S. GovernmentalResponse . The Bush Administration's initiatives to enhance U.S. civilian capabilities to carry outstabilization and reconstruction (S&R) activities in unstable states have met with both enthusiasmand skepticism in Congress. The Senate, in particular the Senate Foreign Relations Committee(SFRC), has provided both impetus and support for the establishment of the State Department Officeof the Coordinator for Reconstruction and Stabilization (S/CRS). Additional Senate support hasbeen expressed by the Senate Armed Services Committee, which, in its report accompanying theNational Defense Authorization Act for Fiscal Year 2006 ( S. 1042 , S.Rept. 109-069 ,May 17, 2005), commended the Department of Defense's (DOD) "active support of and cooperation"with S/CRS. The House, on the other hand, appears skeptical of the initiatives, providing littlefunding thus far in 2006. Several prominent foreign and defense policy think tanks advanced proposals in 2003 and2004 to establish civilian capabilities through an office similar to S/CRS. SFRC Chairman Lugarand Ranking Member Biden submitted legislation, S. 2127 (with companion bill H.R. 3996 , introduced by Representative Schiff), in 2004 to establish a similar office. Legislation with similar aims was proposed in the House in 2003 by Representative Farr( H.R. 2616 ) and by Representative Dreier in 2004 ( H.R. 4185 ) and 2005( H.R. 1361 ). Supporters perceive the development of civilian capabilities as a meansto relieve the stress on the U.S. military caused by the need to devote troops to post-conflictstate-building functions and to rectify the ad hoc nature of each S&R operation by creating a cadreof personnel experienced in such operations and trained to work together. In July 2004, the Administration created S/CRS, which now has some 35 staff members ondetail from the Department of State and other executive agencies. It is tasked with designing, andin some cases establishing, the new structures within the State Department and elsewhere that wouldallow civilian agencies to develop effective policies, processes, and personnel -- including a readyresponse corps -- to build stable and democratic states in post-conflict situations. The Administration requested FY2005 emergency supplemental appropriations for S/CRS,as the office was created well after the FY2005 budget request was submitted in February 2004. The$17.2 million request included funding for S/CRS start-up operations and software, and fordevelopment of a ready response cadre of State Department personnel and the design of relatedtraining and exercises. While the Senate, in floor action, approved an amendment supporting the fullrequest, the conferees on the supplemental appropriations measure provided the SenateAppropriations Committee's $7.7 million, an amount closer to the House-approved $3.0 million( H.R. 1268 , P.L. 109-13 , signed into law May 11, 2005). The President's $24.1 million FY2006 budget request for S/CRS would provide for 54 newS/CRS positions and the establishment of a 100-person "Ready Response" cadre within theDepartment of State. The President also requested the establishment of a no-year $100 million,automatically replenishable, emergency Conflict Response fund to be administered by S/CRS inorder "to prevent or respond to conflict or civil strife in foreign countries or regions, or to enabletransition from such strife." Critics, some of whom label themselves "supportive skeptics," question whether S/CRS would do sufficiently more than existing capabilities to justify the additional cost. Whilerecognizing the importance of planning for post-conflict reconstruction assistance, several analystshave criticized various aspects of the Administration's request, especially the creation of the100-person ready response cadre. Critics question the State Department's ability to create a base-linetemplate for post-conflict reconstruction assistance when there are few similarities among the casesthat the United States has been involved with so far; whether the State Department is the appropriateagency to coordinate post-conflict reconstruction assistance; and to what extent a ready responsecadre may duplicate existing reconstruction efforts already being undertaken by agencies such as theDepartment of Defense, USAID and the Department of the Treasury, among others. S. 600 , as reported, would authorize the Administration's full $24.1 millionFY2006 funding request for S/CRS and "such sums as may be necessary" for its personnel, educationand training, equipment, and travel costs in FY2007, as well as the $100 million Conflict Responsefund. It would also provide S/CRS with statutory status and authorities for its operations. It wouldauthorize a larger ready response corps than requested by the Administration: a 250 -- rather thana 100 -- person force. H.R. 2601 , as reported, contains no authorization for FY2006 funding forS/CRS. In July 19, 2005, floor action on the bill, the House approved an amendment adopted byRepresentative Dreier which would authorize the establishment of an Active Response Corps tocarry out stabilization and reconstruction activities in foreign countries or regions that are in, are intransition from, or are likely to enter into conflict or civil strife. No specific funding was authorizedfor the Corps. House appropriators would provided limited funding for S/CRS and the Conflict Responsefund. The Science State, Justice, Commerce and related agencies FY2006 appropriations bill( H.R. 2862 , H.Rept. 109-118 ), which passed the House June 16, 2005, contains $7.7million for S/CRS operations for a staff increase of 33. The House foreign operations appropriationsbill ( H.R. 3057 , H.Rept. 109-152 , named the Foreign Operations, Export Financing, andRelated Programs Appropriations Act, 2006 in the House) as passed on June 28, 2005, contains nonew funding for the Conflict Response fund. However, the bill would authorize the Secretary ofState to transfer $100 million from either within the State Department, or from other federal agenciessuch as the Department of Defense, to carry out reconstruction and stabilization assistance (Sec.580). The Senate version of H.R. 3057 (named the Department of State, ForeignOperations, and Related Programs Appropriations Bill, 2006, in the Senate), as reported June 30,2005 ( S.Rept. 109-96 ), provides substantially more support for S/CRS and the Conflict ResponseFund than do the two related House appropriations bill. The Senate version of H.R. 3057would fund S/CRS at $24 million, the full amount of the Administration request. It would provide$74 million in earmarked appropriations for the Conflict Response Fund, i.e., almost three-quartersof the Administration request. CRS Products: CRS Report RL32862 , Peacekeeping and Conflict Transitions: Background and CongressionalAction on Civilian Capabilities ; and CRS Issue Brief IB94040, Peacekeeping and Related Stability Operations: Issues of U.S. MilitaryInvolvement . The Andean Counterdrug Initiative (ACI) is the primary U.S. program that supports PlanColombia, a six-year plan developed by the Colombian government in 1999 to combat drugtrafficking and related guerrilla activity. U.S. support for Plan Colombia began in 2000, whenCongress passed legislation providing $1.3 billion in interdiction and development assistance ( P.L.106-246 ) for Colombia and six regional neighbors: Bolivia, Peru, Ecuador, Venezuela, Brazil, andPanama. For FY2006, the Administration has requested $734.5 million, of which $40 million wouldbe for a new Critical Flight Safety Program, to upgrade aging aircraft. Colombia produces the majority of the world's supply of cocaine and increasing amounts ofhigh quality heroin. Illegally armed groups of both the left and right are believed to participate inthe drug trade. In addition to the basic debate over what role the United States should play inColombia's struggle against drug trafficking and illegally armed groups, Congress has repeatedlyexpressed concern with a number of related issues. These include continuing allegations of humanrights abuses; the expansion of U.S. assistance for counterterrorism and infrastructure protection;the health and environmental consequences of aerial fumigation of drug crops; the progress ofalternative development to replace drug crops; the level of risk to U.S. personnel in Colombia,including the continued captivity of three American hostages by the Revolutionary Armed Forcesof Colombia (FARC); and a new demobilization law that intends to reincorporate rightistparamilitary fighters into civilian life. Critics of U.S. policy contend that winning the war against drugs is a losing proposition aslong as demand continues. They argue that despite the successes in eradicating illicit crops, theamount of drugs entering the United States has not declined, and prices have remained stable. TheBush Administration contends that the United States faces not only a threat from drug trafficking,but also from the increasing instability brought on by insurgent guerrilla organizations that are fueledby the drug trade. Supporters of U.S. policy argue that assistance to Colombia is necessary to helpa democratic government besieged by drug-supported leftist and rightist armed groups. While somecritics agree with this assessment, they argue that U.S. assistance overemphasizes military andcounter-drug assistance and provides inadequate support for protecting human rights andencouraging a peace process in Colombia. The House International Relations Committee reported H.R. 2601 with aprovision making U.S. assistance to Colombia contingent on a certification from the Secretary ofState that Colombia has a workable framework in place for the demobilization and dismantling offormer combatants, and that Colombia is cooperating with the United States on extradition requests. H.R. 2601 also calls for a report from the Secretary of State that details tax codeenforcement in Colombia. On the House floor, a Representative Burton amendment was approvedby voice vote that would transfer two tactical marine patrol aircraft to the Colombian Navy for druginterdiction purposes. S. 600 authorizes funding for ACI and includes a number ofconditions on assistance consistent with current law. The bill would authorize a unified campaignagainst narcotics trafficking and terrorist activities; maintains the existing caps on military andcivilian personnel allowed to be stationed in Colombia; prohibits U.S. military and civilian personnelfrom participating in combat operations; and maintains reporting requirements relating to humanrights conditions and the conduct of U.S. operations. CRS Products: CRS Report RL32774 , Plan Colombia: A Progress Report ; and CRS Report RL32337 , Andean Counterdrug Initiative (ACI) and Related Funding Programs:FY2005 Assistance . Congress last enacted a broad foreign assistance authorization act in 1985. In the absenceof omnibus foreign aid measures, the majority of foreign assistance legislation has been enacted aspart of annual Foreign Operations appropriation measures. Division B of S. 600 is aneffort to "reinforce" the Senate Foreign Relations Committee's role in foreign assistance policymaking. Foreign aid provisions in S. 600 are similar to those reported by the ForeignRelations Committee in the 108th Congress ( S. 2144 ). The intention was not to attempta comprehensive review and to re-write existing foreign aid legislation, but rather to initiate a firststep in providing necessary authorization for program appropriations and updating selectedlegislative provisions to reflect current policy. Senator Lugar has said frequently since becomingChairman of the Committee that he planned to launch a more ambitious effort in the future torevamp the Foreign Assistance Act of 1961 and other long-standing foreign aid laws. Division B is divided into eight titles, three of which provide general authorizations forforeign aid programs, incorporate into permanent law legislative provisions that have been approvedannually in Foreign Operations appropriation measures, and update and revise conditions on foreignaid funds and reporting requirements. Title XXI includes FY2006 and FY2007 authorizations ofappropriations for most, but not all foreign aid programs. The legislation would authorize theappropriation of $18.4 billion for 25 foreign assistance programs, closely matching the accountstructure of the annual Foreign Operations appropriations for bilateral economic and military aid. The amounts authorized are identical to levels requested by the Administration for FY2006,providing nearly $2 billion more than provided in FY2005. Title XII of Division B would update and amend several existing foreign aid authorities,including some that have been annually extended in appropriation acts in recent years. Title XXVwould address reporting requirements, adding new submissions concerning such issues as Haiti, theGlobal Peace Operations Initiative, international HIV/AIDS programs, and tsunami relief andreconstruction in Aceh, Indonesia. The other five titles in Division represent specific initiatives, which in some cases have beenintroduced as stand-alone legislation. Title XXIII is the Radiological Terrorism Security Act. TitleXXIV is the Global Pathogen Surveillance Act. Title XXVI authorizes a new water for health anddevelopment program. Title XXVII incorporates the Protection of Vulnerable Populations DuringHumanitarian Emergencies Act of 2005. Title XXVIII adds the Conventional Arms DisarmamentAct of 2005. These titles are discussed elsewhere in the this report. Although the House International Relations Committee did not consider a substantive foreignassistance authorization separately or as part of the Foreign Relations Authorization bill, H.R. 2601 includes several foreign aid provisions. On balance, however, title IX ofH.R. 2601 addresses a series of specific foreign aid issues, some related tocountry matters and others dealing with types of foreign assistance programs. H.R.2601 includes provisions regarding: Aid supporting democracy in Zimbabwe (Sec. 903); Contributions to the U.N. Development Program and Burma (Sec. 904); Aiding the police ombudsman in Northern Ireland (Sec. 905); Supporting democracy in Belarus (Sec. 908); Conditions on aid to Egypt (Sec. 921); West Bank and Gaza aid (Sec. 924) and aid to the Palestinian Authority (Sec. 932); Aid to Venezuela (Sec. 925) Reconstruction assistance to Afghanistan (Sec. 941); Aid to disarm former irregular combatants in Colombia (Sec. 944); Supporting famine relief in Ethiopia (Sec. 945); Promoting democracy in Vietnam (Sec. 946); Establishing centers for the treatment of obstetric fistula (Sec. 901); Aid for disaster mitigation (Sec. 907); and Exempting aid that promotes democracy and human rights organizations fromrestrictions regarding terrorism (Sec. 931). One of these provisions -- the establishment of centers for the treatment of obstetric fistula-- was the focus of a contentious debate during House consideration of H.R. 2601 . Obstetric fistula, which affects an estimated two million women mainly in Africa, occurs primarilyfrom a prolonged labor that results in a hole or rupture in tissues between the vagina and bladder(and at times the rectum). Women with this condition are stigmatized and often shunned by theirfamily and community. It is especially common in girls aged 15-19 whose bodies are not fullydeveloped for childbirth and in girls and women suffering from malnutrition. Obstetric fistula occursalmost exclusively in developing countries where access to health care services is severelylimited. (11) H.R. 2601 , as reported by the House International Relations Committee,earmarked $5 million in FY2006 and FY2007 to create 12 centers for the treatment and preventionof obstetric fistula in developing nations. The provision specified that to the maximum extentpossible, each center would perform certain services, including surgical repair and post-surgerysupport, educational activities to prevent incidents of fistula, and expanded access to contraceptiveservices for the prevention of pregnancies among women that were at high risk for a prolonged orobstructed childbirth. During floor debate, Representative Smith (N.J.) proposed an amendment thatdeleted the requirement for each center to expand contraceptive services for high-risk women, andadded a new activity requiring centers to broaden "abstinence education, postponement of marriageand child-bearing until after teenage years, and activities to expand access to family planningservices" for women in a high-risk category. Unlike the treatment services that each center mustprovide "to the maxim extent possible," the revised prevention activities would be provided at thediscretion of the centers. The Smith amendment further increased funding to $7.5 million annually. In support of his amendment, Congressman Smith argued that the changes would allowfaith-based hospitals to perform the required activities, something that would not have occurredunder the committee-reported language because of opposition of faith-based facilities to providingcontraceptive services. He further stated that the amendment's reference to "family planningservices" would include contraception. Opponents of the amendment, however, charged that therevised text "gutted" the prevention aspect of the obstetric fistula centers by making these activitiesdiscretionary rather than mandatory in the original text. They contend that the most effective methodto reduce the incidents of obstetric fistula is to ensure that young girls and high-risk women do notget pregnant. The House adopted the Smith amendment on a 223-205 vote. Sec. 806 of S. 600 and Sec. 1114 of H.R. 2601 continue to pressfor full membership for the Israeli Magen David Adom Society in the International Red CrossMovement. Since 1949, Magen David Adom (MDA) (Red Star of David) has been deniedmembership in the International Committee of the Red Cross (ICRC) because it refuses to use eitherthe red cross or the red crescent, which are the organization's only recognized symbols. MDA hasobserver status at the Red Cross. The Red Cross is considering recognition of a red crystal (a squaresitting on its corner), an emblem devoid of religious or national connotations, and the Swissgovernment has begun to solicit international support to convene a conference to amend the GenevaConventions and adopt the new symbol. The exclusion of Magen David Adom from a humanitarianorganization of 180 member countries with a claim to universality is reported to offend manyMembers of Congress. Switzerland is convening an ICRC meeting in December to take up the issue. Sec. 807 of S. 600 and Sec. 210 of H.R. 2601 are identical andpertain to U.S. government action with respect to Jerusalem as the capital of Israel. The sections prohibit use of authorized funds for the operation of a U.S. consulate or diplomatic facility inJerusalem that is not under the supervision of the U.S. Ambassador to Israel and for the publicationof U.S. official documents that list countries and their capitals unless they identify Jerusalem as thecapital of Israel. These prohibitions have been in past legislation. In 1967, Israel annexed EastJerusalem and declared the reunified city to be its eternal, undivided capital. The foreign aidauthorization bills reflect the views of many Members of Congress who maintain that United Statesshould consider Jerusalem to be part of Israel. P.L. 104-45 , November 8, 1995, called for the U.S.embassy to be moved from Tel Aviv to Jerusalem and, in 1997, both houses of Congress passedresolutions ( H.Con.Res. 60 and S.Con.Res. 21 ) calling on theAdministration to affirm that Jerusalem must remain the undivided capital of Israel. SuccessiveAdministrations have asserted that Jerusalem is a subject of final status negotiations between Israeland the Palestinians and that Congress should not prejudge the outcome of those negotiations orundermine the U.S. role as an "honest broker" in the talks. Sec. 209 of H.R. 2601 , but no comparable provision of S. 600 ,states Congress's view of its power in a tacit debate with the State Department over whether thelegislative branch has the authority to require the issuance of U.S. passports indicating Jerusalem,Israel, as the place of birth of a U.S. citizen. Sec. 209 refers to Congress's authority under Article1, Section 8 of the Constitution as well as the first section of "An Act to regulate the issue andvalidity of passports," approved July 3, 1926, which requires that accurate entries be made onpassports at the request of citizens. Prior foreign aid authorization legislation mandated thedesignation Jerusalem, Israel, but the State Departments has not implemented it in line with its desirenot to prejudge final status negotiations between Israel and the Palestinians. The issue also is beinglitigated. In 2002, the U.S. Embassy in Tel Aviv declined to issue passports with Jerusalem, Israel,as the place of birth of children born in Israel to U.S. citizens and instead issued ones notingJerusalem as the city of birth with the country of birth left blank. Two sets of parents sued the StateDepartment but, in September 2004, the U.S. District Court in Washington dismissed the lawsuits. The Court ruled that it lacked jurisdiction over a political matter within the purview of the executivebranch. The judge asserted, "The status of Jerusalem is without question one of the most sensitiveforeign policy issues," and not a simple administrative matter as the plaintiffs had argued. She alsoheld that the plaintiffs lacked standing because they had suffered no injury as a result of theDepartment's action. The parents have filed an appeal. CRS Products CRS Issue Brief IB91137, The Middle East Peace Talks . Both House and Senate bills touch on the issue of intellectual property right protections. Section 107 of the House bill authorizes, in addition to such sums as may otherwise be authorizedfor such purpose, $5 million for equipment and training for foreign law enforcement, training judgesand prosecutors, and assistance with copyright and intellectual property treaties and agreements. Section 204 of S. 600 authorizes the Secretary of State to support (by grants,cooperative agreements, or contract) training and technical assistance projects regarding protectionof intellectual property rights. On July 20, 2005, the House incorporated into H.R. 2601 , as Title XII, the textof H.R. 2745 , Henry J. Hyde United Nations Reform Act of 2005, as earlier passed. This Title of more than 100 pages requires many State Department certifications and reports andwould withhold 50% of U.S. assessed dues to the U.N. regular budget beginning with calendar year2007 if 32 of 40 specific changes aimed at reform of the United Nations are not in place, including15 mandatory reforms. The Bush Administration has expressed reservations about this legislationbecause of its withholding provisions and because it infringes on the President's authority to carryout foreign affairs. CRS Products : CRS Issue Brief IB86116, United Nations System Funding: Congressional Issues . The Bush Administration has strongly emphasized spreading freedom and democracy to Iraqand around the world. Congress has also sought legislative measures to promote democracyoverseas. H.R. 2601 , Title VI, Advance Democracy Act of 2005, states that promotingfreedom and democracy shall be a fundamental component of U.S. foreign policy. Among otherthings, the measure would codify the position and responsibilities of Under Secretary of State forDemocracy and Global Affairs and adds new duties for the Assistant Secretary of State forDemocracy, Human Rights, and Labor to include responsibility for matters relating to the transitionto and development of democracy in nondemocratic countries. Title VI would create within theBureau of Democracy, Human Rights, and labor an office that shall be responsible for working withdemocratic movements and transitions. The act also would require the Secretary to establish regional democracy hubs at U.S.missions abroad to carry out the provisions of this title and provides for coordination of such efforts. Sec. 612 of the title would require an annual report on democracy which will provide thedefinitions, category designations, and basis for much of the State Department activities and focuson democracy promotion worldwide. The measure would require that a nine-member Democracy Promotion and Human RightsAdvisory Board be established, and no later than 120 days after the date of this act, the Secretarymust appoint all members. No more than five may be appointed from the same political party. Furthermore, the Advance Democracy Act of 2005 seeks to strengthen the Community ofDemocracies by supporting the efforts of the government of Hungary and governments of otherEuropean countries to establish an International Center for Democratic Transition. For this purpose,the measure authorizes the appropriation of $1 million each for FY2006, FY2007, and FY2008. There is no similar provision in S. 600 at this time. Title XIII of H.R. 2601 notes how important foreign students are to the U.S.economy, to the exchange of ideas, and to U.S. institutions of higher learning. The Title alsodocuments a significant decline in foreign students entering the United States since September 11,2001. The measure would require the Secretary of State, in consultation with other agencysecretaries and within one year of enactment of this Act, to encourage foreign students to study inthe United States. In addition, the measure would require the Secretary of State to meet withindividuals and organizations involved in international education and the recruitment of foreignstudents to get their input on the matter. Furthermore, the Title would amend existing law ontraining in processing and facilitating visa applications for students and exchange visitors. Some lawmakers believe that U.S. assistance to Egypt has not been effective in promotingpolitical and economic reform and that foreign assistance agreements should be renegotiated toinclude benchmarks that Egypt would need to meet to continue to qualify for U.S. foreign aid. Othershave periodically called for restrictions on U.S. aid to Egypt based on the allegations that Egyptindirectly supports Palestinian terrorism, suppresses its own population, including minorityChristians, and continues to allow Egyptian state-owned media outlets to publish unsubstantiatedconspiratorial theories regarding Israel and the Jewish people. The Administration and Egyptian government assert that reducing Egypt's military aid wouldundercut peace between Israel and Egypt. Overall, many U.S. observers believe that U.S. support forEgypt stabilizes the region and extends U.S. influence in the most populous Arab country.Supporters of continued U.S. assistance note that Egypt helps train Iraqi and Palestinian securityforces, cooperates with the U.S. military, and will be helping to patrol the Egyptian-Gaza border afterIsrael's withdrawal. An amendment offered on July 15, 2004, to the House FY2005 foreign operations bill( H.R. 4818 ) would have reduced U.S. military aid to Egypt by $570 million andincreased economic aid by the same amount, but the amendment failed by a vote of 131 to 287. More recently, an amendment offered on June 28, 2005 to the House FY2006 foreign operations bill( H.R. 3057 ) would have reduced U.S. military aid to Egypt by $750 million and wouldhave transferred that amount to child survival and health programs managed by USAID. Theamendment failed by a recorded vote of 87 to 326. H.R. 3057 , the House FY2006 foreign operations bill, earmarks $100 millionin ESF for good governance and education programs in Egypt, a doubling of previous obligatedamounts. The Senate version provides $35 million for democracy and governance programs inEgypt. H.R. 2601 , the FY2006/FY2007 House Foreign Relations Authorization bill,would reduce U.S. military assistance to Egypt by $240 million over the next three fiscal years, whileusing the same amount of funds to promote economic changes, fight poverty, and improve educationin Egypt. There is no companion provision in the Senate's Foreign Relations Authorization bill( S. 600 ). Section 1021 of H.R. 2601 would establish a number ofrequirements Egypt would have to meet in order to continue receiving U.S. economic assistance. It also would make cash flow financing benefits available only for projects focused on economicreform, education, and poverty reduction rather than for military purchases. Finally, H.R.2601 would transfer any interest earned from amounts in an interest bearing account forEgypt's FMF to the Middle East Partnership Initiative (MEPI) for reform-oriented programming inEgypt. Title VII of H.R. 2601 , as passed by the House, contains a variety of provisionsrelating to export control policies of the United States. What follows is a brief summary of keysections of this Title of the House committee bill, as reported to the House. S. 600 , hasalmost no directly comparable provisions at this stage of its consideration in the Senate. It ispossible that some of the matters addressed in H.R. 2601 may become the subject ofamendments during Senate floor consideration of its related bill. Section 711 would amend the State Department Basic Authorities Act of 1956 by: creating the position of Deputy Under Secretary of State for Strategic ExportControl; making the Under Secretary of State for Arms Control and InternationalSecurity the chairman of an inter-agency Strategic Export Control Board, to be established by section712 of this bill; and authorizing the use of defense trade registration fees to offset costs related tothe work of the Strategic Export Control Board. Section 712 would establish a Strategic Export Control Board, composed of representativesof Departments having export control policy, licensing or duties for enforcement of the U.S. exportcontrols and related matters. The Chairman of this Board is to be the Under Secretary of State forArms Control and International Security. Section 721 would require the Departments of Commerce and State to publish the results oftheir determinations regarding export jurisdiction in the Federal Register and on their Internetwebsites. This is intended to make clear which items are being controlled through the United StatesMunitions List and those controlled through the Commodity Control List. Section 722 would amend section 36 (c) of the Arms Export Control Act to establish aCongressional notification requirement for the new so-called comprehensive export licenses, notcurrently subject to mandatory Congressional review. Section 723 would direct the State Department not to provide preferential treatment in theprocessing of licenses for export to other parties of items needed for U.S. Armed Forces and alliedforces participating in United States-led coalitions operations. Section 724 would require the State Department to include information on the number ofofficers assigned to munitions export licensing and their workloads in the quarterly report toCongress required by section 36(a) of the Arms Export Control Act. Section 725 would amend the reporting requirements of section 655 of the ForeignAssistance Act of 1961, to require that the information found in this report to Congress on U.S.Munitions List items transferred or licensed for export abroad be maintained in a database formatthat can be searched by the general public. Section 726 would require the State Department office responsible for processing U.S.Munitions List export licenses to designate a coordinator for small business affairs to aid smalldefense firms in application procedures and related matters. Section 727 would require the Secretary of State to create an exemption from export licensingin the International Traffic in Arms Regulations for certain technical data related to foreign salesmarketing of commercial satellites under conditions and parameters for this data established by theSecretary of Defense. Section 728 would amend the reporting requirements of Section 655 of the ForeignAssistance Act of 1961 to require inclusion in the report to Congress of information concerning thevolume and types of defense articles being exported without a license. Section 731 would require an annual report to Congress on certain sensitive items warrantinglicensing scrutiny before being transferred to a foreign person located within the United States. Inthe future any U.S. Munitions List item specified in this new report would require a license beforeit could be transferred. Section 732 would require a report by the Secretary of State certifying that there is nonational security risk arising from the current exemption in the International Traffic in ArmsRegulations which permits any foreign person to bring unclassified weapons temporarily into theUnited States from Canada without prior U.S. Government review and approval. The report wouldalso have to certify that the State Department is providing guidance to Homeland Security andBorder Protection personnel needed to enable them effectively to detect and enforce the unlawfuluse of a Canadian license exemption. Section 733 would amend section 38 of the Arms Export Control Act to require that theUnited States does not transfer items on the U.S. Munitions List or the Commodity Control List toany entity of an embargoed country, other than the military, intelligence, or other security forces ofsuch country, and only through issuance of an export license in which the Secretaries of State andDefense concur. Section 735 would amend section 3 of the Arms Export Control Act to require a report toCongress regarding any unauthorized transfer of a U.S. defense article by a foreign person to a nationdesignated by the United States as a state sponsor of international terrorism. This provision wouldapply to articles licensed under section 38 of the Arms Export Control Act. Other sections of Title VII of H.R. 2601 provide for various reportingrequirements on technical matters, authorizations for transfers of specific decommissioned navalvessels, transfers of obsolete and surplus military stocks, and terms of reimbursement forinternational military education and training provided by the United States. In a floor amendment to the bill during House consideration, Chairman Henry Hyde, addeda new Title IX (Sections 901-910) which contains a number of Congressional policy statements andother detailed provisions to tighten oversight by the United States over exports of its defense articles,services and technology to other nations who might re-export such items to China. This titlecontains a number of reporting requirements that the President provide specific information relatingto arms exporting activities of nations in the European Union that might transfer U.S. origin defenseitems or technology to China, as well as reporting requirements related to U.S. defense exportslicensing generally to ensure that defense items or technology that potentially find their way toChina, have been rigorously scrutinized in advance to ensure that no risk to U.S. national securityinterests are involved. Section 734 would require the Secretary of State to annually certify that U.S. missiletechnology controls are clearly established and updated. This certification requirement is in responseto Government Accountability Office (GAO) findings that jurisdiction over about 25 percent ofmissile-related items controlled by the Missile Technology Control Regime (MTCR) is ambiguouslyshared between the Departments of State and Commerce and that there is a long-standing absenceof export license requirements for many dual-use MTCR items exported to Canada. The issue ofexport license requirements for Canada is likely based on a need to close an identified loophole toavoid the re-export of missile-related items from Canada to nations of concern. Section 741 would require that any foreign person, entity, or government that has beensanctioned by the U.S. for missile transfer violations will be on probation for the issuance ofdual-use licenses for a period of three years after the expiration of the designated period of formalsanctions. The three year probation can be waived if the President informs Congress that the person,entity, or government has verifiably ceased their illegal activities and have instituted a program oftransparency in order to verify compliance. These provisions are intended to raise the potential costsfor those involved in proliferation activities as well as provide a means to monitor their activity byplacing them on a watch list. Section 742 increases the period of U.S. missile sanctions from twoto four years which is also intended to raise the potential costs to proliferants. There are no similarprovisions in S. 600 . Section 743 would expand U.S. missile sanctions to all foreign persons, including responsiblegovernment entities. This provision is intended to deter foreign governments from using individualsor front companies to conduct government-sponsored trade and transfers of missiles and relatedtechnologies as a means to avoid U.S. sanctions. This is considered by some as a very powerfulmeasure whereby the U.S. government could sanction an entire country over the illegal activities ofindividuals or companies from that country. Even in a situation where a foreign government is notusing front companies or persons to further its missile programs, this provision might compelgovernments to exercise greater monitoring or export control over missile-related trade in order toavoid the possibility of U.S. sanctions against their country. CRS Products: CRS Report RL31559 , Proliferation Control Regimes: Background and Status . Nonproliferation experts were shocked in 2004 by the revelation that Pakistani scientist A.Q.Khan sold sensitive nuclear technology and equipment to Iran, Libya, and North Korea. PresidentBush responded with several nonproliferation proposals: a ban on sales of uranium enrichment andreprocessing to states that do not already have fully operational capabilities, a similar ban for thosethat have not signed an Additional Protocol (expanded measures to strengthen International AtomicEnergy Agency safeguards), and expansion of the Proliferation Security Initiative. Much of thenonproliferation language in H.R. 2601 addresses the nuclear black market issue andpolicy proposals. Title VIII, the Nuclear Black Market Elimination Act, seeks to strengthen U.S. leverage inshutting down nuclear black market transfers. The bill has four basic components: sanctions,penalties for corporate entities associated with proliferation activities, incentives for proliferationinterdiction cooperation, and nonproliferation conditions for U.S. assistance. Subtitle A wouldauthorize the President to impose any or all sanctions listed (e.g., bans on foreign assistance, aid,defense articles, licenses for defense and dual-use articles and for any commodities other than food,agriculture, medicines and medical equipment) to individuals that transfer enrichment andreprocessing technology to non-nuclear weapon states that do not already have fully operationalcapability as of January 1, 2004, that do not have in force an Additional Protocol, or are developinga nuclear weapon. The sanctions, which would be imposed for two years or more, may besuspended by the President after 15 days with congressional notification. Subtitle C would authorizeassistance to other countries cooperating in proliferation interdiction, including provision of defenseequipment. Section 836 prohibits transfer of excess aircraft or ships to states that have not agreedit will support U.S. interdiction efforts. Subtitle D would make nonproliferation cooperation aprecondition for U.S. assistance and would suspend arms sales licenses and deliveries to countriesthat host nuclear proliferation networks. The President would need to certify to Congress that thosecountries are fully investigating such networks, are taking steps to halt such activity, are fullycooperating with the United States, and have enacted laws to prevent future activities. Thesemeasures appear to address the frustration among some in Congress that the United States seems tohave little leverage over Pakistan in uncovering and eliminating the A.Q. Khan network. In addition, there are several sense of Congress resolutions in Title XIV (MiscellaneousProvisions) related to nonproliferation. On Iran, Section 1402 calls for the G-8 governments to insistthat Russia terminate all assistance to the Bushehr nuclear facility (including fuel) and conditionRussia's continued membership in the G-8 on that termination of assistance. On A.Q. Khan, Section1423 calls for the U.S. government to ask Pakistan for direct access to Khan to learn more about theoperation of his illicit nuclear black market network, and to take the steps to ensure that Pakistan hasverifiably halted any cooperation with any country in the development of weapons of massdestruction-related (WMD) technology, material, or equipment. There is also a sense of Congressresolution in Section 1431 on the Proliferation Security Initiative, urging the Secretary of State toseek ways of strengthening PSI along the lines of what the President proposed in February 2004. Inparticular, says H.R. 2601 , the United States should seek authority through aninternational instrument such as a United Nations Security Council resolution, multilateral treaty,or other agreement not just to interdict, but also to seize and impound illicit shipments ofWMD-related items. CRS Products: CRS Report RS21881 , Proliferation Security Initiative (PSI) ; CRS Report RL32745 , Pakistan's Nuclear Proliferation Activities and the Recommendations of the9/11 Commission: U.S. Policy Constraints and Options ; and CRS Report RS21592 , Iran's Nuclear Program: Recent Developments . In recent years, there has been considerable concern in Congress and elsewhere that theWorld Bank is continuing to make loans to Iran even as that country seems to be striving to developnuclear weapons. Many believe that access to credit from the World Bank helps Iran to fundindirectly its nuclear program. Others assert that while the case for indirect financing may bedebatable, the present situation suggests that the international community is not seriously concernedabout the Iran's current activities. H.R. 2601 includes language (Sec. 1406) directing the Secretary of State towork, in consultation with the Secretary of the Treasury, to secure the support of governmentsrepresented on the board of executive directors of the World Bank Group to oppose any furtheractivity in Iran by the Bank Group until Iran abandons its program to develop nuclear weapons. Notification by the Secretary to the "appropriate congressional committees" is required. The G8 and other European countries have a working majority on the World Bank executiveboard. If the United States can persuade them to oppose further assistance to Iran, then no futureassistance would be approved. Barring extraordinary circumstances, however, it seems unlikely thatthe Bank could discontinue projects which it has already approved and for which it is contractuallyobligated. From 1993 to 2000, there was a consensus on the executive board opposing new loans. In 2000, however, the consensus broke down as several major European countries sought toinfluence Iran's policy through constructive dialog. More than a half-dozen loans have beenapproved since that time. The new legislation might help strengthen the Administration's efforts toreestablish the prior consensus. On the other hand, unless the United States and major Europeancountries agree on their basic strategy, efforts to recreate the earlier consensus may be futile. Directing the Secretary of State to take the lead will bring the resources of the State Department tobear on the issue. However, the Department of the Treasury has jurisdiction for U.S. participationin the World Bank and other international financial institutions and would normally be the one tolead this effort. In any case, the President is required by Sec. 10 of the Iran and Libya Sanctions Actof 1996 ( P.L. 104-172 ) to undertake an international effort to persuade countries to pressure Iran tocease development of weapons of mass destruction. This effort would presumably include effortsto stop lending by the World Bank so long as Iran continues to pursue WMD ambitions. Typically,legislative jurisdiction for matters pertaining to the World Bank lies with the House FinancialServices Committee. During floor action, the House passed an amendment to Section 106 which authorizes theBroadcasting Board of Governors to use such sums as are necessary for FY2006 and FY2007 tobroadcast at least 30 minutes a day to Venezuela. S. 600 contains a number of measures in addition to those authorizing StateDepartment appropriations, organization measures, and broadcasting. Included in S. 600are provisions that would authorize foreign assistance programs, radiological terrorism security,global pathogen surveillance, safe water, protection of vulnerable populations during humanitarianemergencies, and conventional arms disarmament. U.S. Assessments. Effective October 1, 1995,Congress, in Section 404 (b)(2), P. L. 103-236, limited U.S. assessed payments to U.N. peacekeepingaccounts to 25%, irrespective of the higher percent level assessed the U.S. government by the UnitedNations General Assembly. Congress had taken this action in response to continuing increases inthe overall costs of U.N. peacekeeping operations and the failure of U.N. member governments toaccept increases in their own assessment levels, a step that would enable U.S. assessments to belowered. This difference between U.S. peacekeeping contributions and U.N. peacekeepingassessments, created by the gap between U.N. and U.S.-recognized assessment levels, helped toproduce a growing arrearage in U.S. contributions to U.N. peacekeeping accounts. In 2001, in response to a December 2000 agreement by the U.N. General Assembly that theU.S. regular budget assessment would be reduced from 25% to 22%, the U.S. peacekeepingassessment level started to fall toward 25%. [The U.N. peacekeeping assessment is based on amodification of the regular budget assessment level. See CRS Issue Brief IB90103, United NationsPeacekeeping: Issues for Congress , Table 1 . U.N. Peacekeeping Assessment Levels for the UnitedStates and accompanying text for further details and background.] (21) In 2002, Congressstipulated that the 25% cap set for peacekeeping payments in 1995 would be raised for calendar years(CY) 2001 through 2004 to a range of 28.15% for CY2001 through 27.4 % for CY2004. This wouldenable current U.S. peacekeeping assessments to be paid in full (section 402, P. L. 107-228). TheFY2005 Consolidated Appropriations Act ( P.L. 108-447 , December 8, 2004), set the peacekeepingassessment cap for CY2005 at 27.1%. The Senate on April 6, 2005, accepted an amendment to S. 600 that would dropthe assessment cap limitation changes, returning the cap to 25%. The Foreign Relations Committeehad recommended a permanent change to 27.1% and an amendment sponsored by Senator Bidenwould have adopted the 27.1% cap for CY 2005, 2006, and 2007, a change requested by theAdministration. According to the U.N. General Assembly resolution (A/RES/58/256, adoptedDecember 23, 2003) which endorsed peacekeeping assessment levels for CY 2004 through 2006,the U.S. assessment level for its peacekeeping contributions is: The Senate action, if it became law, would appear to return the United States to the automaticaccumulation of arrearages in its U.N. peacekeeping contributions. H.R. 2601 does nothave language relating to the peacekeeping cap. CRS Products: CRS Issue Brief IB90103, United Nations Peacekeeping: Issues for Congress. The Brahimi Report. In August 2000, a Panelof experts on United Nations Peace Operations, created by U.N. Secretary-General Kofi Annan inMarch 2000, issued a report assessing the shortcomings of the United Nations in the peacekeepingarea and offering nearly 60 recommendations for reform and change. The report is often referredto as the Brahimi Report, named after the chairman of the Panel, Lakhdar Brahimi, former ForeignMinister of Algeria and currently Special Adviser to the Secretary-General of the United Nations. Many of those recommendations, after being reviewed by the U.N. General Assembly and its SpecialCommittee on Peacekeeping Operations and the U.N. Security Council, were implemented. Section 403 of S. 600 would require the Secretary of State, within 120 days afterenactment, to submit a report "assessing the progress made to implement the recommendations setout in the Report of the Panel on United Nations Peace Operations, transmitted...on August 21,2000...." This State Department report "shall" include "(1) an assessment of the progress made bythe United Nations toward implementing the recommendations set out in the Report; (2) adescription of the progress made toward strengthening the capability of the United Nations to deploya civilian police force and rule of law teams on an emergency basis at the request of the UnitedNations Security Council; and (3) a description of the policies, programs, and strategies of the UnitedStates Government that support the implementation of the recommendations set out in the Report,especially in the areas of civilian police and rule of law." The Senate Foreign Relations Committeein explaining its intent recognized "the importance of the U.N. peacekeeping operations, includingtheir capability to deploy civil police forces in post-conflict stabilization missions" and stated itsbelief "that the report required by this section will contribute to its oversight of U.S. efforts andsupport for implementing any outstanding recommendations of the 2000 Brahimi assessment." (22) H.R. 2601 does not include comparable language. This is not the first time the Senate Committee has recommended such a report. In April2003 and in March 2004, the Committee recommended in Section 402 of S. 925 forFY2004 and S. 2144 for FY2005, respectively, that the Foreign Relations AuthorizationAct require the Secretary of State submit to "appropriate committees of Congress" a report "assessingthe progress made to implement the recommendations" of the Brahimi Panel. The contentsrequirements for the report were identical to those in Section 403 of S. 600 . The Housebill in the 108th Congress, H.R. 1950 , did not include a similar provision and thelegislation was not enacted. Neither House or Senate authorization bills, as reported by the respective committees, address the long-standing and frequently contentious matter of U.S. international family planningassistance and abortion. The Senate, however, adopted a floor amendment to S. 600 ,offered by Senator Boxer, that would effectively reverse the President's so-called "Mexico City"policy. In the past, the Bush Administration has said the President would veto legislation thatincluded such text. Mexico City Policy. With direct funding ofabortions and involuntary sterilizations banned by Congress since the 1970s, the ReaganAdministration in 1984 announced that it would further restrict U.S. population aid by terminatingUSAID support for any organizations (but not governments) that were involved in voluntary abortionactivities, even if such activities were undertaken with non-U.S. funds. U.S. officials presented therevised policy at the 2nd U.N. International Conference on Population in Mexico City in 1984. Thereafter, it become known as the "Mexico City" policy. The policy continued in effect until liftedby President Clinton in 1993, but was re-imposed by President Bush in early 2001. Critics of the Mexico City requirements oppose it on several grounds. They argue that familyplanning organizations may cut back on services because they are unsure of the full implications ofthe restrictions and do not want to risk losing eligibility for USAID funding. Opponents also believethe conditions undermine relations between the U.S. government and foreign non-governmentorganizations (NGOs) and multilateral groups, creating a situation in which the United Stateschallenges their sovereignty on how to spend their own money and impose a so-called "gag" orderon their ability to promote changes to abortion laws and regulations in developing nations. The latterrestriction, these critics note, would be unconstitutional if applied to American groups working inthe United States. Supporters of the policy argue that even though permanent law bans USAID funds frombeing used to perform or promote abortions, money is fungible; that organizations receivingAmerican-taxpayer funding can simply use USAID resources for legal activities while divertingmoney raised from other sources to perform abortions or lobby to change abortion laws andregulations. The policy, they contend, stops the fungibility "loophole." During debate on S. 600 , the Senate approved (52-46) on April 5 an amendmentoffered by Senator Boxer that would effectively overturn the President's Mexico City policy. Specifically, the Boxer language states that foreign NGOs shall not be ineligible for U.S. funds solelyon the basis of health or medical services they provide (including counseling and referral services)with non-U.S. government funds. This exemption would apply so long as the services do not violatethe laws of the country in which they are performed and that they would not violate U.S. laws ifprovided in the United States. The amendment further provides that non-U.S. government fundsused by foreign NGOs for advocacy and lobbying activities shall be subject to conditions that alsoapply to U.S. NGOs. Since it is largely held that American NGOs would not be subject to theserestrictions under the Constitutional protection of free speech, it is possible that this latter exemptionwould lift current prohibitions that apply to overseas NGOs. CRS Products: CRS Issue Brief IB96026, Population Assistance and Family Planning Programs: Issues forCongress. There has been strong public concern in the past decade that many poor countries are stifledin their efforts to escape poverty and develop their economies by their comparatively heavy burdensof external debt. Since the late 1980s, the G7 countries have adopted various plans for cancellingthe debt of these countries. To qualify, countries must adopt reforms in their economic policies andprocedures. In July 2005, the G8 announced plans for a program of 100% debt cancellation for 18countries that have successfully completed the program for assistance to heavily indebted poorcountries (HIPCs) as well as for other that meet those standards in the future. Among other things,this will include deep cancellation of debt owed to the international financial institutions. S. 600 contains language (Sec. 2114) that would authorize the appropriation of$99.75 million during fiscal 2006 for debt reduction under the HIPC program and the Tropical ForestConservation Act of 1998. No more than $20 million of the total may be used to carry out the latteract. There is no indication what share should be used to fund U.S. bilateral debt cancellation ormultilateral debt cancellation via contribution to the HIPC Trust Fund administered by the WorldBank. For fiscal 2005, the Administration requested an appropriation of $105 million to completeU.S. bilateral debt cancellation for the Democratic Republic of the Congo (DROC). The UnitedStates is one of the last countries not to cancel debts owed to it by the DROC under the HIPCagreement approved in 2003. S. 600 also includes language (Sec. 2221) authorizing thePresident to reduce further most debts owed to the United States by the poorest countries, in lightof the debt reduction plan recently announced by the G8. H.R. 2601 has no comparablelanguage related to debt cancellation. It does mention in Sec. 954 that debt relief could be part ofthe comprehensive strategy called for by the Sense of Congress statement for the elimination ofextreme poverty in developing countries. From the point of view of supporters, greater debt cancellation will help poor countries fightpoverty and enhance their development prospects. Few groups have voiced opposition to themeasures. Many worry, however, that -- he G8 having promised to reimburse the World Bank foronly a small part of the total multilateral debt forgiveness announced at the recent G8 meeting --future aid levels from the Bank's concessional aid program will be reduced proportionally to theplanned debt cancellation. On that basis, debt cancellation would provide few net benefits for theBank's prospective aid recipients. CRS Products: CRS Report RS21482 , The Paris Club and International Debt Relief ; CRS Report RL32489(pdf) , Africa: Development Issues and Policy Options ; CRS Report RL32796 , Africa, the G8 and the Blair Initiative ; and CRS Issue Brief IB95052, Africa: U.S. Foreign Assistance Issues . The State Department is responsible for protecting more than 60,000 government andcontract employees, and their family members, who work in embassies and consulates in 180countries. Given the threat of a terrorist act against U.S. personnel located overseas, assessing andresponding to a Chemical, Biological, Radiological, or Nuclear (CBRN) attack is of concern to theDepartment of State. "Terrorist groups, particularly Al Qaeda, remain interested in CBRN weapons. Al Qaeda's stated intention to conduct an attack exceeding the destruction of 9/11 raises thepossibility that a future attack may involve unconventional weapons." (26) S. 600 contains numerous provisions, under Title XXIII - the RadiologicalTerrorism Security Act of 2005, that address preparing for and responding to a CBRN attack. ( H.R. 2601 does not contain a provision that addresses radiological terrorism issues.) Section 2303 of S. 600 would require the Secretary of State to provide to Congress reportsdetailing various aspects of preparations of U.S. diplomatic facilities to detect and mitigate aradiological attack. This report is due no later than 180 days after the date of enactment of this act. This section of the act also would require that a report be submitted by the Secretary that prioritizes:radiological security and consequence management efforts at U.S. diplomatic facilities and the U.S.missions where such improvements are most needed. These two reports are to be submitted toCongress annually commencing in FY2007. Currently the State Department addresses issues relatedto responding to a radiological incident in each embassy's Emergency Action Plan (EAP).Radiological response efforts supported by the EAP consist of providing CBRN equipment andtraining to U.S. personnel stationed overseas. (27) Section 2304 of this act would require the Secretary to assist foreign country first responderefforts. The provisions contained in this section would require the State Department to train foreignfirst responders to: detect, identify, and characterize radioactive material, understand the hazardsposed by radioactive contamination, and enter and assist individuals located in contaminated areas. These efforts complement the Department of State's Antiterrorism Assistance Program (ATA) thatfocuses on "developing a comprehensive and structured response within a host Nation's firstresponder community". (28) In FY2004, this ATA program trained first responders from 15Countries. Section 2305 proposes $2 million in FY2006 to undertake the efforts delineated in theRadiological Terrorism Security Act of 2005. The State Department's FY2006 funding request forprograms related to safeguarding of overseas diplomatic security facilities is $689.5 million (29) an increase of $39.6million (6 percent) over FY2005 levels. In 1997 a new strain of influenza jumped from poultry directly to humans in Hong Kong,resulting in several human deaths. This marked the first documented occurrence of directtransmission of an avian flu virus from birds to people. Despite efforts to contain the virus throughmass-culling of poultry flocks, the virus (also called H5N1 for specific proteins on its surface)re-emerged in 2003. It has since been reported in domestic poultry and/or migratory birds inCambodia, People's Republic of China, Taipei, Hong Kong, Indonesia, Japan, Republic of Korea,Laos, Malaysia, Thailand and Vietnam. (31) Also since 2003, it has infected 97 people in Cambodia,Thailand and Vietnam, resulting in 53 deaths. (32) As yet the virus has not developed the ability to transmitefficiently from person to person. Were that to occur, Asia could become the epicenter of a globalinfluenza pandemic. The high lethality of the strain and its tendency to affect young people remindhealth authorities of the deadly 1918 Spanish flu pandemic, which is estimated to have killed asmany as 2% of the world's population, and was a substantial cause of mortality among U.S. militarypersonnel serving in World War I. (33) U.S. and world health authorities believe that while influenza pandemics are inevitable andcannot be stopped, their progress may be slowed by rapid detection and local efforts to controlspread. The added time would allow affected nations to better manage the situation, and countriesnot yet affected to better prepare. To realize these benefits, Asian countries affected by avian flumust be able to track the spread of the virus in birds, and quickly detect and investigate suspectedhuman cases. Hence, a country's capabilities in epidemiology, laboratory detection and other publichealth services affect the welfare of the global community as well as the country itself. This factpresents developed nations with novel policy challenges, such as whether to reserve scarce healthresources such as antiviral drugs for themselves, or to rapidly deploy them to developing nations atthe center of an emerging pandemic. Section 2117 of S. 600 calls on the President to establish an interagency taskforce to design and implement a comprehensive international strategy to prevent and, if necessary,respond to outbreaks of avian flu, and to assure that U.S. efforts are well coordinated with those ofother nations. The task force is to be composed of officials at the assistant secretary level or higher. In addition, the act would authorize $25 million for FY2006 (through Section 491 of the ForeignAssistance Act) for assistance in preventing and responding to avian flu outbreaks. H.R. 2601 , is silent on the matter of avian flu. Related legislation addressinginternational aspects of pandemic flu preparedness includes 1) supplemental appropriations forFY2005, in which Congress provided $25 million for foreign assistance to prevent and control thespread of avian flu, directing that not less than $15 million of that be re-directed to the Centers forDisease Control and Prevention (CDC), to be obligated only after consultation with USAID; (34) and 2) S. 969 ,the Attacking Viral Influenza Across Nations Act of 2005, which would direct a number of effortsfor domestic and global preparedness for pandemic influenza, including creation of a cabinet-levelpolicy coordinating committee, foreign assistance for public health and medical capacity, anddevelopment of a proposal for an international fund to support pandemic influenza control and reliefactivities. Title XXIV of S. 600 -- The Global Pathogen Surveillance Act -- wouldauthorize $35 million for FY2006 to enhance the capability of developing nations to detect, identify,and contain infectious disease outbreaks, whether naturally occurring or the result of a bioterroristattack. The legislation was first introduced in the 107th Congress by Senators Biden, Helms,Kennedy, and Frist ( S. 2487 ), where it passed the Senate, amended, in August 2002. Nofurther action was taken on the measure during the 107th Congress. Similar legislation wasintroduced in both chambers in the 108th Congress but was not ultimately enacted. H.R. 2601 is silent on the matter of pathogen surveillance. Infectious disease outbreaks need not originate in the United States to pose a threat to thenation. The outbreak of Severe Acute Respiratory Disease (SARS) in 2003 and growing concernsabout pandemic influenza underscore the importance of global surveillance system to detect andtrack the spread of infectious diseases around the world, whether of natural origin or from abioterrorist attack. International trade, travel, and migration facilitate the rapid spread of pathogensfrom one continent to another. In turn, widespread outbreaks of infectious disease threaten thehealth, economic and social stability not just of those countries directly affected, but of theirneighbors and trading partners as well. Global surveillance is crucial in containing microbial threats before isolated outbreaksdevelop into regional or worldwide pandemics. In 2000, the World Health Organization (WHO)established the Global Alert and Response Network to monitor and track infectious disease outbreaksin every region of the world. But many developing nations lack the trained personnel, laboratoryfacilities, and public health infrastructure to detect emerging pathogens and track evolving diseasepatterns. The Global Pathogen Surveillance Act states that priority for provision of assistance will begiven to those countries that provide early notification of disease outbreaks, share data withappropriate U.S. authorities, and permit WHO and CDC officials to investigate outbreaks ofinfectious diseases on their territories (Section 2404). The act includes several provisions intendedto strengthen the disease surveillance capabilities of developing nations. First, it would provide forin-country training for medical and laboratory personnel and permit eligible nationals of developingcountries to come to the United States to pursue a master of public health degree or advancedtraining in epidemiology (Sections 2406 and 2407). Second, it would provide assistance for thepurchase of basic laboratory equipment for the collection, analysis, and identification of pathogens,and communications equipment and information technology for the dissemination of informationon disease patterns throughout regional health networks, excluding any types of equipment subjectto export controls (Sections 2408 and 2409). Additionally, the act would authorize the heads of executive branch agencies to assign publichealth officials to U.S. diplomatic missions and international health organizations when requested,and permit the expansion of CDC facilities overseas to further the goals of global disease monitoring(Sections 2410 and 2411). Finally, the act would authorize the President to provide funding andother assistance for the purpose of enhancing WHO's surveillance and reporting capabilities andthose of existing regional health networks, and for the development of new regional health networks(Section 2412). The act would authorize a total of $35 million for these activities in FY2006, fundsthat would be drawn from the Nonproliferation, Antiterrorism, Demining, and Related (NADR)Programs account, allocated as follows: $25 million for training public health officials and assisting in the procurementof lab and communication equipment (Sections 2406-2409); $0.5 million for the assignment of public health officials at U.S. missionsoverseas and international organizations (Section 2410); $2.5 million for the expansion of U.S. government labs overseas (Section2411); and $7 million to assist WHO and existing regional surveillance capabilities, andto develop new regional health networks (Section 2412). Lack of access to safe water and sanitation affects the health and livelihoods of billions ofpeople in developing countries. This absence is widely viewed as undermining development andpoverty reduction efforts. Appreciation of the linkages between water, development, and health isleading to a reassessment of the delivery of international water assistance. Several recentinternational development initiatives recognize the importance of improving access to water andsanitation as a means for achieving broader development and security objectives. Almost 1.1 billion people lack access to improved drinking water sources; an estimated 2.6billion people lack access to improved sanitation. These circumstances affect health anddevelopment through numerous pathways, including the health and economic costs of water-relateddiseases, and work and educational time lost to water collection. In response, Title VI of S. 600 (Safe Water: Currency for Peace Act of 2005) has been introduced to makeaccess to safe water and sanitation a policy objective of U.S. foreign assistance. (37) H.R. 2601 contains no similar title or provision. Title XXVI of S. 600 would amend the Foreign Assistance Act of 1961 toauthorize funding for safe water and sanitation assistance, and mandate the development andimplementation of a water strategy. Title XXVI would authorize such sums as may be necessary tocarry out the title beginning FY2006 through FY2011. Section 2604 of Title XXVI would authorizea five-year pilot water program in countries with high rates of water-borne disease; the programwould have two main components: (1) technical assistance, capacity building, and monitoring and(2) financial assistance mechanisms (e.g., investment insurance and guarantees, loan guarantees, anddirect investment). Title XXVI also calls for a Safe Water Strategy "to further the United States foreignassistance objective to promote economic development by promoting good health through theprovision of assistance to expand access to safe water and sanitation, to promote sound watermanagement, and to improve hygiene for people around the world." Existing U.S. foreign assistancestrategies, addressing such issues as education, and HIV/AIDS, tend to be implementedindependently of one another. Title XXVI would emphasize the role of water in water-relateddisease prevention, thus linking water more explicitly with health and development objectives. Thetitle would require the Secretary of State to develop a water strategy in close coordination with theAdministrator of U.S. Agency for International Development, and to submit the strategy to Congressnot later than 180 days after enactment. Title XXVI also would require that an assessment ofactivities to improve water and sanitation in sub-Saharan Africa be included in the water strategy. Sub-Saharan Africa is the region that currently has the lowest overall rates of improved water andsanitation coverage. The Foreign Assistance Act currently specifies numerous development assistance objectives,all generally aimed at promoting economic development, and many focused on health issues;however, improving access to safe water and sanitation is not a stated priority. Title XXVI wouldestablish as a policy objective for U.S. foreign assistance the promotion of health and economicdevelopment by providing assistance for expanded access to safe water and sanitation, sound watermanagement, and improved hygiene. The second policy objective of Title XXVI is theencouragement of private investment in water and sanitation. Title I. Sec. 104 (c)(3). Within one year of establishing a pilot program for long-term refugee populations the Secretary is required to submit a report to congressionalcommittees on the implementation and recommendations. Title II Sec. 205. Accountability review boards ; limited exemptionsregarding facilities in Afghanistan and Iraq with incidents of injury or loss of life in Iraq andAfghanistan. The Secretary shall promptly notify HIRC and SFRC of such anincident. Title II, Sec. 216. Within 180 days after enactment the Secretary must reportto the appropriate congressional committees on the status of efforts to establish the Active ResponseCorps. Title II, Sec.217. Within one year, the Secretary of State must report tocongressional committees on security weaknesses regarding passports. Title III, Sec. 303 (e). Within two years after enactment, the Secretary shallreport to appropriate congressional committees on the effect of increases in post differentials anddanger pay allowances . Title III, Sec. 318 (c). Biennial report to be submitted by the Secretary toappropriate congressional committees regarding State Department human resources policies,skills, training, and diversity . Title IV. Sec. 403 (e) (3). Within 90 days after the date of this Act andannually until September 31, 2010, the Secretary of State must report to the appropriatecongressional committees on U.S. efforts to promote full compliance on U.N. Security CouncilResolution 1540. Title VI, Subtitle A, Sec.612. Secretary shall report to appropriatecongressional committees annually by July 1st of each year on democracy . And subsection (b) aone-time report on democracy training and guidelines for the Foreign Service. Title VI, Subtitle C, Sec 642. Human Rights and Democracy Fund annualreport required of the Secretary to be submitted to the appropriate congressional committees within60 days of the end of each fiscal year. Title VII, Subtitle B, Sec. 712 (c). Not later than one year, two years and threeyears after the date of enactment of the act, the Comptroller General shall submit to the appropriatecongressional committees a report on the Strategic Export Control Board . Title VII, Subtitle C, Sec. 721(c). Within 120 days after the date of enactmentof the act, the Secretaries of State and Commerce shall submit to appropriate congressionalcommittees a joint report on export licenses and jurisdictionaldeterminations. Title VII, Subtitle D, Sec. 731(c). Not later than 180 days after the date ofenactment of the act and annually thereafter, the Secretary of State, in consultation with the AttorneyGeneral and the Secretary of Homeland Security shall report to appropriate congressional committeeson issues regarding sensitive technology transfers to a foreign person. Title VII, Subtitle D, Sec. 733(c). Within 120 days after enactment, theSecretary shall submit to appropriate congressional committees a report on establishment of foreignpolicy and national security export controls. Title VII, Subtitle E, Sec. 743(c)(4). The President shall report annually tospecified committees on the identity of any foreign person engaging in transactions related todual use sanctions . Title VIII, Subtitle A, Sec. 812. Not later than 180 days after enactment of theact, and no later than January 31st annually thereafter, the President shall report to the appropriatecommittees detailing Sec. 811 activity by any foreign person on sanction, export, trade, transferof nuclear enrichment equipment, materials or technology. Title VIII, Subtitle B, Sec 824. Within one year of enactment of this act andannually thereafter, the Secretary shall report to the appropriate congressional committees on U.S.government actions to dissuade foreign government and business officials from engaging insanctioned activities under Sec. 811. Title VIII, Subtitle D, Sec. 842. Within 90 days, the President shall report tothe appropriate congressional committees on identification of nuclear proliferation network hostcountries. Title IX, Sec. 903 (a). The President shall report within 180 days afterenactment of this Act and within 12 months thereafter to the appropriate congressional committeeson Foreign Military Exports to China. Title IX, Sec. 904 (b). The President shall report to the appropriatecongressional committees no later than 180 days after the date of this Act and every 12 monthsthereafter on China arms transfer policies of countries participating in U.S. defense cooperativeprojects. Title IX, Sec. 906(b).Within 60 days after the end of each calendar quarter, theSecretary of Commerce shall report to the appropriate congressional committees on Chinesemilitary end use of dual use exports. Title X, Subtitle A, Sec 1001 (a)(F). No later than January 31, 2008, thePresident shall report to Congress on activities in FY2006 and FY2007 for establishing centers fortreatment of obstetric fistula in developing countries. Title X, Subtitle A, Sec. 1004(a)(5). Within 180 days after enactment and every180 days thereafter during FY2006 and FY2007 the secretary shall report to the appropriatecommittees on all UNDP activities in Burma. Title X, Sec. 1021. The President through the Secretary of State shall transmita report for each fiscal year to specified congressional committees on the requirement for assistanceto Egypt . Title X, Sec 1032. No later than 180 days after enactment of this act, theComptroller General of the United States shall report to appropriate congressional committees onthe U.S. assistance to the Palestinian Authority. Title X, Sec. 1045. Not later that one year and two years after the date ofenactment of this act, the Secretary shall report to the appropriate congressional committees on the Demonstration Insurance Project support for Ethiopia famine relief. Title X, Sec. 1051. No later than 180 days after enactment, the Secretary shallreport to appropriate congressional committees on all U.S. weapons transfers, sales, licensing toHaiti between October 4, 1991 through the date of enactment of this act. Title XI. Sec 1101(b). Within 120 days of enactment the Secretary shall reportin classified form on the Trans-Sahara Counterterrorism Initiative to appropriate congressionalcommittees. Title XI, Sec.1102. Amends annual Patterns of Global Terrorism Reportlanguage. Title XI, Sec. 1103. Within 180 days after enactment of this act, the Secretaryshall report to the appropriate congressional committees on dual gateway policy of the governmentof Ireland. Title XI, Sec. 1104. No later than one year after enactment of this act, theSecretary shall report to the appropriate congressional committees on the U.S. efforts to assistHaiti. Title XI, Sec. 1108. Within 30 days after completion of a study on autismservices overseas for dependents of Foreign Service personnel , the Secretary shall report to theappropriate congressional committees on the findings of the study. Title XI, Sec. 1109. The Secretary shall direct the U.S. representative to theboard of UNICEF to urge UNICEF to provide a report on worldwide incidence ofautism. Title XI, Sec. 1110. No later than March 1st after enactment of this act, theChairman of the BBG shall report to the appropriate congressional committees on state-sponsoredInternet jamming. Title XI, Sec. 1111 extends previous reporting requirement on minorityrecruitment at the Department of State to April 1, 2006 and April 1, 2007. Title XI, Sec 1112. Current language on annual country reports on humanrights practices is amended to include incitement to acts of discrimination. Title XI, Sec. 1113. No later than 180 days after enactment of this act, theSecretary shall report one time to the appropriate congressional committees on child marriage around the world. Title XI, Sec. 1114. No later than 60 days after enactment of this act, and oneyear thereafter, the Secretary shall report to the appropriate congressional committees on the MagenDavid Adom Society in the International Red Cross and Red CrescentMovement. Title XI, Sec. 1115. Within 180 days after enactment of this act, the Secretaryshall report to the appropriate congressional committees on special autonomy for Papua andAceh. Title XI, Sec. 1116. No later than 30 days after enactment of this act, and every120 days thereafter, the Secretary shall report to the appropriate congressional committees on the murders of three U.S. contract employees in Gaza and any resultingarrests. Title XI, Sec. 1117. No later than 90 days after the date of this act and annuallythereafter, the Secretary shall report to the appropriate congressional committees on diplomaticrelations with Israel. Title XI, Sec. 1118. No later than 90 days after the date of this act, theSecretary shall report to specified committees on tax code enforcement inColombia. Title XI, Sec. 1119. No later than 90 days after the date of this act, theSecretary shall report to appropriate congressional committees on the possibility of providing consular and visa services at the U.S. Office in Pristina, Kosovo. Title XI, Sec. 1120. No later than December 31st 2006 and 2007 the Presidentshall report to the appropriate congressional committees on democracy inPakistan. Title XI, Sec. 1121. No later than 120 days after the date of this act, and every180 days thereafter, the Secretary shall report to the appropriate congressional committees on thestatus of the sovereignty of Lebanon. Title XI, Sec. 1122. No later than 180 days after the date of this act, and byJune 30 of the following year, the Secretary shall report to the appropriate congressional committeeson international terrorist organizations in Latin America and theCaribbean . Title XI, Sec. 1123. No later than November 1, 2006 the Secretary shall reportto appropriate congressional committees on employment of weapons scientists from the formerSoviet Union in Project Bioshield. Title XI, Sec. 1124. No later than six months after the date of this act andannually thereafter, the Secretary shall report on extradition of violent criminals from Mexico tothe United States. Title XI, Sec. 1125. No later than 120 days after enactment of this act theSecretary shall report to the appropriate congressional committees on the actions of the 661Committee of the United Nations. Title XI, Sec. 1128. No later than 90 days after the date of this Act, theSecretary of State must report to the appropriate congressional committees on extraditions ofAfghan drug traffickers and drug kingpins. Title XI, Sec. 1129. No later than 90 days after the date of this Act, theSecretary of State must report to the appropriate congressional committees on the President'semergency plan for AIDS relief. Title XII, Sec 1218. No later than 180 days after enactment of this Act and oneyear thereafter, the Secretary of State shall report to the appropriate congressional committees on U.N. Reform . Title XII, Sec 1219. Within one year after the date of this Act, the Secretaryof State must report to the appropriate congressional committees on United Nations Personnelissues. Title XII, Sec. 1220. Within one year after the date of this Act, the Directorof OMB must report to specified congressional committees on U.S. contributions to the UnitedNations. Title XII, Sec. 1241 (f). No later than six months after the date of this Act, thePresident must report to the appropriate congressional committees on implementation on International Atomic Energy Agency compliance issues . Title XII, Sec. 1263. No later than six months after enactment of this Act, theSecretary of State must review and report to appropriate congressional committees on U.N.programs that are funded through assessed contributions. Title XII, Sec. 1264(a). Within 12 months after enactment of this Act andannually thereafter, the Comptroller General of the United States Government Accountability Officemust report to the appropriate congressional committees on the status of the 1997, 2002, and 2005U.N. management reforms initiated by the Secretary General and those mandated by thistitle. Title XII, Sec. 1264 (b). Within six months after each certification by theSecretary of State, the Comptroller General must report to specified congressional committees on costs associated with U.N. building construction and contracting in Geneva,Switzerland. Title XIII, Sec. 1304(d). Within 180 days after enactment of this Act andannually thereafter, the Secretary must report to the appropriate congressional committees onapplication and issuance rates for F-1 and J-1 visas at all diplomatic and consular missionsproviding consular service. Title XIV, Sec. 1414(c). Within one year after enactment of this Act, theSecretary of State must report to the appropriate congressional committees on the prevention ofsmuggling methamphetamine into the United States from Mexico. Title II, Sec. 202(4). Not later than Feb 1 each year the Secretary shall reportto congressional committees on issuing administrative subpoenas. Title II, Sec 208. The Secretary shall promptly report to congressionalcommittees on injury or loss of life in facilities in Iraq and Afghanistan. Title II, Sec 213. Within one year of enactment the Secretary shall report onthe activities of the Victim of Crime Office. Title III, Sec. 307. Within one year, the Secretary shall report to congressionalcommittees on the waiver authorities of annuity limitations for Foreign Serviceannuitants. Title IV, Sec. 402. No later than 120 days after enactment, the Secretary shallreport to the appropriate congressional committees on the implementation of the BrahimiReport . Title VI, Sec. 602. No later than 180 days after enactment, the Secretary shallreport to Congress on measures to enhance international student exchange programs and thoseto utilize educational advising centers . Title VII, Sec 707(c). No later than 180 days after the date of this act, theSecretary shall report to the appropriate congressional committees on the status of efforts to establishthe Response Readiness Corps. Title VIII, Sec. 805 extends to FY2006 and FY2007 the reporting requirementconcerning efforts to promote Israel's diplomatic relations with othercountries . Title XXI, Sec. 2116 requires the secretary to report to Congress no later than180 days after enactment of this report on the Middle East Partnership Initiative(MEPI). Title XXI, Sec. 2117 requires the President to report to specified congressionalcommittees on interagency coordination to combat the avian flu. Title XXII, Sec. 2224 requires that no later than January 31, 2007 and annuallythereafter, a newly-established Middle East Foundation report to the appropriate congressionalcommittees and make available the Foundation's annual reports for the yearprior. Title XXII, Sec 2236 amends the Foreign Relations Authorization Act ofFY2003 to require a report to Congress no later than April 1, 2006 on consolidation of reports on nonproliferation in South Asia. Title XXII, Sec. 2238 restricts FY2006 U.S. assistance to the Government ofIndonesia or to the Indonesian Armed Forces until the Secretary reports to the appropriatecongressional committees on the status of the investigation of the murders of two U.S. citizens andone Indonesian citizen that occurred August 31, 2002 in Timika,Indonesia. Title XXIII, Sec. 2303. No later than 180 days after enactment of this act andfor each fiscal year after FY2006, the Secretary shall report to the appropriate congressionalcommittees on embassy threat assessments . Title XXIV, Sec. 2413. No later than 120 days after the date of this act, theSecretary shall report on programs having to do with global pathogen surveillance and the levelof funding necessary to implement those programs. Title XXV, Sec 2511. Not later than April 15 of each year, the President shallreport to the Speaker of the House and Chairman of the Senate Foreign Relations Committee on arms control, nonproliferation and disarmament issues. Title XXV, Sec. 2513 requires the Secretary to report to appropriatecongressional committees no later than 180 days after enactment of this act on efforts to strengthen judicial capacity in Africa. Title XXV, Sec. 2520 requires the Secretary to report to appropriate congressional committees no later than 60 days after the date of this act on U.S. policy towardHaiti. Title XXVI, Sec. 2604 requires the President to report annually to specifiedcongressional committees on a clean water sustainability infrastructure development pilotprogram established by this bill. Title XXVI, Sec. 2605 requires the President at least once every two years toreport to Congress on implementation of its safe water strategy. Title XXVII, Sec. 2741 requires the Secretary to report to appropriatecongressional committees within 180 days of enactment of this act U.S. programs by State or USAIDto assist enforcement of foreign country laws designed to protect women and children andimprove accountability for sexual exploitation and abuse. Title XXVIII, Sec. 2806 requires the Secretary to report within 180 days tospecified congressional committees on conventional arms threat reduction . Authorization of State Department appropriations are required by law every two years. Typically, the authorization is passed in the first year of a new Congress for the following even/oddyear authority. FY1973 -- P.L. 93-126 FY1975 -- P.L. 93-475 FY1977 -- P.L. 94-350 FY1978 -- P.L. 95-105 FY1979 -- P.L. 95-426 FY1984-85 -- P.L. 98-164 FY1986-87 -- P.L. 99-93 FY1988-89 -- P.L. 100-204 FY1990-91 -- P.L. 101-246 FY1992-93 -- P.L. 102-138 FY1994-95 -- P.L. 103-236 Government shutdown -- Nov. 1995 -- Jan. 1996 FY1996 -- P.L. 104-134 , Sec. 405 (appropriations legislation) FY1997 -- P.L. 104-208 , Sec. 404 (appropriations legislation) FY1998-99 -- State Dept authorization was passed in the omnibus appropriations bill, Nov. 1998-- P.L. 105-277 FY2000-2001 -- P.L. 106-113 , ( H.R. 3427 ), appendix G of consolidated appropriations Act/D.C. appropriations legislation FY2002 -- authorization requirement waived for FY2002 in CJS appropriations Act. (Section 405, P.L. 107-77 , signed Nov. 28, 2001) FY2003 -- P.L. 107-228 , authorization for FY2003, signed September 30, 2002. FY2004 -- authorization waived by the Consolidated Appropriations Act, FY2004, P.L. 108-199 ,Sec. 407. FY2005 -- authorization waived by the Consolidated Appropriations Act, FY2005, P.L. 108-447 ,Sec. 410. Table 1. State Department and Related Agencies Appropriations and ProposedAuthorizations (millions of dollars) Source : The Congressional Research Service. Notes: Amounts in parentheses indicate subaccount funds which are included in the account funding level. n.a. = not available. *FY2004 and FY2005 enacted appropriations reflect rescissions and supplementals for those years.
|
The foreign relations authorization process dovetails with the annual appropriation processfor the Department of State, foreign policy, and foreign assistance. Congress is required by law toauthorize the spending of appropriations for the State Department and foreign policy activities everytwo years. The last time Congress passed a stand-alone foreign relations authorization bill was inFY2003 ( P.L. 107-228 ). Foreign assistance authorization measures (such as authorization for the U.S. Agency forInternational Development, economic and military assistance to foreign countries, and internationalpopulation programs) typically have been merged into the State Department authorization legislationsince 1985. Since that time, Congress has not passed a stand-alone foreign assistance authorizationbill. On March 10, 2005, Senator Lugar introduced S. 600 . The bill includesappropriations for the Department of State, international broadcasting, the Peace Corps, and foreignassistance programs for FY2006 and FY2007. In early April, the Senate debated S. 600on the Senate floor. The measure is stalled for now with the introduction of numerous flooramendments. Congressman Christopher H. Smith introduced a foreign relations authorization bill( H.R. 2601 ) on May 24, 2005. The bill was marked up at the subcommittee and fullcommittee level in late May and early June. House floor action occurred the week of July 18th. The House and Senate legislation contain similar titles regarding authorization language forthe Department of State, international organizations, and international broadcasting; StateDepartment organization and personnel issues, and miscellaneous reporting requirements. S. 600 goes beyond H.R. 2601 on foreign assistance authorization andnumerous other foreign policy issues including avian flu, debt relief, global pathogen surveillance,safe water, and reconstruction and stabilization initiatives. Issues covered in H.R. 2601,but not significantly in S. 600 include democracy promotion, U.N. reform, strategic exportcontrols, missile and nuclear nonproliferation measures, and World Bank loans to Iran. This report will be updated as legislative action occurs. Key Policy Staff Division abbreviations: RSI = Resources, Science, and Industry Division; DSP = Domestic Social Policy Division; FDT = Foreign Affairs, Defense, and Trade Division.
|
The Department of Defense (DOD) has long relied on contractors to provide the U.S. military with a wide range of goods and services, including weapons, vehicles, food, uniforms, and operational support. Without contractor support, the United States would not be able to arm and field an effective fighting force. Costs and trends associated with contractor support provide Congress more information upon which to make budget decisions and weigh the relative costs and benefits of different force structures and different military operations—including contingency operations and maintaining bases around the world. This report examines (1) how much money DOD obligates on contracts, (2) what DOD is buying, and (3) where that money is being spent. This report also examines the extent to which these data are sufficiently reliable to use as a factor when developing policy or analyzing government operations. Related CRS products include CRS In Focus IF10887, The FY2019 Defense Budget Request: An Overview , by Brendan W. McGarry, and CRS Report R44329, Using Data to Improve Defense Acquisitions: Background, Analysis, and Questions for Congress , by Moshe Schwartz. When Congress appropriates money, it provides budget authority —the authority to enter into obligations. Obligations occur when agencies enter into contracts, submit purchase orders, employ personnel, or otherwise legally commit to spending money. O utlays occur when obligations are liquidated (primarily through the issuance of checks, electronic fund transfers, or the disbursement of cash). In FY2017, the U.S. federal government obligated $507 billion for contracts for the acquisition of goods, services, and research and development. The $507 billion obligated on contracts was equal to approximately 13% of total FY2017 federal budget outlays of $3.98 trillion. As noted in Figure 1 , in FY2017 DOD obligated more money on federal contracts ($320 billion) than all other federal agencies combined. DOD's obligations were equal to 8% of all federal spending. From FY2010 to FY2017, the federal government obligated both a smaller amount of money and a smaller percentage of the overall budget to contract acquisitions. In addition, the DOD share of overall contract obligations decreased relative to the rest of the federal government (see Table 1 ). From FY2000 to FY2017, adjusted for inflation (FY2017 dollars), DOD contract obligations increased from $189 billion to $320 billion. However, the increase in spending has not been steady. DOD contracting was marked by a steep increase in obligations from FY2000 to FY2008 (an increase of $261 billion or 138%), followed by a drop in obligations (a decrease of $131 billion or 29%) from FY2008 to FY2017 (see Figure 2 ). Contract obligation trends are generally consistent with—but still steeper than—overall DOD obligation authority trends. For example, DOD total obligation authority (including contracts as well as all other obligations) increased significantly from FY2000 to FY2008, and decreased from FY2008 to FY2015, and then increased again from FY2015-FY2017 (see Figure 3 ). Some analysts believe that this trend of rapid contract spending increases (averaging 11.5% annual increases), followed by a relatively sharp cut in contract spending from FY2008-FY2015 (averaging 6.5% annual decreases), puts DOD at increased risk of making short-term budget decisions (aimed at meeting budget caps) that could cause long-term harm. Limits on DOD funding resulting from the Budget Control Act required DOD to implement significant spending cuts that were not the result of deliberate and strategic planning. A more gradual reduction in spending, or additional funding in select budget categories, could help DOD make more gradual spending reductions and more considered choices. This could potentially minimize hazardous, long-term effects of budget cuts. The rise and fall of DOD contract spending may make budgeting more difficult than in the rest of the federal government, which has had more gradual increases and less drastic cuts (see Figure 4 ). In FY2017, 41% of total DOD contract obligations were for services, 51% for goods, and 8% for research and development (R&D). This is in contrast to the rest of the federal government (excluding DOD), which obligated a significantly larger portion of contracting dollars on services (71%) than on goods (21%) or research and development (8%). For almost 20 years, DOD has dedicated an ever-smaller share of contracting dollars to R&D, with such contracts dropping from 17% of total contract obligations in FY1999 to 8% in FY2017. (See Figure 5 . For a breakout of obligations trends by product service code, see Appendix B .) The relative decrease in R&D contracts manifests as both a percentage of overall spending and in terms of constant dollars. Despite increased spending on R&D from FY2000 to FY2007, adjusted for inflation (in FY2017 dollars), DOD obligated less money on R&D contracts in FY2017 ($25 billion) than it invested more than 15 years earlier ($28 billion in FY2000). In contrast, over the same period, DOD obligations to acquire both goods and services are substantially higher (see Figure 6 ). Research and Development contracting is but a portion of overall DOD investment in developing technology. For example, DOD uses grants to support much of its research at universities. More than half of DOD's basic research budget is spent at universities and represents the major contribution of funds in some areas of science and technology. Taken as a whole, the R&D picture looks somewhat different. Total outlays for RDT&E increased 67% in constant dollars from FY1999 to FY2009, before dropping 24% from FY2009 to FY2017. However, as reflected in Figure 7 , since FY1999, RDT&E outlays increased at a much slower rate (26%) than non-RDT&E (55%). DOD relies on contractors to support operations worldwide, including operations in Afghanistan, permanently garrisoned troops overseas, and ships docking at foreign ports. Because of its global footprint, this report will look at where DOD obligates contract dollars in two ways: 1. by geographic region, and 2. domestic vs. overseas. DOD divides its geographic responsibilities among six Unified Combatant Commands: 1. U.S. Northern Command (NORTHCOM), 2. U.S. Africa Command (AFRICOM), 3. U.S. Central Command (CENTCOM), 4. U.S. European Command (EUCOM), 5. U.S. Indo-Pacific Command (INDOPACOM), which includes Hawaii and a number of U.S. territories, and 6. U.S. Southern Command (SOUTHCOM). These commands do not control all DOD contracting activity that occurs within their respective geographic regions. For example, Transportation Command (TRANSCOM), headquartered at Scott Air Force Base, IL, may contract with private companies to provide transportation services within CENTCOM's Area of Responsibility (AOR). For purposes of this report, DOD contract obligations are categorized by the place of performance, not the DOD component that signed the contract or obligated the money. For example, all contract obligations for work in the CENTCOM AOR will be allocated to CENTCOM, regardless of which DOD organization signed the contract. In FY2017, 92.8% of DOD contracts were performed in NORTHCOM (which includes the Bahamas, Canada, and Mexico). DOD obligated 3.1% of total contract work in CENTCOM, followed by INDOPACOM (2.1%), EUCOM (1.7%), AFRICOM (0.1%), and SOUTHCOM (0.1%). Since 2008, DOD obligations for domestic contracts dropped by 26% from a high of $401 billion in FY2008 to some $299 billion in FY2017 dollars; obligations for overseas contracts (in non-US or US affiliated territories) dropped by 58%, from $49 billion in FY2008 to $21 billion in FY2017. The drop in overseas obligations stems primarily from drawdowns in the Iraq and Afghanistan theaters, where contract obligations decreased from $33 billion in FY2008 to $10 billion in FY2017 ( Figure 9 ). Concurrent with the drawdowns in Iraq and Afghanistan, in recent years the share of DOD contract obligations performed in the United States has increased. In FY2017, 93% of DOD contract obligations were for work performed in the United States, the highest percentage since FY2002 (see Figure 10 ). Despite the drawdown in Iraq and Afghanistan, in FY2017 DOD contract obligations for workperformed overseas were still primarily steered to CENTCOM (48%), followed by EUCOM(26%), INDOPACOM (20%), NORTHCOM (3%), AFRICOM (2%), and SOUTHCOM (1%) ( Figure 11 ). Of the top 20 countries where DOD contractors perform work abroad, eight were in CENTCOM, eight were in EUCOM, three were in INDOPACOM, and one was in NORTHCOM ( Appendix C ). However, a significant shift in where contracting dollars are allocated appears to be under way. Action obligations for CENTCOM and EUCOM have declined since FY2008, while INDOPACOM and AFRICOM dollars have increased (see Table 2 ). The trend of dedicating more resources to INDOPACOM began under the Obama Administration and has continued under the Trump Administration. This is consistent with the release of the 2018 National Military Strategy, which states Long-term strategic competitions with China and Russia are the principal priorities for the department, and require both increased and sustained investment, because of the magnitude of the threats they pose to U.S. security and prosperity today, and the potential for those threats to increase in the future. DOD's share of total government obligations for contracts performed abroad has trended down from 92% in FY1999 to 65% in FY2017. Over the same period, combined Department of State and USAID contract obligations increased from 4% to 29% of all U.S. government overseas obligations (see Figure 12 ). A number of analysts have argued that as a result of its larger budget and workforce, DOD often undertakes traditionally civilian missions because other agencies do not have the necessary resources to fulfill those missions. Some argue that more resources should be invested into civilian agencies to allow them to play a larger role in conflict prevention, post-conflict stabilization, and reconstruction. In 2010, the Senate Foreign Relations Committee majority staff wrote, "The civilian capacity of the U.S. Government to prevent conflict and conduct post-conflict stabilization and reconstruction is beset by fragmentation, gaps in coverage, lack of resources and training, coordination problems, unclear delineations of authority and responsibility, and policy inconsistency." Many of these analysts have argued that to achieve its foreign policy goals, the United States needs to take a more whole-of-government approach that brings together the resources of, among others, DOD, the Department of State, and USAID—and government contractors. Contract obligations since FY2000 may indicate a shift toward a whole-of-government approach to achieving foreign policy objectives. The GAO, CRS, and other organizations have raised some concerns about the accuracy of procurement data retrieved from the Federal Procurement Data System (FPDS). For detailed information on the history of FPDS data validity concerns, see Appendix A . Appendix A. FPDS Background, Accuracy Issues, and Future Plans According to the Federal Acquisition Regulation, FPDS can be used to measure and assess "the effect of Federal contracting on the Nation's economy and ... the effect of other policy and management initiatives (e.g., performance based acquisitions and competition)." FPDS is also used to meet the requirements of the Federal Funding Accountability and Transparency Act of 2006 ( P.L. 109-282 ), which requires all federal award data to be publicly accessible. Congress, legislative and executive branch agencies, analysts, and the public all rely on FPDS as the primary source of information for understanding how and where the federal government spends contracting dollars. Congress and the executive branch rely on the information to help make and oversee informed policy and spending decisions. Analysts and the public rely on the data in FPDS to conduct analysis and gain visibility into government operations. Data reliability is essential to the utility of FPDS. As GAO has stated, "[R]eliable information is critical to informed decision making and to oversight of the procurement system." According to officials within the White House's Office of Federal Procurement Policy, "[c]omplete, accurate, and timely federal procurement data are essential for ensuring that the government has the right information when planning and awarding contracts and that the public has reliable data to track how tax dollars are being spent." If the data contained in FPDS are not sufficiently reliable, the data may not provide an appropriate basis for measuring or assessing federal contracting, making policy decisions, or providing transparency into government operations. The result could be the implementation of policies that squander resources and waste taxpayer dollars. According to GAO, "[f]ederal agencies are responsible for ensuring that the information reported in [the FPDS] database is complete and accurate." History of FPDS On August 30, 1974, Congress enacted the Office of Federal Procurement Policy Act, which established an Office of Federal Procurement Policy (OFPP) within OMB and required the establishment of "a system for collecting, developing, and disseminating procurement data which takes into account the needs of Congress, the executive branch, and the private sector." One of the goals of establishing a system for tracking procurement data was to "promote economy, efficiency, and effectiveness in the procurement of property and services." In February 1978, the OFPP issued a government-wide memorandum that designated the Department of Defense as the executive agent to operate the Federal Procurement Data System. Agencies were instructed to begin collection of procurement data on October 1, 1978, and to report the data to DOD in February 1979. Since 1982, the GSA has operated the system on behalf of the OFPP. Today, FPDS is the only government-wide system that contains all publicly available federal procurement data. FPDS data are used by other federal-spending information resources, including USASpending.gov . Almost from FPDS's inception, the GAO expressed concerns about the accuracy of the information in the database. OMB attempted to eliminate many of the errors in FPDS by introducing a successor system—the Federal Procurement Data System-Next Generation (FPDS), which began operation on October 1, 2003. FPDS was to "rely less on manual inputs and more on electronic 'machine-to-machine' approaches." Despite the systems update, GAO said "[i]nformation in FPDS can only be as reliable as the information agencies enter though their own systems." In September 29, 2009, testimony before the Senate Homeland Security and Governmental Affairs Subcommittee on Contracting Oversight, William T. Woods, GAO's Director of Acquisition and Sourcing Management, said the following about FPDS information: Our past work has found that federal contracting data systems, particularly FPDS-NG, contain inaccurate data. FPDS-NG is the primary government contracting data system for obligation data. Despite its critical role, GAO and others have consistently reported on FPDS-NG data quality issues over a number of years. A 2012 GAO report reiterated its finding that DOD needs to "obtain better data on its contracted services to enable it to make more strategic workforce decisions and ensure that it maintains appropriate control of government operations." And a 2015 report by the Inspector General of the Department of Commerce found that "the Department needs to improve (a) its process for entering accurate and reliable data into FPDS-NG." Data Reliability Concerns Persist According to GSA, agencies are required to validate their data annually. Agency statements regarding data accuracy are independent of the FPDS systems and outside the authority of GSA. For DOD specifically, components (at the service branch level) are required to submit to Defense Procurement and Acquisition Policy (DPAP) an annual certification of reported data, summary of data verification and validation efforts, and Agency FPDS Data Quality Certifications. Continued concerns raised over the reliability of data have prompted many analysts to rely on FPDS primarily to identify broad trends and make rough estimations. According to one GAO report DOD acknowledged that using FPDS-NG as the main data source for the inventories has a number of limitations. These limitations include that FPDS-NG does not provide the number of contractor FTEs performing each service, identify the requiring activity, or allow for the identification of all services being procured. Officials from the GSA, the agency that administers FPDS, stated that data errors in FPDS do not substantively alter the larger context of 1.4 million actions and billions of dollars of obligations entered into the system by DOD every year. Officials have also indicated that whenever possible and feasible, steps are taken to improve the reliability and integrity of the data contained in FPDS. For example, in early 2016, CRS noted discrepancies in reported contract obligations associated with public-private competitions under OMB Circular A-76. Despite a prohibition on new public-private competitions under Circular A-76 (see P.L. 111-8 , the FY2009 Omnibus Appropriations Bill), FPDS reported a large number of contracts in this category in each subsequent fiscal year. DOD reported that A-76 contracts, for example, represented approximately 1% of all contract obligations in FY2013, FY2014, and FY2015 (roughly $3 billion in each fiscal year). When asked for clarification, DOD's Defense Procurement and Acquisition Policy office stated that the majority of these contract obligations were in fact coding errors in FPDS. That same year, CRS observed that DOD's FPDS-reported A-76 obligations were restated, to approximately $150 million per year from FY2013 to FY2015. Despite the limitations of FPDS, imperfect data may be better than no data. Some observers say that despite its shortcomings, FPDS is one of the world's leading systems for tracking government procurement data. FPDS data can be used to identify some broad trends and rough estimations, or to gather information about specific contracts. Understanding the limitations of data—knowing when, how, and to what extent to rely on data—could help policymakers incorporate FPDS data more effectively into their decisionmaking process. Appendix B. Obligations Trends by PSC Product and service codes (PSCs) are used "to describe the products, services, and research and development (R&D) purchased by the federal government." FPDS sorts contract obligations into 33 overarching PSCs: nine product codes, 23 service codes, and one R&D code. Each of the nine product codes are represented by numbers from 1-9. Each of the service codes is represented by a single letter, and R&D is represented by the letter "A." Figure B-1 depicts changes in DOD contract obligations by PSC, from FY2008-FY2015. Each of the 33 PSCs for services has a description identifying the types of contracts contained in the category; the nine PSCs for products do not have a description. Without a clear and logical system for categorizing products into overarching PSC categories—including descriptions for each category—sorting such data is of limited value. To better understand what is contained in each product category, see the notes for Figure B-1 . Appendix C. Top 20 Foreign Countries Where DOD Obligates Contracting Dollars
|
The Department of Defense (DOD) has long relied on contractors to provide the U.S. military with a wide range of goods and services, including weapons, vehicles, food, uniforms, and operational support. Without contractor support, the United States would be currently unable to arm and field an effective fighting force. Costs and trends associated with contractor support provides Congress more information upon which to make budget decisions and weigh the relative costs and benefits of different military operations—including contingency operations and maintaining bases around the world. Total DOD Contract Obligations Obligations occur when agencies enter into contracts, employ personnel, or otherwise commit to spending money. The federal government tracks money obligated on federal contracts through a database called the Federal Procurement Data System-Next Generation (referred to as FPDS). There is no public database that tracks DOD contract outlays (money expended from the Treasury) as comprehensively as FPDS tracks obligations. In FY2017, DOD obligated more money on federal contracts ($320 billion in current dollars) than all other government agencies combined. DOD's contract obligations were equal to 8% of all mandatory and discretionary federal spending. Services accounted for 41% of total DOD contract obligations, goods for 51%, and research and development (R&D) for 8%. This distribution is in contrast to the rest of the federal government, which obligated a larger portion of contracting dollars on services (71%), than on goods (21%) or research and development (8%). According to FPDS data, from FY2000 to FY2017, DOD contract obligations increased from $189 billion to $320 billion (FY2017 dollars). The increase in spending, however, has not been steady. DOD contract obligations over the last 17 years were marked by an annualized increase of 11.5% between FY2000 and FY2008, followed by an annualized decrease of 6.5% from FY2008 to FY2015, and then increased again from FY2015 to FY2017 by 6.5% annually. Some say the steep rise, fall, and rise of DOD contract spending makes it difficult for DOD to pursue a strategic approach to budgeting. For almost 20 years, DOD has dedicated an ever-smaller share of its contracting dollars to R&D, with such contracts dropping from 15% of total contract obligations in 2000, to 8% in 2017. Understanding the Limitation of FPDS Data Decisionmakers should be cautious when using obligation data from FPDS to develop policy or otherwise draw conclusions. In some cases, the data itself may not be reliable. In some instances, a query for particular data may return differing results, depending on the parameters and timing. All data have imperfections and limitations. FPDS data can be used to identify broad trends and produce rough estimates, or to gather information about specific contracts. Some observers say that despite its shortcomings, FPDS data are substantially more comprehensive than what is available in most other countries in the world. Understanding the limitations of data—knowing when, how, and to what extent to rely on data—helps policymakers incorporate FPDS data more effectively into their decisionmaking process. The General Services Administration (GSA) is undertaking a multi-year effort to improve the reliability, precision, retrieval, and utility of the information contained in FPDS and other federal government information systems. This effort, if successful, could significantly improve DOD's ability to engage in evidence- and data-based decisionmaking.
|
Federal regulations generally start with an act of Congress and are the means by which statutes are implemented and specific requirements are established. Congress delegates rulemaking authority to agencies for a variety of reasons, and in a variety of ways. The Patient Protection and Affordable Care Act (PPACA, P.L. 111-148 ) is a particularly noteworthy example of congressional delegation of rulemaking authority to federal agencies. PPACA is a comprehensive overhaul of the health care system that includes such provisions as the expansion of eligibility for Medicaid, amendments to Medicare that are intended to reduce its growth, an individual mandate for the purchase of health insurance, and the establishment of insurance exchanges through which individuals and families can receive federal subsidies to help them purchase insurance. A previous CRS report identified more than 40 provisions in PPACA that require or permit the issuance of rules to implement the legislation. The rules that agencies issue pursuant to PPACA are expected to have a major impact on how the legislation is implemented. For example, in an article entitled "The War Isn't Over" that was posted on the New England Journal of Medicine's Health Care Reform Center shortly after PPACA was signed into law, Henry J. Aaron and Robert D. Reischauer wrote: Making the legislation a success requires not only that it survive but also that it be effectively implemented. Although the bill runs to more than 2000 pages, much remains to be decided. The legislation tasks federal or state officials with writing regulations, making appointments, and giving precise meaning to many terms. Many of these actions will provoke controversy.... Far from having ended, the war to make health care reform an enduring success has just begun. Winning that war will require administrative determination and imagination and as much political resolve as was needed to pass the legislation. The manner in which Congress delegates rulemaking authority to federal agencies determines the amount of discretion the agencies have in crafting the rules and, conversely, the amount of control that Congress retains for itself. Some of the more than 40 rulemaking provisions in PPACA are quite specific, stipulating the substance of the rules, whether certain consultative or rulemaking procedures should be used, and deadlines for their issuance or implementation. Other provisions in PPACA permit, but do not require, the agencies to issue certain rules (e.g., stating that the head of an agency "may issue regulations" defining certain terms, or "may by regulation" establish guidance or requirements for carrying out the legislation). As a result, the agency head has the discretion to decide whether to issue any regulations at all, and if so, what those rules will contain. Still other provisions in PPACA require agencies to establish programs or procedures, but do not specifically mention regulations. By December 2010, federal agencies had already issued at least 18 final rules implementing sections of PPACA. Although the legislation specifically required or permitted some of the rules to be published, other rules implemented PPACA provisions that did not specifically mention rulemaking. The use of rulemaking in these cases does not appear to be either improper or unusual; if the requirements in those rules were intended to be binding on the public, rulemaking may have been the agencies' only viable option to implement the related statutory provisions. In his book Building a Legislative-Centered Public Administration , David H. Rosenbloom noted that rulemaking and lawmaking are functionally equivalent (the results of both processes have the force of law), and that when agencies issue rules they, in effect, legislate. He went on to say that the "Constitution's grant of legislative power to Congress encompasses a responsibility to ensure that delegated authority is exercised according to appropriate procedures." Congressional oversight of rulemaking can deal with a variety of issues, including the substance of the rules issued pursuant to congressional delegations of authority and the process by which those rules are issued. In order for Congress to oversee the regulations being issued to implement PPACA, it would help to have an early sense of what rules the agencies are going to issue, and when. The previously mentioned CRS report identifying the provisions in the act that require or permit rulemaking can be useful in this regard. However, the legislation did not indicate when some of the mandatory rules should be issued, some of the rules that the agencies are permitted (but not required) to issue may never be developed, and many of the rules that the agencies have already issued to implement PPACA were not specifically mentioned in the act. A potentially better way for Congress to identify upcoming PPACA rules is by reviewing the Unified Agenda of Federal Regulatory and Deregulatory Actions (hereafter, Unified Agenda), which is published twice each year (spring and fall) by the Regulatory Information Service Center (RISC), a component of the U.S. General Services Administration, for the Office of Management and Budget's (OMB) Office of Information and Regulatory Affairs (OIRA). The Unified Agenda helps agencies fulfill two current transparency requirements: The Regulatory Flexibility Act (5 U.S.C. § 602) requires that all agencies publish semiannual regulatory agendas in the Federal Register describing regulatory actions that they are developing that may have a significant economic impact on a substantial number of small entities. Section 4 of Executive Order 12866 on "Regulatory Planning and Review" requires that all executive branch agencies "prepare an agenda of all regulations under development or review." The stated purposes of this and other planning requirements in the order are, among other things, to "maximize consultation and the resolution of potential conflicts at an early stage" and to "involve the public and its State, local, and tribal officials in regulatory planning." The executive order also requires that each agency prepare, as part of the fall edition of the Unified Agenda, a "regulatory plan" of the most important significant regulatory actions that the agency reasonably expects to issue in proposed or final form during the upcoming fiscal year. The Unified Agenda lists upcoming activities, by agency, in five separate categories or stages of the rulemaking process: prerule stage (e.g., advance notices of proposed rulemaking that are expected to be issued in the next 12 months); proposed rule stage (i.e., notices of proposed rulemaking that are expected to be issued in the next 12 months, or for which the closing date of the comment period is the next step); final rule stage (i.e., final rules or other final actions that are expected to be issued in the next 12 months); long-term actions (i.e., items under development that agencies do not expect to take action on in the next 12 months); and completed actions (i.e., final rules or rules that have been withdrawn since the last edition of the Unified Agenda). All entries in the Unified Agenda have uniform data elements, including the department and agency issuing the rule, the title of the rule, its Regulation Identifier Number (RIN), an abstract describing the nature of action being taken, and a timetable showing the dates of past actions and a projected date (sometimes just the projected month and year) for the next regulatory action. Each entry also contains an element indicating the priority of the regulation (e.g., whether it is considered "economically significant" under Executive Order 12866, or whether it is considered a "major" rule under the Congressional Review Act). There is no penalty for issuing a rule without a prior notice in the Unified Agenda, and some prospective rules listed in the Unified Agenda never get issued, reflecting the fluid nature of the rulemaking process. Nevertheless, the Unified Agenda can help Congress and the public know what regulatory actions are about to occur, and it arguably provides federal agencies with the most systematic, government-wide method to alert the public about their upcoming proposed rules. A previously issued CRS report indicated that about three-fourths of the significant proposed rules published after having been reviewed by OIRA in 2008 were previously listed in the "proposed rule" section of the Unified Agenda. The December 20, 2010, edition of the Unified Agenda and Regulatory Plan is the first edition that RISC has compiled and issued after the enactment of PPACA. Federal agencies were required to submit data to RISC for the Unified Agenda by September 10, 2010, although some of the agencies did not submit the data until early October. Therefore, the information in the Unified Agenda is current as of September/October 2010. This report examines the December 20, 2010, edition of the Unified Agenda and identifies upcoming proposed and final rules and long-term actions that are expected to be issued pursuant to PPACA. To identify those upcoming rules and actions, CRS searched all fields of the Unified Agenda (all agencies) using the term "affordable care act," focusing on the proposed rule and final rule stages of rulemaking, and also including the "long-term actions" category. CRS excluded from the results any regulatory action that mentioned PPACA or health care reform, but did not appear to be an action taken to implement the legislation. The results of the search for proposed and final rules are provided in the Appendix to this report. For each upcoming proposed and final rule listed, the table identifies the department and agency expected to issue the rule, the title of the rule and its RIN, an abstract describing the nature of the rulemaking action, and the date that the proposed or final rule was expected to be issued. The abstracts presented in the table were taken verbatim from the Unified Agenda entries, although CRS sometimes used other information from the entries to identify the section of PPACA being implemented by the regulatory action when the agency-provided abstracts did not do so. Within the proposed and final rule sections of the table, the entries are organized by the expected dates of issuance, with the earliest dates presented first. Regulatory actions that the agencies considered important enough to be part of the regulatory plan are identified with a double asterisk (**) after the RIN. The December 20, 2010, edition of the Unified Agenda listed 29 PPACA-related actions in the "proposed rule stage" (indicating that the agencies expected to issue proposed rules on the topics within the next 12 months, or for which the closing dates of the comment periods are the next step). All but 2 of the 29 upcoming proposed rules were expected to be issued by components of the Department of Health and Human Services (HHS): the Centers for Medicare and Medicaid Policy (CMS, 15 actions); the Office of Consumer Information and Insurance Oversight (OCIIO, 4 actions); the Office of the Secretary (4 actions); the Food and Drug Administration (FDA, 2 actions); the Administration on Aging (AOA, 1 action); and the Health Resources and Services Administration (HRSA, 1 action). One other proposed rule was expected to be issued by the Department of Labor's Employee Benefits Security Administration (EBSA), and one was expected to be issued by the Department of the Treasury's Departmental Offices (DO). The agencies indicated that four of the upcoming proposed rules would be issued in December 2010. One of these, an HHS/CMS proposed rule on "Use of Recovery Audit Contractors," was actually published in November 2010. As of December 31, 2010, the other three upcoming proposed rules had not been published: a CMS rule on "Payment Adjustment for Health Care-Acquired Conditions"; a Treasury/Departmental Offices rule on "Review and Approval Process for Waivers for State Innovation"; and an OCIIO rule on "Affordable Care Act Waiver for State Innovation; Review and Approval Process." The agencies indicated that eight other proposed rules would be published in the first three months of 2011: two CMS rules on "Medicare Shared Savings Program: Accountable Care Organizations," and "Federal Funding for Medicaid Eligibility Determination and Enrollment Activities," which were expected to be published in January 2011; two CMS rules on "Community First Choice," and "Requirements for Long-Term Care Facilities: Notification of Facility Closure," which were expected to be published in February 2011; two OCIIO rules on "Requirements To Implement American Health Benefit Exchanges and Other Provisions of the Affordable Care Act" and "Transparency Reporting," which were expected to be published in March 2011; and two FDA rules on "Food Labeling: Nutrition Labeling for Food Sold in Vending Machines" and "Food Labeling: Nutrition Labeling of Standard Menu Items in Chain Restaurants," which were expected to be published on March 23, 2011. The HHS Office of the Secretary said it expected to issue three proposed rules in April 2011, and CMS said it expected to issue eight proposed rules between April and July 2011. HHS agencies considered 6 of the 29 upcoming proposed rules important enough to be included in the regulatory plan: a CMS rule on "Medicare Shared Savings Program: Accountable Care Organizations," which the agency indicated would be issued sometime during the month of January 2011; a CMS rule on "Requirements for Long-Term Care Facilities: Notification of Facility Closure," which the agency said it expected to issue sometime during the month of February 2011; an OCIIO rule on "Transparency Reporting," which the agency said would be issued sometime during the month of March 2011; an FDA rule on "Food Labeling: Nutrition Labeling for Food Sold in Vending Machines," which is required to be issued by March 23, 2011 the one-year anniversary of the enactment of PPACA; an FDA rule on "Food Labeling: Nutrition Labeling of Standard Menu Items in Chain Restaurants," which is also required to be issued by March 23, 2011; and an AOA rule on "Community Living Assistance Services and Supports Enrollment and Eligibility Rules Under the Affordable Care Act," which the agency expected to issue sometime during the month of September 2011. In addition to the upcoming PPACA-related proposed rules that were listed in the regulatory plan, the Unified Agenda lists six other upcoming PPACA-related proposed rules that the agencies considered "economically significant" or "major" (one definition of "economically significant" or "major," for example, is that the rule is expected to have at least a $100 million annual effect on the economy): a CMS rule on "Federal Funding for Medicaid Eligibility Determination and Enrollment Activities," which was published on November 8, 2010, with comments due by January 7, 2011; a CMS rule on "Use of Recovery Audit Contractors," which was expected to be issued sometime during December 2010 (but was actually issued on November 10, 2010); an OCIIO rule on "Affordable Care Act Waiver for State Innovation; Review and Approval Process," which was expected to have been issued sometime during December 2010; an OCIIO rule on "Requirements To Implement American Health Benefit Exchanges and Other Provisions of the Affordable Care Act," which was expected to be issued sometime during March 2011; a CMS rule on "Home and Community-Based Services (HCBS) State Plan Services Program," which was expected to be issued sometime during July 2011; and an OCIIO rule on "Public Use Files of Health Plan Data," which was expected to be issued sometime during September 2011. In addition to the above-mentioned rules, the agencies characterized several other upcoming proposed rules implementing PPACA as "other significant" in the Unified Agenda, indicating that although they were not listed in the regulatory plan or expected to be "economically significant," they were expected to be significant enough to be reviewed by OIRA under Executive Order 12866. These proposed rules included an HHS Office of the Secretary rule on "Exceptions to the Beneficiary Inducement Prohibition for Certain Arrangements," which was expected to be issued sometime during March 2011; a DOL/EBSA rule "Ex Parte Cease and Desist and Summary Seizure Orders Under ERISA Section 521," which was expected to be issued sometime during July 2011; and a CMS rule on "Long-Term Care Facility Quality Assessment and Performance Improvement," which was expected to be issued sometime during January 2012. The Regulatory Flexibility Act (5 U.S.C. §§ 601-612) generally requires federal agencies to assess the impact of their forthcoming regulations on "small entities" (i.e., small businesses, small governments, and small not-for-profit organizations). Three of the previously mentioned upcoming PPACA-related proposed rules were expected to affect small businesses, small governments, or both, and were expected to require a regulatory flexibility analysis: the FDA rules on "Food Labeling: Nutrition Labeling for Food Sold in Vending Machines," and "Food Labeling: Nutrition Labeling of Standard Menu Items in Chain Restaurants"; and the CMS rule on "Federal Funding for Medicaid Eligibility Determination and Enrollment Activities." In addition to these rules, five other upcoming proposed rules were expected to have an effect on small businesses, small governments, or small not-for-profits, but were not expected to trigger the requirements of the Regulatory Flexibility Act. These included a CMS proposed rule on "Long-term Facility Quality Assessment and Performance Improvement"; an HHS/Office of the Secretary proposed rule on "Exceptions to the Beneficiary Inducement Prohibition for Certain Arrangements"; and a Treasury/DO proposed rule on "Review and Approval Process for Waivers for State Innovation." The December 20, 2010, edition of the Unified Agenda listed 18 PPACA-related actions in the "final rule stage" (indicating that the agency expected to issue final rules on the subjects within the next 12 months). Eight of the upcoming final rules were expected to be issued by CMS; four by OCIIO; two by DOL/EBSA; and one each by HRSA, the Internal Revenue Service within the Department of the Treasury, the Occupational Safety and Health Administration (OSHA) within DOL, and the Social Security Administration. The agencies indicated that 6 of the 18 upcoming final rules would be issued during the month of December 2010. Two of these rules were published before the Unified Agenda was issued on December 20, 2010: a CMS rule on "Changes to the Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System for CY 2011," which was published in late November 2010; and a Social Security Administration rule on "Regulations Regarding Income-Related Monthly Adjustment Amounts to Medicare Beneficiaries' Prescription Drug Premiums," which was published in early December 2010. As of December 31, 2010, the other four final rules that the agencies indicated would be published during December 2010 had not been published: an IRS rule on "Indoor Tanning Services"; an OCIIO rule on "Rate Review"; an OCIIO rule on "Health Care Reform Insurance Web Portal Requirements"; and a CMS rule on "Adult Health Quality Services." The agencies indicated that nine other final rules would be published in the first seven months of 2011: two CMS rules scheduled for January 2011 on "Additional Screening, Application Fees, and Temporary Moratoria for Providers and Suppliers," and "Children's Health Insurance Program (CHIP); Allotment Methodology and States' Fiscal Year 2009 CHIP Allotments"; an OCIIO rule scheduled for March 2011 on "Uniform Explanation of Benefits, Coverage Facts, and Standardized Definitions"; a CMS rule scheduled for March 2011 on "Civil Money Penalties for Nursing Homes"; two DOL/EBSA rules scheduled for April 2011 on "Group Health Plans and Health Insurance Issuers Relating to Dependent Coverage of Children to Age 26 Under the Patient Protection and Affordable Care Act," and "Group Health Plans and Health Insurance Issuers Relating to Coverage of Preventive Services Under the Patient Protection and Affordable Care Act"; two CMS rules scheduled for June 2011 on "Administrative Simplification: Adoption of Authoring Organizations for Operating Rules and Adoption of Operating Rules for Eligibility and Claims Status," and "Proposed Changes to the Demonstration Review and Approval Process"; and a CMS rule scheduled for July 2011 on "Administrative Simplification: Standard Unique Identifier for Health Plans." The agencies considered 3 of the 18 upcoming PPACA-related final rules important enough to be included in the regulatory plan: an OCIIO rule that was scheduled for December 2010 on "Rate Review"; a CMS rule scheduled for March 2011 on "Civil Money Penalties for Nursing Homes"; and an OCIIO rule scheduled for March 2011 on "Uniform Explanation of Benefits, Coverage Facts, and Standardized Definitions." In addition to the upcoming PPACA-related final rules that were listed in the regulatory plan, the Unified Agenda lists five other upcoming PPACA-related final rules that the agencies considered "economically significant" or "major" (e.g., that are expected to have at least a $100 million annual effect on the economy): three CMS rules on "Changes to the Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System for CY 2011," "Children's Health Insurance Program (CHIP); Allotment Methodology and States' Fiscal Year 2009 CHIP Allotments," and "Additional Screening, Application Fees, and Temporary Moratoria for Providers and Suppliers"; an OCIIO rule on "Medical Loss Ratios"; and a DOL/EBSA rule on "Group Health Plans and Health Insurance Issuers Relating to Coverage of Preventive Services Under the Patient Protection and Affordable Care Act." In addition to the above-mentioned rules, five other upcoming final rules implementing PPACA were characterized as "other significant" in the Unified Agenda, indicating that although they were not listed in the regulatory plan or expected to be "economically significant," they were expected to be significant enough to be reviewed by OIRA under Executive Order 12866. These final rules were a HRSA rule on "Designation of Medically Underserved Populations and Health Professional Shortage Areas"; two CMS rules on "Adult Health Quality Services" and "Proposed Changes to the Demonstration Review and Approval Process"; a DOL/OSHA rule on "Procedures for the Handling of Retaliation Complaints Under Section 1558 of the Affordable Care Act of 2010"; and a Social Security Administration rule on "Regulations Regarding Income-Related Monthly Adjustment Amounts to Medicare Beneficiaries' Prescription Drug Premiums." Two of the upcoming final rules were expected to trigger the requirements of the Regulatory Flexibility Act because of their effects on small businesses: the IRS rule on "Indoor Tanning Services," and the CMS rule on "Changes to the Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System for CY 2011." Four other CMS rules were expected to have an effect on small businesses, governments, or other organizations, but were not expected to require a regulatory flexibility analysis: (1) "Children's Health Insurance Program (CHIP); Allotment Methodology and States' Fiscal Year 2009 CHIP Allotments"; (2) "Administrative Simplification: Adoption of Authoring Organizations for Operating Rules and Adoption of Operating Rules for Eligibility and Claims Status"; (3) "Administrative Simplification: Standard Unique Identifier for Health Plans"; and (4) "Additional Screening, Application Fees, and Temporary Moratoria for Providers and Suppliers." As noted earlier in this report, the Unified Agenda also identifies "long-term actions" (i.e., regulatory actions that are under development in the agencies that the agencies do not expect to take action on in the next 12 months). The December 20, 2010, edition of the Unified Agenda listed 24 long-term actions related to PPACA. In comparison to the proposed and final rules previously discussed, it is much less clear when the PPACA-related long-term actions are expected to occur; in 15 of the 24 cases, the agencies said that the dates for the actions were "to be determined." Of the remaining nine long-term actions, six were expected in December 2011, and one each in calendar years 2012, 2013, and 2014. Of the 24 long-term actions, 11 were upcoming final rules that were expected to be issued once the agency had considered the comments received in response to previously issued interim final rules. These actions included a DOL/EBSA rule on "Group Health Plans and Health Insurance Issuers Relating to Internal and External Appeals Processes Under the Patient Protection and Affordable Care Act;" with the date of the final rule "to be determined"; and an HHS/OSCIIO rule on "Internal Claims, Appeals, and External Review Processes Under the Affordable Care Act," with the date of the final rule "to be determined." Five other long-term actions were upcoming IRS final rules that the agency expected to issue by the end of calendar year 2011 after considering the comments received in response to a previously issued notice of proposed rulemaking. These actions included "Requirements Applicable to Grandfathered Health Plans Under the Patient Protection and Affordable Care Act"; and "Requirements Applicable to Group Health Plans and Health Insurance Issuers Under the Patient Protection and Affordable Care Act." Other examples of PPACA-related long-term actions included an HHS/Indian Health Service advance notice of proposed rulemaking (ANPRM) on "Standards for the Planning, Design, Construction and Operation of Health Care and Sanitation Facilities," with the publication date "to be determined"; two IRS upcoming final rules on "Prohibition of Preexisting Condition Exclusions or Other Discrimination Based on Health Status Under the Patient Protection and Affordable Care Act," and "Coverage of Preventive Services Under the Patient Protection and Affordable Care Act;" both of which were expected to be published sometime during December 2011; and a DOL/Office of Workers' Compensation Program upcoming proposed rule entitled "Regulations Implementing Amendments to the Black Lung Benefits Act: Determining Coal Miners and Survivors Entitlement to Benefits," with an expected publication sometime during the month of March 2012. The agencies identified 7 of the 24 PPACA-related long-term actions as both "economically significant" and "major" rulemaking actions. All seven of these actions were cases in which the agencies had issued interim final rules and were reviewing the comments received. These included HHS/OSCIIO actions covering such topics as a "Pre-Existing Condition Insurance Plan," "Preventive Services Under the Affordable Care Act" and "Dependent Coverage of Children to Age 26 Under the Patient Protection and Affordable Care Act"; and a DOL/EBSA action entitled "Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered Health Plan Under the Patient Protection and Affordable Care Act." The agencies considered 11 of the 24 actions to be "other significant," meaning that the agencies considered them significant enough to be reviewed by OIRA under Executive Order 12866, but not "economically significant." These actions included two CMS actions entitled "Administrative Simplification: Adoption of Standard and Operating Rule for Electronic Funds Transfer (EFT) and Operating Rule for Remittance Advice" and "State Option to Provide Health Homes for Enrollees with Chronic Conditions"; and an HHS/HIS action on "Confidentiality of Medical Quality Assurance Records; Qualified Immunity for Participants." As noted earlier in this report, when federal agencies issue substantive regulations, they are carrying out legislative authority delegated to them by Congress. Therefore, it is appropriate for Congress to oversee the rules that agencies issue to ensure that they are consistent with congressional intent and the rulemaking requirements established in various statutes and executive orders. In order for Congress to oversee the rules being issued pursuant to PPACA, it must first know that they are being issued—ideally as early as possible. The Unified Agenda is perhaps the best vehicle to provide that early information, describing not only what rules are expected to be issued, but also providing information regarding their significance and timing. Congress has a range of tools available to oversee the rules that federal agencies are expected to issue to implement PPACA, including oversight hearings and confirmation hearings for the heads of regulatory agencies. Individual members of Congress may also participate in the rulemaking process by, among other things, meeting with agency officials and filing public comments. Congress, committees, and individual members can also request that the Government Accountability Office (GAO) evaluate the agencies' rulemaking activities. Another option is the Congressional Review Act (CRA, 5 U.S.C. §§801-808), which was enacted in 1996 to establish procedures detailing congressional authority over rulemaking "without at the same time requiring Congress to become a super regulatory agency." The act generally requires federal agencies to submit all of their covered final rules to both houses of Congress and GAO before they can take effect. It also established expedited legislative procedures (primarily in the Senate) by which Congress may disapprove agencies' final rules by enacting a joint resolution of disapproval. The definition of a covered rule in the CRA is quite broad, arguably including any type of document (e.g., legislative rules, policy statements, guidance, manuals, and memoranda) that the agency wishes to make binding on the affected public. After these rules are submitted, Congress can use the expedited procedures specified in the CRA to disapprove any of the rules. CRA resolutions of disapproval must be presented to the President for signature or veto. For a variety of reasons, however, the CRA has been used to disapprove only one rule in the 14 years since it was enacted. Perhaps most notably, it is likely that a President would veto a resolution of disapproval to protect rules developed under his own administration, and it may be difficult for Congress to muster the two-thirds vote in both houses needed to overturn the veto. Congress can also use regular (i.e., non-CRA) legislative procedures to disapprove agencies' rules, but such legislation may prove even more difficult to enact than a CRA resolution of disapproval (primarily because of the lack of expedited procedures in the Senate), and if enacted may also be vetoed by the President. Although the CRA has been used only once to overturn an agency rule, Congress has regularly included provisions in the text of agencies' appropriations bills directing or preventing the development of particular regulations. Such provisions include prohibitions on the finalization of particular proposed rules, restrictions on certain types of regulatory activity, and restrictions on implementation or enforcement of certain provisions. Appropriations provisions can also be used to prompt agencies to issue certain regulations, or to require that certain procedures be followed before or after their issuance. The inclusion of regulatory provisions in appropriations legislation as a matter of legislative strategy appears to arise from two factors: (1) Congress's ability via its "power of the purse" to control agency action, and (2) the fact that appropriations bills are considered "must pass" legislation. Congress's use of regulatory appropriations restrictions has fluctuated somewhat over time, and previous experience suggests that they may be somewhat less frequent when Congress and the President are of the same party.
|
Congress delegates rulemaking authority to agencies for a variety of reasons, and in a variety of ways. The Patient Protection and Affordable Care Act (PPACA, P.L. 111-148) is a particularly noteworthy example of congressional delegation of rulemaking authority to federal agencies. A previous CRS report identified more than 40 provisions in PPACA that require or permit the issuance of rules to implement the legislation. One way for Congress to identify upcoming PPACA rules is by reviewing the Unified Agenda of Federal Regulatory and Deregulatory Actions, which is published twice each year (spring and fall) by the Regulatory Information Service Center (RISC), a component of the U.S. General Services Administration, for the Office of Management and Budget's (OMB) Office of Information and Regulatory Affairs (OIRA). The Unified Agenda lists upcoming activities, by agency, in five separate categories or stages of the rulemaking process: the prerule stage, the proposed rule stage, the final rule stage, long-term actions, and completed actions. All entries in the Unified Agenda have uniform data elements, including the department and agency issuing the rule, the title of the rule, its Regulation Identifier Number (RIN), an abstract describing the nature of action being taken, and a timetable showing the dates of past actions and a projected date for the next regulatory action. Each entry also contains an element indicating the priority of the regulation (e.g., whether it is considered "economically significant" under Executive Order 12866, or whether it is considered a "major" rule under the Congressional Review Act). This report examines the most recent edition of the Unified Agenda, published on December 20, 2010 (the first edition that RISC compiled and issued after the enactment of PPACA). The report identifies upcoming proposed and final rules listed in the Unified Agenda that are expected to be issued pursuant to PPACA. The Appendix lists these upcoming proposed and final rules in a table. The report also briefly discusses the long-term actions listed in the Unified Agenda, as well as some options for congressional oversight over the PPACA rules.
|
"If the work of legislation can be done shrouded in secrecy and hidden from the public," said former Speaker Thomas P. O'Neill, "then we are eroding the confidence of the public in ourselves and in our institution." Open government is essential in a democratic system if Congress is to maintain public support and if its decisions are to gain popular acceptance and legitimacy. Through open chamber and committee proceedings, citizens are better able to evaluate, and hold accountable, the performance of Congress and its Members. In the view of one Senator: "I believe the more people are aware of what we are doing in the Senate and the Congress or in Washington generally, the more accountable we are. The more accountable we are, the better job we will do." Compared with the White House, the executive branch, and the Supreme Court, the U.S. Congress is the most transparent national governmental institution. The House and Senate are highly visible, permeable, and accessible institutions. As a representative body whose Members are elected to serve and act on behalf of their constituents, Congress should be the most public governing entity. House and Senate floor proceedings, for example, are covered gavel-to-gavel over C-SPAN (the Cable Satellite Public Affairs Network), which also airs many committee hearings and markups and even an occasional conference committee. Since the 1970s, both legislative chambers have changed their procedures and practices to promote greater transparency. For example, setting aside the aforementioned C-SPAN coverage of the House (since 1979) and Senate (since 1986), the legislature employs technology to make an array of congressional materials (bills, committee reports, floor amendments, etc.) available electronically to the general public. Lawmakers also use a variety of online tools to more effectively engage and communicate with their constituents. House and Senate committees have publicly accessible websites. The House even has a Congressional Transparency Caucus that, among other things, suggests further openness initiatives for the legislative branch. Moreover, given the plethora of contemporary communication outlets (the Internet, cable television, blogs, and so on), people have many "windows" through which to observe the workings of Congress. The ease of sharing information technologically also may create public expectations for more congressional openness and transparency. The attentive public, in short, has numerous electronic gateways to Capitol Hill. In addition, there are scores of journalists, outside groups, think tanks, and academics who produce a huge amount of information and analysis about Congress. So much material is publicly available about Congress that at least three significant issues merit a brief mention: the accuracy, credibility, and reliability of the material; information overload, given the voluminous amount of legislative materials available to the public, much of which might be irrelevant (that is, distinguishing the wheat from the chaff); and the quality, timeliness, or clarity of the reasons for denying public access to, or the withholding of information about, closed-door legislative activities or meetings. At bottom, it behooves voters, the media, relevant interest groups, and others to hold Congress to high standards of transparency, which includes making legislative materials available online in easily searchable categories. Transparency implies not just increased online access to information, but also the reasoning of the principal actors as to why legislative decisions were made, or not made. Typically, much of this reasoning is made public during House and Senate floor debate, as well as in other venues (committee hearings, press conferences, etc.). Openness is fundamental to representative government. The basic premise of transparency is that it increases the opportunity for responsive, responsible, and attributable decision making. Yet the congressional process is replete with activities and actions that are private and not observable by the public. As a Senator observed, "A lot goes on unseen on how we operate in this chamber." How to distinguish what might be viewed as reasonable legislative secrecy from impractical transparency is a topic that arouses disagreement on Capitol Hill and elsewhere. Why? Because lawmaking is critical to the governance of the nation. To produce an act of Congress involves Members and many other relevant actors who come togetherâmeeting and talking publicly and privatelyâto craft policies that they believe promote and serve the national interest. Both secrecy and transparency suffuse the lawmaking process. The two are not "either/or" constructs; they overlap constantly during the various policymaking stages. The objectives of this report, then, are four-fold: first, to outline briefly the historical and inherent tension between secrecy and transparency in the congressional process; second, to review several common and recurring secrecy/transparency issues that emerged again with the 2011 formation of the Joint Select Deficit Reduction Committee; third, to identify various lawmaking stages that typically include closed door proceedings; and fourth, to close with several summary observations. Legislative secrecy has clearly declined over the decades, but it has been part of the policymaking process from Congress's very beginning, and it remains an integral aspect of the lawmaking process. The Framersâwho drafted the U.S. Constitution in closed meetingsâeven included a secrecy provision in that document. Article I, Section 5, states, "Each House shall keep a Journal of its Proceedings, and from time to time publish the same, excepting such Parts as may in their Judgment require Secrecy." Moreover, when "the first Senators gathered in New York for their first session [in 1789], they seemed to take it for granted that they would meet behind closed doors." Not until 1794 did the Senate end its closed-door policy. From the First Congress, a House visitor's gallery enabled the public to observe that chamber's proceedings, but, [u]p to and during the War of 1812, secret sessions of the House were held often. An early dispute between confidentiality and transparency occurred in the House in 1793. The previous year the House had adopted a rule requiring the chamber to be cleared of all persons, except lawmakers and the Clerk, so the membership could receive confidential communications from the President. Members disagreed about the need to invoke this rule. On one side were those who disapproved of the rule and urged the galleries to be kept open to the public. The points they raised still resonate today: [S]ecrecy in a Republican Government wounds the majesty of the sovereign people; that this Government is in the hands of the people; and that they have a right to know all the transactions relative to their own affairs; this right ought not to be infringed incautiously, for such secrecy tends to injure the confidence of the people in their own Government. In reply, proponents of closing the galleries to the public contended that just "because this Government is Republican, it will not be pretended that it can have no secrets.To discuss the secret transactions of the Government publicly, was the ready way to sacrifice the public interest." The result of the debate was that the galleries were cleared of the public for these communications. Like so many other debates about principles or values (liberty versus security, duties versus rights, for example), there are few, if any, inviolable criteria to suggest that openness is always to be preferred to confidentiality or secrecy. As Senator Everett McKinley Dirksen, the legendary Republican leader, stated, "I am a man of fixed and unbending principle, and one of my principles is flexibility." Importantly, the historical trend has been to promote heightened openness and transparency in both chambers. Few would deny the significance of this development in informing the country and holding public officials accountable for their actions and decisions. President Barack Obama emphasized similar sentiments: "A democracy requires accountability, and accountability requires transparency." On the other hand, the president's former director of communications modified the President's statement, suggesting that there is a distinction between making a decision public and revealing the private negotiations that led to that decision. As the director noted: For us, transparency has never meant that we put our internal decision-making on display. We didn't during the campaign. We try not to do it here [in the White House]. Transparency is what the decision is, and why it was made. The process by which it was arrived at is not central. As in the White House, transparency is not an "all or nothing" proposition, something that is appropriate at all times in the House and Senate and for every conceivable legislative action or circumstance. Secrecy has its place in Congress, especially in building winning coalitions behind the scenes through "horse trading" and other means. Persuasion is typically more effective in private than in a public setting. Although "secrecy" carries a negative connation, for more than 200 years it has been recognized by numerous legislative practitioners as essential to the conduct of congressional business. (Less value-laden words for secrecyâsetting aside the aforementioned "confidential"âmight be "private," "privileged communication," "executive session," "in confidence," or "off-the-record.") Understandably, the secrecy/transparency clash continues because people disagree over when, whether, why, or how much secrecy is appropriate in the lawmaking process. Some people advocate perfect transparency; others emphasize the value of private legislative meetings. Two prominent individualsâPresident Woodrow Wilson and Robert Luce, House Member (1919-1935; 1937-1941) and noted political science authorâset out in bold relief sharply divergent perspectives on transparency versus secrecy in congressional proceedings. The issue they address is whether secrecy (confidentiality) is acceptable in legislative assemblies. Wilson emphasized that any secrecy in legislatures is simply unacceptable. Luce challenged that assertion, calling it impractical and impolitic. He stressed the value of confidentiality in legislative deliberations. Woodrow Wilson The light must be let in on all processes of lawmakingâ¦. As soon as the Legislature meets, a bill embodying that [promised] legislation is introduced. It is referred to a committee. You never hear of it again. What happened? Nobody knows what happened. I am not intimating that corruption creeps in; I do not know what creeps in. The point is that not only we do not know, but it is intimated, if we get inquisitive, that it is none of our business. My reply is that it is our business, and it is the business of every man in the State; we have a right to know all the particulars of that bills history. There is not any legitimate privacy about matters of government. Government must, if it is to be pure and correct in its processes, be absolutely public in everything that affects it. I cannot imagine a public man with a conscience having a secret that he would keep from the people about their own affairs. There are private [lawmaking] processes. Those are processes that stand between the things that are promised them, and I say that until you drive all things into the open, you are not connected with your government; you are not represented; you are not participants in your government. Such a scheme of government by private understandings deprives you of representation; deprives the people of representative institutions. It has got to be put into the heads of legislators that public business is public business. Robert Luce It may, of course, be said that the public ought to hear every argument addressed to that judgment, whether or not addressed by an outsider or by a fellow member. But is not that purely fanciful? Would it be suggested that no legislator ought ever to converse with a fellow member or anybody else about any measure in hand, unless a reporter were within hearing? Nothing short of that would disclose the particulars of every bill's history, which Mr. Wilson says we have a right to know. The contention is wholly unpractical, and not justified by any rule of conduct in the daily relations of life. Universal experience tells us that in all manner of conference and deliberations, we reach results more speedily and satisfactorily if those persons directly involved are alone. Behind closed doors compromise is possible; before spectators it is difficult. Legislators are neither cowards nor tricksters because they deliberate in private. They are but using in the public business those methods that have been found most efficacious and salutary in all the other relations of life. Those methods are based on the characteristics of human nature. He who would quarrel with them should not rest until he has changed human nature. The divergent views of Wilson and Luce about secrecy and transparency surfaced again when the Joint Select Committee on Deficit Reduction, established by the 112 th Congress, began its work. In August 2011, President Obama signed the Budget Control Act (BCA) into law ( P.L. 112-25 ). The statute created a 12-member, bipartisan Joint Select Committee on Deficit Reduction. In the wake of soaring deficits and debt, the Joint Committeeâdubbed the "supercommittee" by the pressâwas granted large authority to recommend by November 23, 2011, cuts in federal spending in the $1.2 trillion to $1.5 trillion range over 10 years. The joint panel could have proposed even more (or less) in fiscal savings. Its recommendations would have been considered in the House and Senate under expedited procedures that limited debate and prevented amendment. Given the joint panel's historic assignment, many lawmakers and others urged the joint panel to conduct all of its deliberations in public. "Some argue you can't have" a completely transparent process, a House lawmaker stated. "I think we need to have that." A House party leader underscored the importance of transparency for securing Member support: [The joint panel's recommendation] cannot be a product of secrecy. They may want to narrow issues that will be made ... but that has to be done in a public way .... In order for our members to embrace [the recommendation], they have to know more about it and know why it has come to the place that it has. Outside groups also weighed in on the issue. Six days after the President signed the BCA into law, 16 organizations (e.g., the Sunlight Foundation, the Center for Responsive Politics, and the Project on Government Oversight) wrote to the bipartisan House and Senate leadership urging them to ensure that the joint panel conduct its deliberations in public. They also proposed 16 ways to make the joint committee's work public, such as "Make the committee's report public 72 hours prior to the final vote. Also publish working drafts (including the chairman's mark) and amendments online." The leaders of the House's Transparency Caucus introduced legislation ( H.R. 2860 ) requiring, among other things, the public disclosure of meetings that joint panel members and staff had with lobbyists; the campaign contributions received by panel members; and the availability online of the joint committee's report and proposed legislative language 72 hours before the vote occurred on the panel's deficit reduction plan. As a co-founder of the Transparency Caucus stated, "The super committee has been given unprecedented power to make unprecedented decisions, and we must call for unprecedented transparency." Various Senators wrote to the joint panel urging it to adopt a sunshine rule "that would require any meeting of the committee with a quorum of members to be public and televised." Still another Senator emphasized that the American people "have come to expect openness and transparency in the legislative process. I am not aware of any situation where a legislative committee responsible for matters of such profound sweeping importance operates in secret." On the other hand, a co-founder of the Transparency Caucus acknowledged during an interview with a journalist that the joint panel would meet in secret. "You know it; I know it," he said. "There comes a point at which even transparency says that the deliberation process ⦠is going to ultimately, at some point, be private." Bolstering the co-founder's view were various explanations as to why secrecy can be essential to congressional deliberations. One is the contention that special interests exercise such huge influence in the legislative process that they could block and frustrate the work of the joint panel if it met in public. "The reason people want a public forum is so that nothing happens," exclaimed former Senator Judd Gregg of New Hampshire. "That's the bottom line here [for] the interest groups on the hard right and the hard left," he said. Too much transparency might produce gridlock instead of policy success. Conversely, too little transparency could provoke sufficient public criticism and opposition to doom the product fashioned in secrecy. Among other reasons why private legislative meetings could benefit the public interest are these: they could enhance fruitful and serious negotiations; allow lawmakers to raise creative or "trial balloon" ideas without worry of public condemnation or ridicule; prevent time-wasting partisan grandstanding, encouraged by the presence of cameras; and permit Members to engage in frank and bipartisan negotiations without worry that they could be castigated by partisan commentators for subverting their party's principles. Lawmakers would likely have needed to spend considerable time defending themselves against such attacks. Moreover, research by some political scientists suggests that most voters subscribe to the oft-quoted adage that, like sausage-making, lawmaking is not something they care to observe. As a scholar explained, These Americans would much rather have Congress do its work behind closed doors so long as their representatives are not being bought by special interests and so long as the public has the opportunity to learn about decisions, the reasons for and against them, and why their representatives decided what they did. Views on transparency versus confidentiality often hinge on what people believe is a reasonable balance between the two, especially when the array of issues being dealt with is complex, controversial, and politically charged. Two members of the joint panel provided their perspective on this matter. A House Democratic member of the Joint Committee put it this way: "In this polarized environment, it's important for [there to be] some opportunity for Members to have an exchange of views [in private]. If we get to the point where we're marking something up, that will obviously be in public." Private discussions among panel members were a reasonable way to try to find common ground on a deficit reduction plan. A GOP Senator on the panel indicated that there would be a mix of open and closed meetings, a two-track approach. One track would involve closed-door discussions and negotiations among panel members. The other track would permit non-panel lawmakers and outsiders to present publicly their ideas for deficit reduction. "I think there needs to be a good balance here where people have input, people feel like it's a transparent process, but we also are able to have a candid [private] exchange with" our joint committee colleagues. Sensitive to the openness concerns of their colleagues and others, the Joint Committee adopted rules that imposed (in Rule V, "Public Access and Transparency") a number of requirements for transparency in the panel's proceedings. They included 1. (a) The Joint Select Committee shall establish and maintain a publicly available website, and shall make its publications available in electric form thereon. Such publication will include final Committee transcripts and hearing materials as available. (b) Not later than 24 hours after the adoption of any amendment to the report of legislative language, the Co-Chairs shall make the text of each amendment publicly available in electronic form on the Joint Select Committee's website. (c) Not later than 48 hours after a record vote is completed, the information described in clause 2(b) of rule III shall be made publicly available in electronic form on the Joint Select Committee's website. 2. Each hearing and meeting of the Joint Select Committee shall be open to the public and the media unless the Joint Select Committee, in open session and a quorum being present, determines by majority vote that such hearing or meeting shall be held in closed session. No vote on the recommendations, report or legislative language of the Joint Select Committee, or amendment thereto, may be taken in closed session. 3. To the maximum extent practicable, the Joint Select Committee shallâ (a) provide audio and video coverage of each hearing or meeting for the transaction of business in a manner that allows the public to easily listen to and view the proceedings; and (b) maintain the recordings of such coverage in a manner that is easily accessible to the public. As is common for many House and Senate committees, the Joint Select Committee could hold pre-hearings or pre-markups that were closed to public observation. Many people are likely to agree that the public's business on Capitol Hill requires a measure of secrecy and confidentiality. How much is certainly debatable, and, as noted earlier, Congress has taken numerous actions to open its proceedings to public observation. Congress has made scores of legislative materials, documents, and reports available online to the public, and Members have numerous ways to communicate effectively and openly with their colleagues and constituents. In addition, the legislative branch is covered by a large press corps. In today's open and Internet era, "secret" does not mean what it used to on Capitol Hill. Still, everything that involves the actions and activities of the legislative branch is not absolutely public. Accordingly, many individuals would likely agree that some measure of confidentiality is justifiable in the congressional process. A few examplesâbroadly tracking various lawmaking stagesâillustrate selectively where confidentiality is a common occurrence in the business and work of the legislative branch. They include the following: Members introduce legislation for a variety of reasons, such as addressing a problem, accommodating constituency interest, offering innovative policy approaches, or laying claim to an idea. The process of transforming an idea into appropriate legislative language is typically an interactive, behind-the-scenes process. For example, to minimize policy and jurisdictional conflicts and to ensure broad agreement among the three House committees responsible for drafting legislation to implement President Obama's major overhaul of the health care system, House leaders "launched lengthy closed-door meetings among the chairmen of the three panelsâEducation and Labor, Energy and Commerce, and Ways and Meansâplus the chairmen of the three respective subcommittees that handle health issues." Other pertinent pre-introductory examples of secrecy in developing legislation are the following: Members and their staff consult privately with numerous individuals and groups about their proposals for new federal programs or activities. Confidential drafts of the legislation are prepared by attorneys in the House or Senate Office of Legislative Counsel; there are often multiple drafts of bills as staff aides and Members review the accuracy, effect, and import of the legislative language. Research and review will be undertaken by various individuals and groups to ensure that the proposed bill is constitutional and avoids unintended consequences. The research and review findings are likely to remain confidential. Staff aides and others may spend considerable time behind closed doors devising an attractive title for their bill, such as the USA PATRIOT Act (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism). Before a measure's formal introduction in the House or Senate, Members may solicit the reaction of various groups, selected colleagues, or other relevant actors or entities. These reactions may never see the light of day. All of this and more can be part of the pre-introductory process that affects the content of legislative measures. And this processâin whole or in partâis closed to public observation. Members want to revise and revamp their measures in private without journalists, special interests, or constituents challenging every word change or every legislative draft. A Member's rough draft of legislation is often perfected in private. Measures that are introduced in the House or Senate are referred to the appropriate committee(s) of jurisdiction by the House or Senate Parliamentarian, as the case may be. Members and staff aides often meet with these officials in private, prior to a bill's formal introduction, to discuss which committee(s) is likely to receive the measure. Artful drafting, for example, can influence the reference of a measure to a committee favorably disposed to the legislation rather than one likely to take no action at all on the measure. As a Senate Parliamentarian stated, "A great deal of our time in the office is spent advising staff on what to include or what to delete if in fact they have a preference in terms of committee referral." These are private discussions. Today, the key formal committee policymaking stagesâhearings, markups, and reportsâare typically open to the public. In fact, House and Senate rules require that hearings and meetings be open to the public, but there are certain limitations stipulated in these rules. For example, Senate Rule XXVI identifies six reasons or circumstances when a committee can vote to close a session to the public. They include (1) national security issues or the confidential conduct of the nation's foreign relations; (2) internal staff management; (3) an unwarranted invasion of the privacy of an individual or exposing a person to public contempt; (4) the disclosure of law enforcement agents or information that could hinder a criminal investigation or prosecution; (5) the revelation of trade secrets; and (6) the exposure of matters required to be kept confidential under other provisions of law or government regulations. To be sure, there are many other committee matters that take place behind closed doors. For example, decisions to hold hearings and their timing are decided by the committee or subcommittee chair, perhaps in consultation with other panel members. Who should testify, how many should testify, and in what order are also matters determined in private. Once committee leaders decide to conduct hearings, then chamber and committee rules require that the date, time, place, and subject matter of any hearing be announced at least one week in advance of the commencement of the hearing. The steps leading to the committee amendment stage, called "markup," are also typically suffused with private discussions among committee leaders, professional staff aides, party leaders, and other relevant actors. An important topic for consideration is what should be the markup vehicle: for example, the bill as introduced and referred to the panel, a subcommittee-prepared committee print, or a document developed by the chair, called the "chair's mark." These informal discussions and meetings surrounding "the mark" are not subject to public observation. (Sometimes, as noted earlier, there are private pre-hearing and pre-markup sessions that occur before a committee meets in public to conduct its official business.) Scheduling of legislation for floor action is the prerogative of the Speaker of the House and the Senate majority leader. House and Senate rules and practices influence how these leaders carry out this responsibility; however, each largely determines if, when, and in what order measures or matters are taken up in their chamber. Numerous factors influence their decisions, such as the pressure of national and international events; bicameral considerations; whip counts; policy and political considerations; the administration's preferences; statutory requirements; impending deadlines; and the need to act on "must pass" legislation. Discussions about these and other scheduling matters involve private meetings and talks among numerous relevant actors. Once measures or matters reach the floor, they are generally open to debate and amendment. Recall that C-SPAN provides gavel-to-gavel coverage of floor proceedings. However, C-SPAN cameras are not covering private discussions in or near the chamber about who should speak on the bill, when, or in what order. Nor are the cameras broadcasting the closed strategy sessions among party leaders, committee members, and other influential legislators about how to strengthen (or weaken) measures through the amending process, if amendments are permitted to the legislation. It is quite common, especially on major and controversial legislation, for the House and Senate to pass different versions of the same bill. The Constitution requires, however, that before measures can be sent to the President for signature or veto, they must pass each chamber in identical form. The most well-known of the bicameral resolution devices is the conference committee, sometimes called the "third house of Congress," where conferees from the House and Senate meet to hammer out an accord (the conference report). From 1789 until the mid-1970s, with only a handful of exceptions, conference committees met in secret. In 1975, both chambers adopted rules requiring open conference meetings unless a majority of the conference members from either chamber voted in public to hold secret sessions. Two years later, the House strengthened the openness requirement by adopting a rule requiring the full House to authorize its conferees to vote to close a conference. On several occasions, C-SPAN has televised conference committee meetings. Notwithstanding the aforementioned mid-1970s rule changes, House and Senate conferees regularly meet informally and privately to identify ways to reconcile inter-chamber disagreements. As a Senator stated in a comment made to a colleague, The Senator knows when we started the openness thing we found it more and more difficult to get something agreed to in conferences, it seemed to take forever. So what did we do? The Senator knows what we did. We would break up into smaller groups [and meet privately] and then we would ask our chairman ... to see if he could not find his opposite number on the House side and discuss this matter and come back and tell us what the chances would be of working out various and sundry possibilities. The top negotiators for each chamber may even be invited to the White House to discuss administration goals for the conference. Private bargaining sessions can involve Members, staff aides, lobbyists, and other actors. Worth noting is that informal private negotiations and strategy meetings regularly take place even before a conference committee is formally constituted. Further, when the two chambers employ the exchange of amendment procedure (the so-called ping pong approach) to resolve their differences on legislation, the compromise amendment might be negotiated in secret by each chamber's party and committee leaders. The Constitution grants the President a qualified veto over legislation sent to him by Congress. Because vetoes are difficult to overrideâa two-thirds vote of each chamber is requiredâthe President is a major actor in determining the fate of measures. Presidents and lawmakers recognize this reality and seek periodically to practice the politics of differentiation through the veto, particularly during times of divided government. A veto fight with Congress may suit a President who wants to highlight how his views differ from the other party's. For its part, Congress may deliberately send the President a measure that the legislative proponents want him to veto, so they can use the issue on the campaign trailâa "winning by losing" strategy. These political/electoral strategies are crafted behind-the-scenes with neither reporters nor cameras present in the room. Although Congress is the most open branch of the federal government, there are numerous occasions when secrecy and confidentiality serve strategic, political, policy, institutional, and electoral objectives. Several have already been noted, but there are many more. To cite several more: congressional party leaders are chosen in secret party caucuses at the start of each new Congress; the policy committees of each party meet privately; numerous informal groups (the Republican Study Committee or the Blue Dogs, for instance) convene in closed session; the respective party caucuses in each chamber meet in secret; party leadership strategy sessions occur in secret; and House and Senate party leaders meet periodically behind closed doors. The list goes on. In one of the most controversial and historic events in American political historyâthe impeachment and acquittal of President William Jefferson Clintonâthere were innumerable secret and confidential discussions and meetings that occurred in the House, Senate, and White House. The contemporary Congress conducts much of its business in public, perhaps more so than ever in its over 200-year history. Many factors account for this ongoing pattern of growing legislative transparency, such as the communications revolution, an aggressive and competitive media, a better educated and more attentive citizenry, and reform-minded lawmakers who strive to further open their institution to public observation. Yet secrecy and confidentiality remain durable features of the congressional process. Why? At least three factors are important to reemphasize. "Legislation is hard, pick-and-shovel work," remarked Representative John Dingell, and it often "takes a long time to do it." Part of what makes lawmaking hard work is the difficulty of mobilizing multiple winning coalitions at numerous lawmaking stages. With 535 independently elected lawmakers who represent diverse geographical areas and hold divergent partisan and ideological preferences, policy conflicts and disputes are inevitable, and accommodations and bargains often hard to reach. Major and consequential acts of Congress are typically the products of scores of big and small compromises. As former Senator Alan K. Simpson exclaimed, "You cannot legislate without compromise." Lawmakers determine for themselves whether they are willing to compromise. "There are some things one cannot compromise," remarked Senator Robert C. Byrd. The broad point is that putting together winning coalitions to pass legislation for a nation of more than 300 million people is arduous work. And the practical reality is that much of that work occurs in secret. Away from the spotlight of the media and the watchful eyes of lobbyists, it is usually easier for opposing sides to reach agreements that each views as "win/win" rather than "win/lose." Regularly, lawmakersâparty and committee leaders, minority party members, rank-and-file legislatorsâparticipate in closed negotiating sessions to discuss ways to accomplish their policy and political objectives. Closed-door meetings and discussions are sometimes the only way for lawmakers to find the common ground necessary to create national policies. As one lawmaker stated, "What is representative democracy about if it does not entail the accommodation of different points of view?" Confidential meetings promote deliberations among participants who might be reluctant or unwilling in a public setting to raise their concerns, issues, or problems with legislative proposals. Why? One key reason: lawmakers may be hesitant to challenge proposals or raise new ideas in public that could potentially cause them embarrassment back home or be used against them in the next campaign. Private discussions minimize or eliminate Member concerns about negative repercussions that might flow from expressing agreement (or disagreement) with the conventional view or the political wisdom of the moment. Closed-door sessions encourage a freer, less inhibited exchange of ideas among lawmakers. These sessions can suggest who is really for or against a bill and the intensity of their commitment; what political or electoral "carrots and sticks" might be employed to win the support of wavering lawmakers; how to bridge fundamental political or ideological disagreements; what "message strategy" might be developed to rally public support for the legislation; how House or Senate rules and precedents could be employed to foil (or expedite) a bill's passage; or what approaches might resolve intraparty, interparty, or legislative-executive branch disputes. Lawmakers could raise and consider some of these matters in various public settings. It seems probable, however, that there would be reluctance to put everything on the table and say what one really believes about an issue, individual, group, or party. Congress, in brief, would likely find it quite difficult to craft and enact priority legislation absent private meetings and discussions. Today's Congress functions in a political environment much different from that of the 1950s. Two examples make the point. First, the number of major interest groups during the 1950s could almost be counted on a person's fingers. Second, the Congress of the 1950s received relatively little publicity in the press or on the radio (television was still in its infancy). Contemporary developments have transformed both conditions. As for special interest representation, the nation's capital is filled with lobbying groups and associations. There are scores of industry associations, public affairs lobbies, single-interest groups, and many other advocacy organizations. Special interest groups are major policymaking players. They provide lawmakers with information and analysis, drafts of bills and amendments, campaign contributions, and get-out-the-vote efforts. Many interest groups also are informally affiliated with one party or the other, and their demands for loyalty make it difficult for lawmakers to compromise. Ironically, some of the sunshine reforms of the 1970s had the unintended consequence of strengthening the role of special interests. As Political Scientist R. Douglas Arnold recounts: Legislators have discovered the strengths and weaknesses of specific procedures by trial and error. Open meetings, open rules, unlimited recorded votes seemed like good ideas when they were proposed, and they were backed by Common Cause and others who sought to reduce the power of special interests. Unfortunately, these reforms were based on a faulty understanding of the mechanisms that allow for citizens' control. We now know that open meetings filled with lobbyists, and recorded votes on scores of particularistic amendments, serve to increase the power of special interests, not diminish them. As for the media, during the 1950s, 1960s, and 1970s, most Americans received their newsâand many still doâfrom the three major broadcast networks (ABC, CBS, and NBC). Major media changes came with the advent of cable television, the Internet, blogs, YouTube, and more. Today, people can select from scores of around-the-clock news sources and public affairs programming. The proliferation of media means that people can choose to listen to and watch news programs that suit their political predilections. As one analyst noted, "People are increasingly picking their media on the basis of partisanship. If you're a Republican and conservative, you listen to talk radio and watch the Fox News Channel. If you're liberal and Democratic, you listen to National Public Radio and watch the News Hour on the public broadcasting system." What these contemporary media developments mean for lawmakers is often greater difficulty in mobilizing the public consensus and support required to win enactment of consequential policy proposals. Private discussions and meetings offer lawmakers a "sanctuary" where their opinions and ideas can be raised and vigorously debated without concern about outside political repercussions. Members recognize the value of confidential discussions: they can learn about complex issues, ask questions, and advance opinions and judgments that conflict with status quo preferencesâall without worry about being subjected to interest group-sponsored attack ads in their state or district or castigated by various print and media commentators for even considering a deviation from the party line. Two final points: First, Congress has taken large strides over the decades, as mentioned earlier, to open further its committee and floor proceedings to public observation. For example, a number of new House rules for the 112 th Congress (2011-2013) provided greater transparency for House and committee operations, such as requiring committee chairs to "make the text of a measure or matter being marked up publicly available in electronic form at least 24 hours prior to the commencement of the meeting"; obligating the chairs to "make the results of any record vote publicly available in electronic form within 48 hours of the vote"; and strengthening provisions "to ensure that Members and the public have easy [electronic] access to bills, resolutions, and amendments considered in committee and by the House." Numerous congressional reports and materials are readily available online at various websitesâpublic and private. More openness recommendations are regularly proposed by lawmakers, individuals, and groups. For example, the Sunlight Foundation (a private nonpartisan organization; http://sunlightfoundation.com ) has as its mission the promotion of greater transparency in Congress and the federal government through new Internet technologies. For example, its "Open Congress" project brings together "official government data with news and blog coverage, social networking, public participation tools, and more to give [individuals] the real story behind what's happening in Congress." Second, it is clear that some degree of secrecy and confidentiality is essential to congressional policymaking, particularly with respect to devising legislative strategies and mobilizing winning coalitions on major legislation. It would be quite difficult for party leaders to move their preferred agenda if they could not meet privately with colleagues to try to convince them to support priority legislation. Moreover, it is often the case that private discussions do not remain private for long. Various lawmakers may reveal the gist of what took place in these private sessions or, alternatively, the army of journalists who cover Capitol Hill are skilled at finding out what was discussed and decided behind the closed doors. Congress, too, has determined that secrecy and confidentiality are appropriate for certain matters. National security and intelligence matters are common examples. The House has a rule that requires Members to take an oath of secrecy before they have access to classified information. House Rule VII and Senate Resolution 474 (96 th Congress) address the records of each chamber and their confidentiality. Rule VII, for instance, limits the public availability of certain records. It states that a "record for which a time, schedule, or condition of availability is specified by order of the House shall be made available in accordance with that order." The delay in availability might be as long as 50 years. Today, Congress operates largely in the sunshine. Ironically, studies have shown that the more open Congress has become, the less the citizenry like what they see, hear, and read about the lawmaking process. Many people dislike the messiness of policymaking: the long debates, the conflicting opinions, the bargains and compromises. As Congress has become more open, the transparency changes have fanned the flames of public dissatisfaction with the legislative branch. As two political scientists suggest, people "profess a devotion to democracy in the abstract but have little or no appreciation for what a practicing democracy invariably brings with it." Part of the explanation for these findings is that Congress is not well understood by the average citizen. Congress's size, complexity, and arcane procedures are among the factors that contribute to the public's perplexity with the legislative branch. To conclude, representative government requires transparency. It is a paramount value in democratic systems if there is to be government of, by, and for the people. As the Preamble to the Constitution of the United States declares, it is "We the People" who constitute the nation's ultimate sovereign authority. Insufficient transparency in the lawmaking process can foster public cynicism and distrust in the "people's branch" and inhibit Congress's responsiveness to the concerns and interests of voters. Openness, however, is not an absolute principle that always trumps every other value, such as secrecy and confidentiality. Too much secrecy is detrimental to representative government; too little could hinder effective governance. The challenge is finding in particular cases the appropriate balance between transparency and confidentiality, but with openness as the general tendency. As former Representative Lee H. Hamilton put it, Americans "want government to be open. This is not a blanket pronouncementâwhere national security and defense are concerned, or where congressional negotiators need space to find common ground without being forced to posture for the cameras, there is a place for secrecy. But transparency ought to be the rule."
|
Openness is fundamental to representative government. Yet the congressional process is replete with activities and actions that are private and not observable by the public. How to distinguish reasonable legislative secrecy from impractical transparency is a topic that produces disagreement on Capitol Hill and elsewhere. Why? Because lawmaking is critical to the governance of the nation. Scores of people in the attentive public want to observe and learn about congressional proceedings. Yet secrecy is an ever-present part of much legislative policymaking; however, secrecy and transparency are not "either/or" constructs. They overlap constantly during the various policymaking stages. The objectives of this report are four-fold: first, to outline briefly the historical and inherent tension between secrecy and transparency in the congressional process; second, to review several common and recurring secrecy/transparency issues that emerged again with the 2011 formation of the Joint Select Deficit Reduction Committee; third, to identify various lawmaking stages typically imbued with closed door activities; and fourth, to close with several summary observations. This report will not be updated.
|
T he Livestock Mandatory Reporting Act ( P.L. 106-78 , Title IX; LMR ) requires that meat packers report prices and other information on purchases of cattle, hogs, lamb, boxed beef, wholesale pork, and lamb carcasses and boxed lamb to the U.S. Department of Agriculture (USDA). Authority for mandatory reporting was set to expire on September 30, 2015. Livestock industry stakeholders supported the reauthorization of the act, and producer groups put forward proposals amending mandatory reporting. The House passed a reauthorization bill ( H.R. 2051 ) in June 2015. In September 2015, the Senate amended the House-passed bill, and Congress reauthorized LMR until September 30, 2020, in the enacted Agriculture Reauthorizations Act of 2015 ( P.L. 114-54 ). Before livestock mandatory price reporting was enacted by Congress in 1999, the USDA's Agricultural Marketing Service (AMS) collected livestock and meat price and related market information from meat packers on a voluntary basis under the authority of the Agricultural Marketing Act of 1946 (7 U.S.C. §1621 et seq.). AMS market reporters collected and reported prices from livestock auctions, feedlots, and packing plants. The information was disseminated through hundreds of daily, weekly, monthly, and annual written and electronic USDA reports on sales of live cattle, hogs, and sheep and wholesale meat products from these animals. The goal was to provide all buyers and sellers with accurate and objective market information. By the 1990s, the livestock industry had undergone many sweeping changes, including increased concentration in meat packing and animal feeding, more production specialization, and more vertical integration (firms controlling more than one aspect of production). Fewer animals were sold through negotiated (cash; or "spot") sales, and more frequently sold under alternative marketing arrangements (e.g., formula sales based on a negotiated price established in the future) with prices not publicly disclosed or reported. Some livestock producers, believing such arrangements made it difficult or impossible for them to determine "fair" market prices for livestock going to slaughter, called for mandatory price reporting for packers and others who process and market meat. USDA had estimated in 2000 that the former voluntary system was not reporting 35%-40% of cattle, 75% of hog, and 40% of lamb transactions. During debate on mandatory price reporting, opponents, including some meat packers and other farmers and ranchers, argued that a mandate would impose costly new burdens on the industry and could cause the release of confidential company information. Nonetheless, some of these earlier opponents decided to support a mandatory price reporting law. Livestock producers had been hit by very low prices in the late 1990s and were looking for ways to strengthen the markets. Some meat packers also decided to support a national consensus bill at least partly to preempt what they viewed as an emerging "patchwork" of state price reporting laws that could alter competition between packers operating under different state reporting laws. The Livestock Mandatory Reporting Act of 1999 (LMR, P.L. 106-78 , Title IX; 7 U.S.C. §1635 et seq.) was enacted in October 1999 as part of the FY2000 Agriculture appropriations act. The law mandated price reporting for live cattle, boxed beef, and live swine and allowed USDA to establish mandatory price reporting for lamb sales. The law authorized appropriations as necessary and required USDA to implement regulations no later than 180 days after the law was enacted. Mandatory price reporting was authorized for five years, until September 30, 2004. USDA issued a final rule on December 1, 2000. Although reporting for lamb was optional in the LMR statute, USDA established mandatory reporting for lamb in the final rule. The rule was to be implemented on January 30, 2001, but USDA delayed implementation for two months until April 2, 2001, to allow for additional time to test the automated LMR program to ensure program requirements were being met. The implementation of mandatory reporting did not affect the continuation of the AMS voluntary price-reporting program. AMS continues to publish prices from livestock auctions, and feeder cattle and pig sales, through voluntary-based market news reports. LMR authority lapsed briefly in October 2004 before Congress extended mandatory price reporting for one year to September 30, 2005. Authority for LMR lapsed again on September 30, 2005. At that time, USDA requested that all packers who were required to report under the 1999 act continue to submit required information voluntarily. About 90% of packers voluntarily reported, which allowed USDA to publish most reports. In October 2006, Congress passed legislation to reauthorize reporting through September 30, 2010. This act also amended swine reporting requirements from the original 1999 law, by separating the reporting requirements for sows and boars from barrows and gilts, among other changes. Because statutory authority for the program had lapsed, USDA determined that it had to reestablish regulatory authority through rulemaking in order to continue LMR operations. On May 16, 2008, USDA issued the final rule to reestablish and revise the mandatory reporting program. This rule incorporated the swine reporting changes and was intended to enhance the program's overall effectiveness and efficiency based on AMS' experience in the administration of the program. The rule became effective on July 15, 2008. Mandatory wholesale pork price reporting was not included in the original price-reporting act because the hog industry could not agree on reporting for pork. Section 11001 of the 2008 farm bill ( P.L. 110-246 ) directed USDA to conduct a study on the effects of requiring packers to report the price and volume of wholesale pork cuts, which was a voluntary reporting activity at the time. The farm bill study on wholesale pork pricing was released in November 2009 and concluded that there would be benefits from a mandatory pork reporting program. On September 27, 2010, the Mandatory Price Reporting Act of 2010 ( P.L. 111-239 ) was enacted, reauthorizing mandatory price reporting through September 30, 2015. The act added a provision for mandatory reporting of wholesale pork cuts, directed the Secretary to engage in negotiated rulemaking to make required regulatory changes for mandatory wholesale pork reporting, and established a negotiated rulemaking committee to develop these changes. The committee was composed of representatives of pork producers, packers, processors, and retailers. The committee met three times, was open to the public, and developed recommendations for mandatory pork reporting. USDA released the final rule on August 22, 2012, and the regulation was implemented on January 7, 2013. See the Appendix for a description of selected LMR reporting provisions, marketing definitions, confidentiality rules, and USDA reporting and enforcement. The House Agriculture Subcommittee on Livestock and Foreign Agriculture started the reauthorization process by holding a hearing on April 22, 2015, that included producer representatives from the National Pork Producers Council (NPPC), the National Cattlemen's Beef Association (NCBA), and the American Sheep Industry Association (ASI) and a representative from the North American Meat Institute (NAMI), which represents meat packers. All representatives voiced support for mandatory reporting, and the producer representatives identified changes to specific reporting requirements they would like to see incorporated into LMR. All stakeholders agreed that the loss of reporting during the October 2013 government shutdown was disruptive to the market, and they would like LMR to be deemed an "essential" service that operates if another government shutdown should occur. On April 28, 2015, the Mandatory Price Reporting Act of 2015 ( H.R. 2051 ) was introduced in the House. The House Committee on Agriculture marked up the bill on April 30. H.R. 2051 reauthorized LMR through September 30, 2020, and included several sections that addressed hog and lamb market issues that livestock stakeholders raised about LMR. (See " Livestock Sector Issues for Reauthorization in 2015 " for a discussion of LMR issues of interest to the livestock industry.) On June 9, 2015, the House passed H.R. 2051 on a voice vote. On September 17, 2015, by voice vote, the Senate Agriculture Committee marked up and reported to the full Senate an amended version of the House-passed H.R. 2051 . Amended H.R. 2051 , the Agriculture Reauthorizations Act of 2015, included provisions to reauthorize Mandatory Price Reporting, the U.S. Grain Standards Act, and the National Forest Foundation Act, three laws that were set to expire on September 30, 2015. On September 21, 2015, the Senate passed the bill by unanimous consent, and the House passed the Senate-amended bill on September 28 by voice vote. The Agriculture Reauthorizations Act of 2015 ( P.L. 114-54 ) was signed into law on September 30, 2015. The Agriculture Reauthorizations Act of 2015 ( P.L. 114-54 ) extended mandatory price reporting until September 30, 2020. In addition, the act makes several changes to swine reporting, revises definitions in lamb reporting, and requires USDA to conduct a study on LMR ahead of the next reauthorization. The provisions in P.L. 114-54 on swine and lamb were proposed to Congress by livestock industry stakeholders as measures that would improve LMR (see " Livestock Sector Issues for Reauthorization in 2015 " for selected industry proposals for reauthorization). The cattle industry did not formally propose any changes to cattle LMR requirements, but several swine and lamb industry proposals were incorporated in the House-passed Mandatory Price Reporting Act of 2015 ( H.R. 2051 ). The Senate-amended version included most of the House-passed provisions. However, the section of the House-passed bill that granted emergency authority to USDA to continue price reporting in the event of a government shutdown because of a lapse in appropriations, which was widely supported by the cattle, swine, and lamb industries, was not included in the enacted law. (See " LMR as an "Essential" Service " below for industry views.) The enacted legislation establishes the new negotiated formula purchase reporting category. Under this category, swine purchases are based on a formula, negotiated on a lot-by-lot basis, and the swine are scheduled for delivery to the packer no later than 14 days after the formula is negotiated and the swine are committed to packers. The enacted legislation also amends swine LMR by requiring the reporting of the low and high range of net swine prices, to include the number of barrows and the number of gilts within the ranges, and the total number and weighted average price of barrows and gilts. Lastly, the act requires that next-day reports include transaction prices that were concluded after the previous day's reporting deadlines. The enacted swine reporting provisions are the same as those in Section 3 of the House-passed bill. (See " New Reporting Proposals for Swine " below for industry views.) P.L. 114-54 amends the regulations (7 C.F.R. 59.300) for lamb reporting to redefine lamb importers and lamb packers. Now, importers are defined as entities that import an average of 1,000 metric tons of lamb meat per year during the immediately preceding four years. The original limit was 2,500 metric tons. If an importing entity does not meet the volume limit, the Secretary still may determine that an entity should be considered an importer. In P.L. 114-54 , lamb packers are defined as entities having 50% or more ownership in facilities, and include federally inspected facilities that slaughter and process an average of 35,000 head per year over the immediately preceding five years. The original threshold was 75,000 head. Also, other facilities may be considered packers if the Secretary determines they should be considered a packer based on processing plant capacity. These enacted revised definitions for lamb importers and packers are the same as those in Section 4 of the House-passed bill. (See " Concentrated Lamb Markets " below for industry views.) USDA is required to conduct a study of the price-reporting program for cattle, swine, and lamb in P.L. 114-54 . The study is to be submitted to the House and Senate Agriculture Committees by March 1, 2018. The study, to be conducted by USDA's Agricultural Marketing Service and the Office of Chief Economist, is directed to analyze current marketing practices and to identify legislative and regulatory recommendations that are readily understandable; reflect current market practices; and are relevant and useful to producers, packers, and other market participants. Also, the study is to analyze USDA reporting services. This LMR study provision was included in Section 5 of the House-passed bill, but with a later deadline of January 1, 2020. A simple reauthorization of mandatory reporting would amend the termination date in Section 260 of the Agricultural Marketing Act of 1946 (7 U.S.C. 1636i). However, like past reauthorizations, livestock industry stakeholders suggested changes that were intended to improve mandatory reporting and to address issues that emerged since the last reauthorization. Several of the issues are discussed below. During the nearly 15 years that LMR has been in place, livestock producers, processors, and industry analysts have come to rely on the AMS mandatory price reporting data to make marketing decisions. Many livestock contracts between buyers and sellers are based on prices reported under LMR. In October 2013, during the government shutdown when most federal operations came to a standstill, meat packers continued to report LMR data to AMS, but mandatory daily and weekly reports were not published. In addition to the loss of price information for producers, the gap in LMR data affected the futures market because the CME Group uses LMR data to settle live hog contracts. CME also uses LMR-reported cattle carcass characteristics to settle live cattle futures contracts. CME has noted that LMR price data are trusted and that few other public alternatives to the LMR data exist. During the reauthorization debate, livestock stakeholders urged USDA to deem mandatory reporting an "essential" service in order to avoid the loss of livestock price information if another government shutdown, such as in October 2013, occurs due to a lapse in appropriations. Many contend that any gap in mandatory reporting is disruptive to livestock markets. Although the House-passed version ( H.R. 2051 ) contained such a provision, it was not included in the final bill. The NPPC recommended that AMS add another purchase category for swine called negotiated formula purchase . Under this purchasing arrangement, a producer negotiates the sale of swine on a lot-by-lot basis, but the price will be determined by formula at a later date. NPPC believes this represents a negotiated sale, but under AMS reporting it is classified as a swine or pork market formula purchase because there is no established price at the time of purchase. Negotiated purchases , or cash sales, are often viewed as the true measure of price discovery, but negotiated purchases as a share of total hog sales has dropped to less than 4%. According to NPPC testimony before the Subcommittee on Livestock and Foreign Agriculture of the House Agriculture Committee, the total number of hogs that would trade under this new category is not known, but possibly could increase the number of reported negotiated hog sales by 50-100%. Boosting the volume of negotiated purchases would be expected to increase price discovery. Some livestock sales occur after the afternoon reporting deadline for packers to send reports to AMS and are not reported in a daily report. Pork producers believe that sales of hogs after the afternoon deadline are usually delivered to packing plants the next day. To provide more timely hog marketing and price information, NPPC recommends that hog trades that occur late in the day be reported in the next day's morning or afternoon daily reports. The additional reporting would better reflect the daily hog market; increase trade volume, thus reducing data disclosure issues; and result in more complete reports. These swine proposals were included in P.L. 114-54 . The U.S. sheep and lamb industry is confronted with a very concentrated market that results in price-reporting challenges not necessarily experienced by the larger cattle and hog sectors. The sheep and lamb industry as a whole (production, feeding, and processing) believes that LMR is crucial for creating a transparent market, and the American Sheep Industry Association (ASI) worked with AMS from 2012-2014 to amend LMR in ways to improve lamb reporting ahead of reauthorization. Although the ASI effort did not result in rulemaking, proposals developed in earlier years are the basis for the lamb industry's proposals during current reauthorization. U.S. lamb imports account for half of the lamb consumed in the United States. Therefore, the pricing of lamb imports is crucial for U.S. lamb producers in making marketing decisions. ASI recommended that the reporting threshold for lamb imports be lowered to 1,000 metric tons from the current 2,500 metric tons to capture prices for a greater share of lamb imports. In addition, smaller or mid-size lamb processors have entered the business to capture specialty lamb markets, but because of the smaller size, these businesses are often exempt from reporting. To capture pricing data from mid-size lamb slaughters and processors, ASI recommended that the threshold for packer reporting be reduced to an average of 35,000 head slaughtered per year during the immediately preceding five years from the current 75,000 head. These two threshold changes for importers and packers were designed to pick up a larger share of the total lamb market and better reflect average prices in the market. Both proposals were included in P.L. 114-54 . The sheep and lamb industry also faces the situation where there are few participants in the processing sector. This leads to problems with non-reporting because of confidentiality requirements. Also, a substantial share of lamb processing is conducted on a "custom slaughter" basis, which is not counted as a buyer-seller transaction, and thus not reported under LMR. In addition, almost one-third of U.S. lambs are processed by one cooperative that does not report under LMR because its business structure is treated as a packer-owned operation, even though, reportedly, the cooperative is willing to report under LMR. ASI recommended that AMS be flexible with its packer definitions to allow such an operation to report under LMR. P.L. 114-54 granted USDA discretion to determine that importers and packers not meeting the threshold requirements may still be required to report. The cattle industry supported the reauthorization of LMR, but the new law does not contain any cattle-specific proposals. During the markup of the House bill, House Agriculture Committee Chairman Conaway indicated that the cattlemen and meat packers were working on proposals that could be included as amendments to the bill. Various cattle stakeholders raised some issues with mandatory reporting, but no consensus developed to amend LMR cattle provisions. The NCBA recommended that AMS have flexibility to request additional information, as needed, to identify and report appropriate industry standards as cattle marketing changes. Also, NCBA recommended that LMR include a new category for fed-cows, to be added to reporting for steers and heifers, and cows and bulls. Currently, AMS reports cover all cows, but a breakout of fed-cows could have provided additional price and marketing information beneficial for cattle producers who market fed-cows. In a letter to the Senate Agriculture Committees, the Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America (R-CALF) expressed specific concerns about new types of cattle purchases that are not captured in LMR. These include (1) negotiated basis trade-type contracts that do not appear to be reported when negotiated, (2) negotiated cash sales that have extended delivery dates, and (3) "Tops" trades, where a negotiated premium is offered on a cash trade and is then reported as a formula purchase. R-CALF also raised concern about the frequency of late-day transactions that miss the day's reporting deadline, thus possibly distorting the day's price. The National Farms Union (NFU) expressed its support for the reauthorization of mandatory reporting as an important tool for combating market concentration. In letters to the Senate and House Agriculture Committees, NFU suggested changes to LMR for cattle that would have addressed confidentiality rules, reporting on imported cattle that go into feedlots, reporting on weekly market concentration, and separate data from forward contracts from those tied to the futures market. The following sections discuss some of the main Livestock Mandatory Reporting Act (LMR) reporting requirements, as well as confidentiality rules, Agricultural Marketing Service reporting, and enforcement of LMR. The text box, included below, provides definitions for selected terms used in LMR. Selected Reporting Requirements Packers that are subject to mandatory reporting are defined as federally inspected plants that have slaughtered a minimum annual average of 125,000 head of cattle, 100,000 head of swine, 200,000 head of sows and boars or a combination thereof, and 35,000 lambs during the immediate five preceding years. If a plant has operated for fewer than five years, USDA will determine, based on capacity, if the packer must report. Packers are required to report the prices established for steers and heifers twice daily (10 a.m. and 2 p.m. central time); cows and bulls twice daily (10 a.m. central for current day, and 2 p.m. for previous-day purchases); barrows and gilts three times daily (7 a.m. central for prior-day purchases, and 10 a.m. and 2 p.m. central); sows and boars once daily (7 a.m. central for prior-day purchases); and lambs once daily (2 p.m. central). Besides the established prices, packers report premiums and discounts and the type of purchase (e.g., negotiated, formula, or forward contract). Packers are required to report, depending on the species, the quantity delivered for the day; the quantity committed to the packer; the estimated weight on a live weight basis or a dressed weight basis; and quality characteristics, such as Choice grade. In addition to daily reporting, on the first reporting day of the week, packers file a cumulative weekly report of the previous week's purchases of steers and heifers, and swine. Lamb packers are required to report the previous week's purchases on the first and second reporting day of the week, depending on the data. Steer and heifer and lamb packers are to include data on type of purchase (negotiated, formula, or forward contract), premiums and discounts, and some carcass characteristics (e.g., quality grade and yield, average dressing percentage). Swine packers are required to report the amount paid in premiums that are based on noncarcass characteristics (e.g., volume, delivery timing, hog breed). Also, packers must make available to producers a list of such premiums. In addition to livestock purchase prices, packers are required to report sales data for boxed beef, wholesale pork, and carcass and boxed lamb. Sales are reported twice daily for beef and pork; once daily for lamb. Packers are required to provide price, quantity, quality grade for beef and lamb, and type of cut. Packers report beef and pork domestic and export sales and domestic boxed lamb sales. Lamb importers who have imported a minimum average of 1,000 metric tons of lamb in the immediate five preceding years are required to report such information as weekly lamb prices, quantities imported, the type of sale (negotiated, formula, or forward contract), cuts of lamb, and delivery period. Confidentiality The LMR law requires that price reporting be confidential to protect the identity of packers and contracts and proprietary business information. In determining what data could be published, AMS initially adopted a "3/60" confidentiality guideline (commonly used throughout the federal government), i.e., at least three entities in the regional or national reporting area, and no single entity could account for more than 60% of the reported market volume. Otherwise, the data cannot be published in order to protect the identity of those reporting. AMS found that the "3/60" guideline resulted in large gaps in data reporting. For example, during April 2, 2001, and June 15, 2001, 24% of daily reports and 20% of weekly reports were not published because of confidentiality provisions. In order to address the data gaps, AMS adopted a "3/70/20" guideline in August 2001. It required that at least three entities report 50% of the time over a 60-day period; no one entity could account for more than 70% of volume over a 60-day period; and in cases where only one entity reports, the entity cannot be the only reporter more than 20% of the time over a 60-day period. These new guidelines substantially eliminated the data gaps. AMS Reporting The Livestock, Poultry, and Grain Market News Division (LPGMN) of the AMS Livestock, Poultry, and Seed Program is responsible for compiling and disseminating the information collected under LMR. In addition, LPGMN continues to operate a voluntary reporting program for livestock not covered under LMR, poultry and grain. Under LMR, LPGMN publishes 62 daily reports and 47 weekly reports. AMS publishes 29 daily reports for cattle, 20 for swine, 6 for beef, 4 for pork, and 3 for lamb. Weekly reports total 24 for cattle, 2 for swine, 11 for beef, 8 for pork, and 2 for lamb. According to AMS budget documents, mandatory reporting currently provides data for 79% of total slaughtered cattle, 94% of hogs, and 46% of sheep. For meat products, LMR covers 94% of boxed beef production, 87% of wholesale pork, and 57% of lamb meat. Small plants, which fall below required thresholds, or non-federally inspected plants account for the remaining percentage of slaughter and production. AMS market news operates on an annual appropriation of about $34 million, and the LMR program accounts for about $5 million to $6 million of that amount. Enforcement AMS compliance staff enforces LMR through audits once every six months. AMS reviews support documentation for randomly sampled lots. If non-compliance is found, AMS will ask the packer to correct the problem. If the packer does not correct the problem, AMS may issue a warning letter, and ultimately, the packer could be fined $10,000 for each violation if corrective action is not taken. AMS published quarterly compliance reports through September 2014, and then released a six month (October 2014-March 2015) compliance report.
|
The U.S. Department of Agriculture's (USDA's) Agricultural Marketing Service (AMS) collected livestock and meat price and related market information from meat packers on a voluntary basis under the authority of the Agricultural Marketing Act of 1946 (7 U.S.C. §1621 et seq.). However, as the livestock industry became increasingly concentrated in the 1990s, fewer animals were sold through negotiated (cash; or "spot") purchases and more frequently sold under alternative marketing arrangements that were not publicly disclosed under voluntary reporting. Some livestock producers, believing such arrangements made it difficult or impossible for them to determine "fair" market prices for livestock going to slaughter, called for mandatory price reporting for packers and others who process and market meat. In response, Congress passed the Livestock Mandatory Reporting Act of 1999 (P.L. 106-78, Title IX; LMR). The law mandated price reporting for live cattle, boxed beef, and live swine and allowed USDA to establish mandatory price reporting for lamb sales. USDA issued a final rule in December 2000 that went into effect in April 2001. The final rule included mandatory reporting for lamb. The law has been amended to include more detail on swine and to add wholesale pork. The act has been reauthorized three times, and the last reauthorization was set to expire September 30, 2015. In September 2015, the Senate and House passed the Agriculture Reauthorizations Act of 2015 (H.R. 2051), a Senate-amended version of the House-passed Mandatory Price Reporting Act of 2015, which reauthorized mandatory price reporting until September 30, 2020. The act was signed into law (P.L. 114-54) on September 30, 2015. Reauthorization was widely supported by livestock industry stakeholders. As in past years, stakeholders proposed changes that were intended to improve mandatory reporting as issues emerged between reauthorizations. In response to livestock stakeholders, the act makes several changes to swine reporting, creating a new negotiated formula purchase category and requiring that transactions reported after the day's reporting deadline be reported in the next-day price reports. It revises the definitions of lamb importers and packers by lowering the volume thresholds for determining if an importer or packer is subject to reporting requirements. Lastly, the act requires USDA to conduct a study on LMR ahead of the next reauthorization. However, the act did not include a provision to grant emergency authority to USDA to continue price reporting in the event of a government shutdown because of a lapse in appropriations. This provision was widely supported by livestock industry stakeholders and had been included in the House-passed version of H.R. 2051.
|
C ompanies such as Hulu, Netflix, and Amazon have changed how many people watch television programming by offering on-demand, online streaming to their computers, mobile devices, and gaming consoles. Aereo and FilmOn X were also created to stream television programming over the Internet for a monthly subscription fee. Unlike the other companies, however, the technology of Aereo and FilmOn permitted subscribers to watch both live broadcast television and already-aired programming without licenses. This development in technology triggered multiple lawsuits alleging copyright violations by these companies. The litigation revealed not only multiple interpretations of copyright law and its application to new and developing technologies, but also a possible "loophole" in the law, which some accused Aereo and FilmOn of exploiting. The Copyright Act of 1976 provides copyright holders with the exclusive right to control how their work is reproduced, adapted, distributed, publicly displayed, or publicly performed. The issue before the courts in the lawsuits against Aereo and FilmOn X is whether a retransmission of copyrighted broadcasts over the Internet without a prior agreement with the copyright holder violated the copyright holder's right of public performance. In 2012, the U.S. District Court for the Southern District of New York, in ABC v. Aereo, denied certain broadcasters' request for a preliminary injunction against Aereo. The plaintiffs argued that Aereo's service of transmitting copyrighted television programs contemporaneously with over-the-air broadcasts violated their right of public performance. The defendant, Aereo, in turn argued that the performances were not public but private because each user could access only his/her specially made copy of the program. The district court agreed with Aereo's argument. That same year, the plaintiffs appealed to the U.S. Court of Appeals for the Second Circuit in WNET v. Aereo. The Second Circuit, in a split appellate panel, affirmed the district court decision ruling that the transmissions by Aereo did not infringe the plaintiffs' public performance right. FilmOn X modeled its system on Aereo and its initial endorsement by the courts. However, FilmOn did not enjoy the same initial legal success as Aereo, despite the similar arguments made by both the plaintiffs and defendant in the Aereo cases. In the 2012 case Fox Television Stations v. BarryDriller Content Systems , the U.S. District Court for the Central District of California found that FilmOn's retransmission of certain television programs violated the copyrights of several broadcasters. In 2013, the U.S. District Court for the District of Columbia found, in Fox Television Stations v. FilmOn X , that FilmOn's retransmission of the plaintiffs' copyrighted programs over the Internet violated their right of public performance because FilmOn retransmitted copyrighted works to members of the public without the plaintiffs' prior permission. In a 2014 decision in ABC v. Aereo , the U.S. Supreme Court overturned the Second Circuit ruling in WNET v. Aereo and held that Aereo infringed upon the broadcasters' exclusive right of public performance when it retransmitted a broadcast of a program to paid subscribers over the Internet. The Court found that Aereo's similarity to cable television providers, which Congress specifically targeted with the 1976 Copyright Act, supported the conclusion that Aereo publicly performs under copyright law. Following the Supreme Court's decision, Aereo suspended its service, and in November 2014, filed for bankruptcy. Aereo states that it is currently reconsidering other business and technology options. Relying on licensed content from media sources, FilmOn has adapted its business model and is continuing to defend litigation in the district courts. This report will examine the courts' interpretation of the public performance right in the context of the Aereo and FilmOn cases. The report begins with a discussion of the technology used by Aereo and FilmOn. The report then examines the public performance right, specifically the "transmit clause," in the Copyright Act. Next, the report discusses the interpretation of the transmit clause and public performance right by the courts in the Aereo and FilmOn cases, including the U.S. Supreme Court. The report concludes with a brief overview of related legislative proposals in the 113 th Congress. Competitors Aereo and FilmOn X used similar technology, with only minor distinctions but no legally meaningful differences, to retransmit broadcast television to their subscribers. Both companies allowed subscribers to view and/or record live broadcast programming. Unlike most other digital video recorders (DVR) that require a television, Aereo and FilmOn allowed users to view programming on their computers or mobile devices, similar to services offered by Hulu and Netflix. However, Aereo, unlike Hulu and Netflix, did not negotiate any licensing agreements with the content providers. Content providers even accused Aereo of "stealing content" while Aereo defended its service as a new player in the media market. In order to watch a program, the Aereo subscriber would first log into an account on the website. The subscriber then either would select to watch a program as it is aired or would choose to record a program that would be aired later. When a subscriber would select to watch a currently airing program, Aereo would transmit to the subscriber a webpage from which he/she could watch the television program at roughly the same time as the current broadcast. While viewing this program, the subscriber could pause, rewind, and record the program with the system retaining a copy until the subscriber watched it later. These features would allow the subscriber to watch a program even after the over-the-air broadcast has ended. The Aereo system, therefore, provided the functionality of both a television antenna and a DVR. When a subscriber selected to watch or record a program, the web browser would send a request to the Aereo application server. The application server then sent information about the subscriber and the selected program to the antenna server. The antenna server allocated a specific antenna to that subscriber. These antennas received the broadcast television channels, from which the subscriber selected the programming. Depending on the type of subscription, most of the subscribers were assigned a different antenna each time they selected a program. However, no two subscribers were using a single antenna at the same time. The selected antenna then received the incoming broadcast signal. The antenna server received the data from the antenna and then sent it to another server where a copy of the program was saved to a large hard drive in a directory reserved for that particular subscriber. Regardless of whether the subscriber had selected to watch or to record a program, the system streamed the program from the hard drive copy of the program in the user's directory on the server. The difference between the two viewing modes was when the streaming occured: after six-seven seconds of programming has been saved on the hard drive for the "watch" option or when the subscriber chooses to view the program. The courts have highlighted three technical details of significance. First, Aereo assigned individual antennas to each subscriber even if two or more subscribers were watching or recording the same program. Second, the system created a separate copy of the program, stored in the subscriber's personal directory. Third, each subscriber could only access and watch the copy specifically made for his/her account. No other subscriber could view that particular copy. The 1976 Copyright Act provides copyright holders with exclusive rights to control certain uses of their works. These exclusive rights include "in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works" the right to do and to authorize the public performance of the copyrighted work. The Copyright Act defines "public performance or display" as (1) to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or (2) to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times. The second part of the above definition, known as the "transmit clause," is the focus of the courts' legal analysis in the Aereo and FilmOn cases. Congress added the "Transmit Clause" during the 1976 revisions of the previous copyright laws in order to accommodate developing technologies. The transmit clause identifies four elements that trigger a public performance: (1) a transmission or other communication, (2) of a performance of the work, (3) to members of the public who are capable of receiving the performance, and (4) where the transmission either is to a public or semi-public place, or is to members of the public who may be separated geographically or temporally or both. The first element incorporates the Copyright Act's definition of "transmit." Under the Copyright Act, a transmission of a performance or display is a "communicat[ion] by any device or process whereby images or sounds are received beyond the place from which they are sent." Congress intended this broad definition "to include all conceivable forms and combination of wired or wireless communications media, including but by no means limited to radio and television broadcasting as we know them." Similarly, the U.S. Court of Appeals for the Ninth Circuit, in Columbia Pictures Industries, Inc. v. Professional Real Estate Investors, Inc. , held that to transmit a public performance "at least involves sending out some sort of signal via a device or process to be received by the public at a place beyond the place from which it is sent." The second element requires the transmission to involve a performance of the work. The Copyright Act defines "to perform" as "to recite, render, play, dance, or act it, either directly or by means of any device or process or, in the case of a motion picture or other audiovisual work, to show its images in any sequences or to make the sounds accompanying it audible." For certain mediums, such as literary works, courts distinguish between the transmission of the work itself and the transmission of a performance or recitation of the work. However, such a distinction does not reasonably apply to audiovisual works. For example, television broadcasts may be characterized as performances transmitted by the studio of another performance of an underlying work (that particular television show). In this context, courts may need to consider whether the broadcast or a retransmission of that broadcast is a separate performance itself compared to the performance of the underlying work. The third element addresses the basic nature of the public performance right. While the Copyright Act does not explicitly define "public," the definition of a "public performance" indicates that "public" includes spaces accessible to the public or places outside of the normal gatherings of the family. However, courts have interpreted "public" to include a broader range of people in places that traditionally are considered nonpublic. The U.S. District Court for the Northern District of California held in On Command Video Corp. v. Columbia Picture s Industries that transmitting a video rental to a guest in his hotel room constituted a transmission of a public performance because of the commercial nature of the rental even though the viewing itself occurred in a "non-public" place. Courts have relied upon the phrase "capable of receiving the performance" as the primary qualifier for determining whether a potential recipient is public or private. Interpretation of this phrase has been the primary issue in the cases leading up to the Aereo and FilmOn decisions. In Cartoon Network LP v. CSC Holdings, Inc. ("Cablevision"), the Second Circuit stated that "capable of receiving the performance" means "capable of receiving a particular transmission of a performance" because the transmission is itself a performance. This case involved a remote storage digital video recorder (RS-DVR) service that streamed a unique playback copy of a television program stored on a subscriber's individual hard drive. The Second Circuit held that because the "RS-DVR playback transmission is made to a single subscriber using a single unique copy produced by that subscriber" the playback transmissions were not public performances and, therefore, did not infringe upon the plaintiffs' exclusive right of public performance. According to the court, this element of the "transmit clause" requires consideration of the potential audience of a particular transmission and not of the underlying work, as the potential audience for any copyrighted work is the general public. Cablevision's RS-DVR system enabled each subscriber to access that particular playback copy available only to that particular subscriber. The development of technology triggered the last element: transmission either is to a public or semi-public place, or is to members of the public who may be separated geographically or temporally or both. Because of greater accessibility generated by developing technologies, a performance no longer needs to occur in a single place such as a theater but can often occur in a more private place such as a home or a car. However, receiving a transmission at different times and/or different places does not diminish the public nature of the performance. In Columbia Pictures Industries, Inc. v. Redd Horne, Inc., a video store transmitted at different times the same copy of a film to multiple customers, who each viewed the film in a private room in the store. The U.S. Court of Appeals for the Third Circuit held that these transmissions were public performances. Even though the customers viewed the film in traditionally private rooms at different times, the transmission of the single copy of the film still served as a public performance. In 2012, a group of broadcasters filed copyright infringement actions against Aereo in the U.S. District Court for the Southern District of New York. In American Broadcasting Companies v. Aereo, the district court denied the plaintiffs' motion for a preliminary injunction barring Aereo from transmitting television programs. In WNET v. Aereo, the plaintiffs appealed the district court's denial to the U.S. Court of Appeals for the Second Circuit. On April 1, 2013, the Second Circuit affirmed the district court's ruling that refused to grant the injunction against Aereo. The court held that Aereo's transmissions of broadcast television programs were not public performances under the Copyright Act because the transmissions are of unique copies created at the user's request. The following discussion will examine the Second Circuit's interpretation of the transmit clause in reaching this decision. The courts focused on two out of the four elements of the transmit clause discussed above: "performance of the work" and "members of the public capable of receiving the performance." These factors contribute to the alleged "loophole" used by Aereo's one-antenna-per-subscriber service to avoid infringing the public performance right. The Copyright Act defines "performance" as specific actions such as reciting, rendering, playing, or showing of images. However, for broadcasts and retransmissions, courts must determine which "performance" is at issue when considering whether the transmission violated the copyright holder's public performance right. The specific issue before the Second Circuit in Aereo was what performance triggers the analysis in the Copyright Act's transmit clause: the broadcast of the program or the specific transmission created by Aereo. The plaintiffs in Aereo argued that the court should consider each of Aereo's transmissions in the aggregate in order to determine whether they are public performances because the transmissions are of the same underlying program watched by many members of the public. The Second Circuit dismissed this interpretation, stating that the plaintiffs' argument misreads the transmit clause. For the Second Circuit, the performance at issue was the particular transmission created by the Aereo system for that specific user. Each of Aereo's transmissions was an independent performance because each transmission is a unique copy by Aereo's system. These transmissions were not equal to the original broadcast performance. Equating them as such, according to the court, would disregard the transmit clause's specific inquiry regarding a particular transmission. In reaching this conclusion, the Second Circuit relied upon its previous decision in Cablevision , which held that individual copies made by an RS-DVR system were the performances at issue. This analysis led to the Second Circuit's next point concerning the transmit clause and the composition of the audience to trigger a public performance. Similar to their argument concerning performance, the plaintiffs argued that "members of the public" includes the potential audience for the broadcast and not the individual transmission. According to the court, however, the relevant inquiry under the transmit clause concerning the definition of "public" is "the potential audience of a particular transmission, not the potential audience for the underlying work or the particular performance of that work being transmitted." The Second Circuit supported this interpretation of the transmit clause by stating that the potential audience for the underlying work could include anyone, making the differentiation between public and nonpublic performances irrelevant. Reiterating a similar argument in Cablevision , the court referred to the presence of "to the public" in the transmit clause to support the supposition that not all transmissions are automatically public performances. The court further acknowledged that Aereo has designed its retransmission system to accommodate this distinction in the Copyright Act. Each user has a specific antenna transmitting a specific copy of the program only to that user. When an Aereo subscriber selects to watch or record a program, Aereo's system creates a unique copy of that program that is accessible on the hard drive only by that subscriber. Therefore, the Second Circuit concluded that the potential audience of that particular transmission is only one subscriber who is capable of receiving that particular transmission/performance. The dissent in WNET v. Aereo focused on criticizing the majority's understanding and analysis of the transmit clause. First, the dissent stated that Aereo's transmissions are public performances within the plain meaning of the statute. Using a dictionary definition of "public," the dissent maintained that anything not transmitted to oneself is a communication to a member of the public and, therefore, Aereo is engaging in a public performance for each of its transmissions. The dissent also referred to the legislative history of the transmit clause to show that Congress anticipated developing technology such as Aereo's system. For the dissent, the addition of the "different times/places" phrasing to the transmit clause demonstrated congressional intent that the public performance right encompass a broad scope. Specifically, for the dissent, the House report's explanation that "if the transmission reaches the public in [any] form" the transmission comes within the scope of the public performance right verified his interpretation. The dissent also found Aereo's system distinct from the RS-DVR technology at issue in Cablevision . Cablevision's RS-DVR system produced copies of material that Cablevision already had a license to retransmit while Aereo's system enables it to transmit material to subscribers without a license. Thus, according to the dissent, the Cablevision analysis of the transmit clause should not even apply to Aereo. In the 2012 case Fox Television Stations, Inc. v. BarryDriller Content Systems PLC, the plaintiffs, several broadcast television networks, brought an action against FilmOn in the U.S. District Court for the Central District of California. The plaintiffs alleged that FilmOn's retransmission of their broadcasts infringed their copyright, specifically the right of public performance. Unlike in Aereo , the district court granted a partial injunction against the defendant from offering its content in that particular area of the country. A year later, the same plaintiffs brought another suit against FilmOn in the U.S. District Court for the District of Columbia, in Fox Television Stations, Inc. v. FilmOn X LLC, alleging the same violation of rights. While FilmOn's arguments relied upon the Aereo decision in the Second Circuit, the district court granted the injunction for the plaintiffs, citing FilmOn's violation of the plaintiffs' public performance right of their copyrighted works. In both cases, the courts found that the retransmissions of broadcast content over the Internet were public performances and therefore infringed the plaintiffs' exclusive rights. The following sections will examine the district courts' interpretation of the transmit clause and why they found violations of the transmit clause in these cases, despite the similarities in technology with Aereo. Again the courts' analysis focused on the same two elements of the transmit clause: "performance of the work" and "members of the public capable of receiving the performance." Both the D.C. and California district courts emphasized the scope of "performance" in the transmit clause in finding that FilmOn violated the plaintiffs' right to public performance. For the California district court in BarryDriller, the performance that triggers the transmit clause is that of the copyrighted work itself and not the retransmission of its performance. According to the California district court, the Copyright Act does not justify the Second Circuit's focus in Aereo on the uniqueness of the individual copy from which the transmission is made. Instead, the court stated that the Copyright Act directs the court to look at the performance of the underlying copyrighted work. The D.C. district court further clarified in its opinion that "performance" refers to a communication of the original over-the-air broadcast of a copyrighted work and not just the retransmission itself. The court cited legislative history of the Copyright Act, specifically the House report's explanation of "public performance." According to the report, Congress intended "public performance" to include "not only the initial rendition or showing, but also any further act by which that rendition or showing is transmitted or communicated to the public," supporting the court's broad interpretation of "performance." In addition to defining the scope of "performance" in the transmit clause, the D.C. district court considered the definition of "public," dismissing the Second Circuit's interpretation. For the D.C. district court, "public" in the transmit clause includes "any member of the public who accesses the FilmOn service." The court stated that the determination of whether an audience is public should not depend on technological access and development, including how television signals are transmitted and received. The Second Circuit's emphasis of the one-antenna per subscriber aspect of the system in Aereo ignored, according to the D.C. district court, the single tuner server, router, and encoder that communicate with all of the antennas. Additionally, the D.C. district court found that Congress did not intend the development of new technologies to circumvent the public aspect of the transmit clause when it enacted this provision to include communication "by any device or process." Moreover, because the relationship between FilmOn and the subscribers was commercial, the court reasoned that the transmission/performance is public regardless of where or how the consumption takes place. In January 2014, the U.S. Supreme Court granted a petition for writ of certiorari filed by the plaintiffs (petitioners) in WNET v. Aereo . In the petition, the petitioners argued that the Second Circuit decision, WNET v. Aereo , is "a fundamentally flawed reading of the Transmit Clause." According to the petitioners, the transmit clause requires the inquiry to focus on whether the public "is capable of receiving the performance " and not "whether it is capable of receiving the transmission " as interpreted by the Second Circuit. The petitioners also argued that the Second Circuit decision raises questions as to the viability of the current broadcast programming model and harms the broadcast television industry, specifically restricting their ability "to control how their programming is used by others." In its answer, Aereo reiterated the arguments made in WNET v. Aereo that its transmissions are not public performances because each transmission is a "unique copy of a performance of a work, created at the direction of the user, [and] is transmitted only by and to that user." Aereo also argued that the Copyright Act distinguishes between those "capable of receiving" a transmission and those actually "receiving it" to support their conclusion that the unique copy received only by a specific user is a private performance. The Supreme Court denied FilmOn's motion to intervene in support of Aereo. Several entertainment industry groups and legal copyright practitioners filed amicus briefs in favor of the broadcasters. The National Football League and Major League Baseball stated in their brief that they would consider moving major league sports broadcasts away from the public airwaves and place them exclusively on cable to avoid "hijacking" by Aereo-like services. The brief filed by the Screen Actors Guild declared that Congress specifically adopted the transmit clause to capture secondary transmissions of primary transmissions like Aereo's retransmissions of broadcasts and argued that widespread implementation of such a service would harm the entertainment industry. The U.S. government also filed a brief in support of the broadcasters, in which it argued that Aereo's transmissions fall within the Copyright Act's public performance definition. In a 6-3 decision, the U.S. Supreme Court held that Aereo performs the petitioners' copyrighted works publicly, as defined by the transmit clause. Writing for the majority, Justice Breyer's analysis focused on two questions: (1) does Aereo "perform" within the context of this definition and if so, (2) does Aereo do so "publicly"? The most important factor for the Court's analysis is the similarity of Aereo's technology to cable television providers, specifically those in previous Supreme Court cases: Fortnightly and Teleprompter . While the Court in those earlier cases found cable television providers did not qualify as "public performers" under the Copyright Act, Congress, in response to these decisions, amended the Copyright Act in 1976 to include these technologies specifically within the scope of public performance. The following sections will examine the Supreme Court's interpretation of the transmit clause and its analysis leading to its decision that Aereo violates the public performance right of the plaintiffs. In order to determine whether Aereo is performing under the Copyright Act, the Court first considered what constitutes a "performance" under the Copyright Act. The Court conceded that the "language of the Act does not clearly indicate when an entity 'perform[s]' ... and when it merely supplies equipment that allows others to do so" and thus turned to the legislative history to discern a more precise definition. According to the Court, Congress amended the Copyright Act in 1976 to include the transmit clause and the definition of a performance of an audiovisual work in direct response to the Supreme Court's earlier decisions in Fortnightly Corp. v. United Artists Television, Inc . (1968) and Teleprompter Corp. v. Columbia Broadcasting System, Inc. (1974). In these cases, the Court had found that cable television providers, whose equipment provided viewers with broadcast television, did not "perform" under the Copyright Act because it "simply carr[ied]" the programming to viewers. The Court in Aereo pointed out that Congress's 1976 Copyright Act amendments deliberately overruled these decisions, by defining performance as "to show ... images in any sequence" and enacting the transmit clause to capture specifically cable television companies as performers. According to the Court, Aereo's technology is similar to that of the cable television providers in Fortnightly and Teleprompter in that Aereo receives programs and then offers all the programming it has received to subscribers. Specifically, through the use of its technology, including antennas, transcoders, and servers, Aereo, like a cable television provider, received programs and then offered all the programming it has received to subscribers. Therefore, because of Aereo's similarities to cable television providers that were targeted by the 1976 amendment, the Court concluded that Aereo "performs" under the Copyright Act. After the Court determined that Aereo, "performs," the Court then tackled the question of whether Aereo performs "publicly." The most important factor for the Court in this part of the analysis was Aereo's similarity to the cable television providers, which, the Court emphasized, Congress had concluded performed "publicly" when transmitting television broadcasts. The Court acknowledged that while the Copyright Act does not define "the public," it does specify that an entity performs publicly "where a substantial number of persons outside of a normal circle of a family and its social acquaintances [are] gathered." From this definition, the Court further extrapolated that whether an audience constitutes "the public" depends on the relationship of the audience to the underlying work. Therefore, because Aereo transmits programming to a large number of paying subscribers "who lack any prior relationship to the works" performed, Aereo is transmitting this programming to the public. For the Court, Aereo's argument (also relied upon by the Second Circuit in WNET v. Aereo ) that Aereo was transmitting different copies to specific subscribers does not affect the analysis in this case as Aereo was transmitting the same underlying work to these subscribers. The dissent, written by Justice Scalia, criticized the majority's reasoning, accusing the opinion of adopting an "improvised standard ('looks-like-cable-TV') that will sow confusion for years to come." The dissent agreed with the majority that Aereo's technology should not be permitted, noting it could violate, nevertheless, the Copyright Act under a different standard of liability. First, the dissent concluded that Aereo does not "perform" at all as the proper inquiry under this provision is who selects the copyrighted content that is performed. According to the dissent, Aereo is like a "copy shop that provides its patrons with a library card," leaving the ability to choose content to the subscriber. The dissent continued by arguing that the majority's reasoning "of guilt by resemblance" rested on faulty logic that Aereo "performs" merely because it is similar to the cable television providers in the earlier decisions. The dissent further critiqued the majority's analysis by arguing that it ignores a critical difference in technology between Aereo and cable television providers in that Aereo transmits only specific programs selected by specific users at specific times. The dissent concluded its analysis by stating that a "loophole" in the law may exist regarding Aereo's liability for performance infringement. However, the dissent pointed out that "[i]t is not the role of this Court to identify and plug loopholes. It is the role of good lawyers to identify and exploit them, and the role of Congress to eliminate them if it wishes." The dissent then tasked Congress to decide "whether the Copyright Act needs an upgrade." In a January 2015 decision, the U.S. District Court for the Central District of California declined to apply the Aereo holding to an online streaming service in Fox Broadcasting Company v. Dish Network, LLC. Fox Broadcasting Company claimed that Dish Network's "Dish Anywhere" and other Dish services violated its public performance rights under the Copyright Act. Dish Anywhere permits subscribers to watch network programming from any device with an Internet connection, such as an iPad, iPhone, or web browser by transmitting the programming from their set-top box. In 2012, the U.S. District Court for the Central District of California initially denied Fox Broadcasting's request for preliminary injunctive relief, finding that Fox failed to show that Dish Network's services would cause irreparable harm before the final adjudication of the case. The Ninth Circuit affirmed the district court's ruling shortly after the U.S. Supreme Court issued its decision in ABC v. Aereo. On remand, the district court refused to extend Aereo's holding that technology "bearing an 'overwhelming likeness' to cable companies publicly perform within the meaning of the Transmit Clause" to Dish Anywhere. According to the court, Dish Anywhere does not publicly perform under the transmit clause as Dish's technology is transmitting licensed programming legitimately on the user's in-home hardware to a user's mobile device, unlike Aereo, which transmitted unlicensed programming to users directly. For the court, Dish's license to transmit the programming to the subscriber initially significantly differentiates the Dish Anywhere technology from Aereo. Both the Supreme Court in ABC v. Aereo and the Second Circuit in WNET v. Aereo alluded to the opportunity for congressional action. Justice Scalia, writing for the dissent in ABC v. Aereo , anticipated that "Congress will take a fresh look at this new technology." The Second Circuit in its analysis discussed differences in technology in 1976 and 2013 and the resulting difficulty in distinguishing between private and public transmissions. In deciding that Aereo's service is a private transmission, the court concluded that "unanticipated technological developments have created tension between Congress's view that retransmissions of network programs by cable television systems should be deemed public performances and its intent that some transmissions be classified as private." By emphasizing this conflict between the law and developing technology, the court has highlighted an opportunity for congressional action and clarification of the Copyright Act. Several bills introduced during the 113 th Congress would have implicated the various parties in the Aereo and FilmOn cases. The Television Consumer Freedom Act of 2013, introduced by Senator John McCain, would have impacted the market in which companies such as Aereo, FilmOn, and the broadcasters are competing. The act would have allowed cable providers to offer to subscribers "a la carte" programming: programming on a per-channel basis rather than as part of a package. The bill would have also denied broadcasters their spectrum licenses if they moved big event programming from broadcast television to cable. Many of the Aereo plaintiffs threatened this action in response to Aereo's success in the courts. The Consumer Choice in Online Video Act, introduced by Senator Jay Rockefeller, sought to increase consumer choice and competition in the online video programming marketplace. The bill would have prohibited content distributors fr om engaging in unfair or deceptive practices. The bill also contained provisions that would address antenna rental services, such as Aereo, specifically. These provisions would have exempted these services from paying certain retransmission fees. However, these provisions assumed that the online video provider is legally operating and obtaining content, stressing the need for further clarification from the courts concerning the legal status of companies such as Aereo and FilmOn X. As of the date of this report, it remains to be seen whether these or similar bills will be introduced in the 114 th Congress.
|
Aereo and FilmOn X were created to stream television programming over the Internet for a monthly subscription fee. Aereo and FilmOn's technology permitted subscribers to watch both live broadcast television in addition to already-aired programming. Their use of this development in technology triggered multiple lawsuits from broadcasting companies alleging copyright violations. These cases revealed not only multiple interpretations of copyright law and its application to new and developing technologies, but also a possible "loophole" in the law, which some accused Aereo and FilmOn of exploiting. The Copyright Act of 1976 provides copyright holders with the exclusive right to control how certain creative content is publicly performed. Of particular interest to courts in recent cases against Aereo and FilmOn was the meaning of the Copyright Act's "transmit clause" that determines whether a performance is private or public and within the scope of the public performance right. Specifically, the courts have been divided as to what constitutes a "performance to members of the public" for the purposes of the transmit clause. During the past several years, groups of broadcasters have filed lawsuits against Aereo and FilmOn alleging that the retransmissions of their programs by these companies have violated their right of public performance. While both FilmOn and Aereo use similar technology, the courts have disagreed about whether this technology infringes upon the copyright holder's right of public performance. District courts in the District of Columbia (Fox Television Stations v. FilmOn X) and California (Fox Television Stations v. BarryDriller Content Systems) held that FilmOn's retransmissions did violate the right of public performance. In 2013, the U.S Court of Appeals for the Second Circuit in WNET v. Aereo affirmed the lower court decision ruling that the transmissions by Aereo did not infringe the plaintiffs' public performance right. However, the U.S. Supreme Court in its 2014 decision in ABC v. Aereo overturned the Second Circuit's ruling and held that Aereo's transmissions served as a public performance of the plaintiffs' works within the meaning of the transmit clause, violating the plaintiffs' exclusive rights to control such performances. A few months after the Supreme Court ruling, Aereo, having already suspended its service, filed for bankruptcy. Contemporaneous to these decisions, two bills in the 113th Congress addressed issues related to Internet television streaming. These bills, the Television Consumer Freedom Act of 2013 (S. 912) and the Consumer Choice in Online Video Act (S. 1680), would have enhanced consumer choice regarding online television programming, a service marketed by both Aereo and FilmOn. As of the date of this report, it remains to be seen whether these or similar bills will be introduced in the 114th Congress.
|
The iconography of the Confederate states in the U.S. Civil War is a contested part of American historical memory. Confederate flags, statues, plaques, and similar memorials have been valued historical symbols for some Americans, but for others have symbolized oppression and discrimination. Further, Confederate symbols have sometimes been associated with violent confrontations and hate crimes in the United States, including in recent years. Recent prominent incidents in which Confederate symbols were invoked—in particular, the June 2015 shooting deaths of nine people in a historically black church in Charleston, SC, and violence at an August 2017 rally in Charlottesville, VA—have led to renewed consideration of the presence of Confederate symbols in public spaces. Some local and state governments have elected to remove Confederate statues, flags, and other symbols from places of public prominence. Congress is considering the role of Confederate symbols on federal lands and in federal programs. While no comprehensive inventory of such symbols exists, numerous federal agencies administer assets or fund activities in which Confederate memorials and references to Confederate history are present. The National Park Service (NPS, within the Department of the Interior), the Department of Veterans Affairs (VA), and the Department of the Army within the Department of Defense (DOD) all administer national cemeteries that sometimes display the Confederate flag. Many units of the National Park System are related to Civil War history and contain resources commemorating Confederate soldiers or actions. The Army has military installations named in honor of Confederate generals, and some Navy ships have historically been named after Confederate officers or battles. The U.S. Capitol complex contains works commemorating Confederate soldiers and officials, including statues in the National Statuary Hall Collection. Various federal agencies such as the General Services Administration and the Department of Transportation are connected with sites of Confederate commemoration, either on federal properties or through nonfederal activities that receive federal funding. The presence of Confederate symbols on federal lands, and at some nonfederal sites that receive federal funding, may raise multiple questions for Congress. How should differing views on the meaning of these symbols be addressed? Which symbols, if any, should be removed from federal sites, and which, if any, should be preserved for their historical or honorary significance? Should every tribute to a person who fought for the Confederacy be considered a Confederate symbol? Should federal agencies give additional attention to education and dialogue about the conflicted history of these symbols—including their role in Civil War history and in subsequent historical eras—or are current interpretive efforts adequate? How, if at all, should current practices of honoring the Confederate dead in national cemeteries be changed? To what extent, if any, should the presence of Confederate symbols at nonfederal sites affect federal funding for programs connected to these sites? This report focuses primarily on Confederate symbols administered by three federal entities—NPS, the VA, and DOD. Each of these entities manages multiple sites or programs that involve Confederate symbols. The report begins with a discussion of recent legislative proposals, and then discusses the agencies' current policies with respect to Confederate symbols, along with issues for Congress. Bills in recent Congresses have addressed Confederate symbols and their relation to federal lands and programs. The 115 th Congress is considering bills with varying provisions on Confederate commemorative works, names, and other symbols under federal jurisdiction. The 114 th Congress also considered several legislative proposals, but none were enacted in law. Of the pending proposals in the 115 th Congress, some might be relatively straightforward to implement, while others might give rise to questions about implementation. Depending on specific bill provisions, such questions could include what constitutes a Confederate symbol, how required agency actions toward Confederate symbols would be funded, whether or not a given display of a symbol would qualify as a historical or educational context, and how implementation would be affected by statutory requirements for historic preservation and other existing protections. In the 115 th Congress, H.R. 3660 , the No Federal Funding for Confederate Symbols Act, would prohibit the use of federal funds for the creation, maintenance, or display of any Confederate symbol on any federal property. The term "Confederate symbol" is defined to include Confederate battle flags, any symbols or signs that honor the Confederacy, and any monuments or statues that honor the Confederacy or its leaders or soldiers. The bill specifies that the funding prohibition would not apply if the Confederate symbol is in a museum or educational exhibit, or if the funds are being used to remove the symbol from the federal site. Additionally, H.R. 3660 would direct the Secretary of Defense to rename 10 military installations that are currently named for Confederate military leaders. H.R. 3658 , the Honoring Real Patriots Act of 2017, would require the Secretary of Defense to change the name of any military installation or other property under DOD jurisdiction that is currently named after any individual who took up arms against the United States during the American Civil War or any individual or entity that supported such efforts. H.R. 3779 would direct the Secretary of the Interior to develop a plan for the removal of the monument to Robert E. Lee at Antietam National Battlefield in Maryland. H.R. 3701 and S. 1772 would require the Architect of the Capitol to arrange for the removal from the National Statuary Hall Collection of statues of persons who voluntarily served the Confederate States of America. H.Res. 12 would express the sense of the House of Representatives that the United States can achieve a more perfect union through avoidance and abatement of government speech that promotes or displays symbols of racism, oppression, and intimidation. The resolution would express support for the Supreme Court's conclusion in Walker v. Sons of Confederate Veterans that messages on state-issued license plates constitute government speech that is not protected by the First Amendment. During House consideration of H.R. 3354 , the Interior, Environment, and Related Agencies appropriations bill for FY2018, a number of amendments were submitted regarding Confederate symbols. These amendments would have prohibited funds from being used to create, maintain, or otherwise finance Confederate symbols, each under varying circumstances. None of these amendments were made in order by the House Committee on Rules. In the 114 th Congress, amendments to the FY2016 and FY2017 House Interior, Environment, and Related Agencies appropriations bills would have addressed the display and sale of Confederate flags at NPS units, including NPS national cemeteries. H.Amdt. 592 to H.R. 2822 , the House Interior, Environment, and Related Agencies appropriations bill for FY2016, would have prohibited the use of funds in the bill to implement NPS policies that allow Confederate flags to be displayed at certain times in national cemeteries. An opposing amendment, H.Amdt. 651 , would have prohibited funds from being used to contravene NPS policies on Confederate flags. H.Amdt. 586 would have prohibited NPS from using funds to administer contracts with park partners that sell items in NPS gift shops displaying a Confederate flag as a stand-alone feature. H.Amdt. 606 would have prohibited funds from being used by NPS to purchase or display a Confederate flag at any of its sites, except in situations where the flag would provide historical context. None of these amendments were ultimately included in P.L. 114-113 , the Consolidated Appropriations Act for FY2016. Several similar amendments were submitted in the following year for H.R. 5538 , the Interior, Environment, and Related Agencies appropriations bill for FY2017, but were not made in order by the House Committee on Rules. Separately, an amendment to the FY2017 Military Construction and Veterans Affairs and Related Agencies appropriations bill addressed VA policies on display of the Confederate flag at its national cemeteries. H.Amdt. 1064 to H.R. 4974 would have prohibited funds in the bill from being used by the VA to implement its policy that permitted a Confederate flag to fly from a flagpole at certain times. The House of Representatives passed the bill as amended, but the Confederate flag provision was not included in the final omnibus appropriations legislation and did not become law. Another bill in the 114 th Congress, H.R. 3007 , would have prohibited the display of the Confederate battle flag in any VA national cemetery, but also was not enacted. H.R. 4909 , the House version of the National Defense Authorization Act for FY2017, included a provision to prohibit military departments from having Senior Reserve Officers' Training Corps units at educational institutions that displayed Confederate battle flags. The provision was included in the House-passed version of the bill but not in the enacted law, P.L. 114-328 . Also in the 114 th Congress, S. 1689 would have reduced the amounts available to a state under the federally funded National Highway Performance Program and Surface Transportation Program if the state issued a license plate containing the image of a flag of the Confederate States of America. H.Res. 341 and H.Res. 355 would have required the Speaker of the House to remove any state flag containing a portion of the Confederate battle flag from the House wing of the Capitol or any House office building, except when displayed in Member offices. H.Res. 344 would have expressed the sense of the House urging states to remove the Confederate battle flag from public locations, to discontinue the use of the flag in government speech contexts (such as on license plates), and to remove depictions of the Confederate flag from their state flags, and urging businesses to discontinue selling Confederate battle flags and related merchandise. H.Res. 342 contained provisions similar to those that were later introduced as H.Res. 12 in the 115 th Congress (see above). NPS manages over 70 units of the National Park System related to Civil War history, some of which contain works commemorating Confederate soldiers or actions. Additionally, NPS administers 14 national cemeteries that, under agency policy, may display the Confederate flag at certain times of year. The agency also provides education and interpretation related to Civil War history and the Confederate states. Park gift shops operated by concessioners sometimes sell books or other items that display Confederate symbols. Further, NPS is connected with historic preservation of some nonfederal Confederate memorials through its assistance to nonfederal sites such as national heritage areas, national historic landmarks, and nonfederal properties on the National Register of Historic Places. In the wake of recent incidents, these aspects of the NPS portfolio have come under scrutiny. NPS has no comprehensive inventory of commemorative works at park sites—such as statues, plaques, and similar memorials—that relate to Confederate history. Confederate commemorative works are found at numerous NPS battlefields and other Civil War-related park units. Many of these works (such as the monument shown in Figure 1 ) are listed on, or are eligible for listing on, the National Register of Historic Places, and thus are afforded certain protections under the National Historic Preservation Act (NHPA). In particular, Section 106 of the NHPA requires agencies to undertake consultations before taking actions that may adversely affect these listed or eligible historic properties, and Section 110(f) of the act provides similar, but stronger, protections for historic properties that have been designated as national historic landmarks. Some Confederate commemorative works in parks are not eligible for historic property designations, for example because they were constructed relatively recently. NPS policies govern the establishment and removal of commemorative works in national park units (except in the District of Columbia, where the Commemorative Works Act applies). Under NPS policy, new commemorative works in park units must be authorized by Congress or approved by the NPS Director. In Civil War parks, the policies preclude approval unless a work is specifically authorized by Congress or "would commemorate groups that were not allowed to be recognized during the commemorative period." Many Confederate commemorative works currently in NPS units would not have been subject to the NPS policies at the time of their establishment, because they were erected prior to NPS acquisition of the land. Concerning removal of commemorative works from NPS units, the agency's policies state the following: Many commemorative works have existed in the parks long enough to qualify as historic features. A key aspect of their historical interest is that they reflect the knowledge, attitudes, and tastes of the persons who designed and placed them. These works and their inscriptions will not be altered, relocated, obscured, or removed, even when they are deemed inaccurate or incompatible with prevailing present-day values. Any exceptions from this policy require specific approval by the Director. NPS could face a number of constraints in considering removal of a Confederate commemorative work, depending on specific circumstances. Some commemorative works were established pursuant to acts of Congress, and thus could not be removed administratively by NPS. In other cases, such as those where the works existed prior to a park's establishment, requirements in park-establishing legislation that NPS preserve the park unit's resources, as well as historic property protections under the NHPA if a commemorative work is eligible for listing on the National Register of Historic Places, could constrain the agency's options for removal. Broadly, NPS's mission under its Organic Act is to "conserve the scenery and the natural and historic objects and the wild life" in park units and to provide for their use "in such manner and by such means as will leave them unimpaired for the enjoyment of future generations." This fundamental mission could be seen as being at odds with potential administrative actions to remove existing works from park units. NPS could thus conclude that congressional legislation would be required to authorize the removal of particular works. Press reports following the August 2017 incidents in Charlottesville quoted NPS as stating that the agency "is committed to safeguarding these memorials while simultaneously educating visitors holistically and objectively about the actions, motivations, and causes of the soldiers and states they commemorate." In addition to structures such as monuments and memorials, some national park units have flown Confederate flags in various contexts, such as in battle reenactments. Prior to June 2015, NPS did not have a specific policy regarding the display of the Confederate flag outside of national cemeteries. After the Charleston, SC, shooting in 2015, then-NPS Director Jonathan Jarvis stated the following in a policy memorandum: Confederate flags shall not be flown [NPS emphasis] in units of the national park system and related sites with the exception of specific circumstances where the flags provide historical context, for instance to signify troop location or movement or as part of a historical reenactment or living history program. All superintendents and program managers should evaluate how Confederate flags are used in interpretive and educational media, programs, and historical landscapes and remove the flags where appropriate. This policy remains in effect unless rescinded or amended. NPS administers 14 national cemeteries, mainly related to the Civil War. NPS cemeteries contain graves of both Union and Confederate soldiers. Under NPS policies, they are administered "to preserve the historic character, uniqueness, and solemn nature of both the cemeteries and the historical parks of which they are a part." NPS policies address the display of Confederate flags at the graves of Confederate soldiers in NPS national cemeteries. The policies allow the Confederate flag to be displayed in some national cemeteries on two days of the year. If a state observes a Confederate Memorial Day, NPS cemeteries in the state may permit a sponsoring group to decorate the graves of Confederate veterans with small Confederate flags. Additionally, such flags may also be displayed on the nationally observed Memorial Day, to accompany the U.S. flag on the graves of Confederate veterans. In both cases, a sponsoring group must provide and place the flags, and remove them as soon as possible after the end of the observance, all at no cost to the federal government. At no time may a Confederate flag be flown on an NPS cemetery flagpole. Following the June 2015 shootings in Charleston, House Members addressed the display of Confederate flags at NPS cemeteries in proposed amendments to Interior appropriations bills for both FY2016 and FY2017. The amendments are described in the " Recent Legislation " section of this report. Some NPS units have shops operated by concessioners, cooperating associations, or other partners, which sell items related to the themes and features of the park. Following the June 2015 shootings in Charleston, both NPS and Congress addressed the sale of Confederate-themed items in NPS shops, particularly items displaying the Confederate flag. NPS asked its concessioners and other partners to voluntarily end sales of items that "depict a Confederate flag as a stand-alone feature, especially items that are wearable and displayable." NPS specified that "books, DVDs, and other educational and interpretive media where the Confederate flag image is depicted in its historical context may remain as sales items as long as the image cannot be physically detached." During consideration of FY2016 and FY2017 Interior appropriations, House Members introduced amendments concerning sales of Confederate-themed items in NPS facilities. See the " Recent Legislation " section for more information. NPS's responsibilities include assisting states, localities, and private entities with heritage and historic preservation efforts. NPS provides financial and technical assistance to congressionally designated national heritage areas , which consist primarily of nonfederal lands in which conservation efforts are coordinated by state, local, and private entities. Some heritage areas encompass sites with commemorative works and symbols related to the Confederacy. NPS also administers national historic landmark designations and the National Register of Historic Places. Through these programs, the Secretary of the Interior confers historic preservation designations primarily on nonfederal sites. The designations provide certain protections to the properties and make them eligible for preservation grants and technical preservation assistance. Some nonfederal sites commemorating the Confederacy have been listed on the National Register of Historic Places, and some have been designated as national historic landmarks. In debates about removing Confederate symbols at the state and local levels, these NPS-designated sites are sometimes involved. For example, the Monument Avenue Historic District in Richmond, VA, which contains a series of monuments to Confederate officers, is a national historic landmark district that has been the subject of debate. As discussed above, National Register properties and national historic landmarks have some protections under Sections 106 and 110 of the NHPA. However, the designations do not prohibit nonfederal landowners from altering or removing their properties. Only if federal funding or licensing were required for such actions would the NHPA protections be invoked. Members of Congress have been divided on the appropriate role of Confederate symbols in the National Park System. Some legislation has sought to withhold funding for the maintenance of any Confederate symbols in national park units, other legislation to withhold funding for certain NPS uses of Confederate symbols outside of a historic context, other legislation to remove particular Confederate symbols, and still other legislation to maintain the status quo in terms of these symbols' presence in the park system. Also divisive has been the question of the periodic display of Confederate flags on headstones in NPS national cemeteries. Proposals concerning Confederate symbols at NPS sites arise in the context of the agency's mission to preserve its historic and cultural resources unimpaired for future generations. Absent congressional authorization, NPS's preservation mandates could constrain the agency from taking administrative actions desired by some, such as removing Confederate commemorative works from NPS units. Under both the Obama and Trump Administrations, NPS has expressed that some Confederate symbols in park units are required to be preserved under NPS statutes and can be framed and interpreted appropriately through educational activities. At the same time, the Obama Administration took steps to discourage or end some other uses of Confederate symbols—in particular the use of the Confederate flag in a "stand-alone" context. This policy has remained in place under the Trump Administration. If Congress desired to remove Confederate commemorative works in the National Park System, another consideration would be how to fund the removals. NPS, which faces a sizable backlog of deferred maintenance, has stated that it generally lacks funds to dispose of unneeded or unwanted assets. The Department of Veterans Affairs (VA) administers 135 national cemeteries and 33 soldier's lots and memorial areas in private cemeteries through the National Cemetery Administration (NCA). All cemeteries administered by the NCA are "considered national shrines as a tribute to our gallant dead." The first national cemeteries were developed during the Civil War and were administered by the military. Over time, the federal government created new national cemeteries and took control of cemeteries that previously had been administered privately or by the states. The NCA was created in 1973 when all national cemeteries then administered by the Army, with the exception of Arlington National Cemetery and Soldier's Home National Cemetery in Washington, DC, were transferred to the VA. Numerous national cemeteries and lots contain the remains of former Confederate soldiers and sailors, including those who died while being held prisoner by the United States or in federal hospitals during the Civil War. Under current law, however, persons whose only military service was in the Confederate army or navy are not eligible for interment in national cemeteries. The NCA is authorized to provide grants to state, territorial, or tribal governments to assist with the establishment of state veterans' cemeteries. These grants may be used only for establishing, expanding, or improving cemeteries and cannot be used for land acquisition or regular operating expenses. State veterans' cemeteries that receive federal grants must adhere to federal law regarding eligibility for interment, but may add additional restrictions on eligibility such as residency requirements. Thus, since Confederate veterans are not eligible for interment in national cemeteries, they are also not eligible for interment in state veterans' cemeteries that receive federal grants. Federal law permits the VA to accept monuments and memorials donated by private entities and to maintain these monuments and memorials in national cemeteries, including those dedicated to individuals or groups. The VA website identifies 34 monuments and memorials in national cemeteries that explicitly honor Confederate soldiers, sailors, political leaders, or veterans. Some of these monuments and memorials predate federal control of the cemeteries where they are located. For example, one of the Confederate monuments at Point Lookout Confederate Cemetery in Maryland was erected before the state transferred control of that cemetery to the federal government. Other monuments and memorials were more recently established, such as the Confederate monument erected by the United Daughters of the Confederacy and the Sons of Confederate Veterans in 2005 at Camp Butler National Cemetery in Illinois. Table 1 provides a list of national cemeteries with Confederate monuments and memorials and the dates, if available, of their establishment. Veterans interred in national cemeteries, or in state or private cemeteries, are generally eligible for headstones or grave markers provided at no cost by the VA. For Confederate veterans, government headstones or grave markers may be provided only if the grave is currently unmarked. The person requesting a headstone for a Confederate veteran may select a standard VA headstone, which includes identifying information about the veteran and his or her service and an emblem of belief corresponding to the veteran's faith, or a special Confederate headstone that includes the Southern Cross of Honor as shown in Figure 2 . The Southern Cross of Honor was created by the United Daughters of the Confederacy in 1898 and is the only emblem, other than an emblem of belief or an emblem signifying receipt of the Medal of Honor, that may be included on a government headstone or grave marker. Similar to NPS policy, VA policy allows for small flags of the former Confederate States of America (Confederate flags) to be placed at individual gravesites of Confederate veterans, with or without a U.S. flag, on Memorial Day and on Confederate Memorial Day in states that have designated a Confederate Memorial Day. In states without a Confederate Memorial Day, another date may be selected by the cemetery administrator. The VA does not provide the Confederate flags. The display is allowed only at national cemeteries where Confederate soldiers and sailors are buried. Any display of a Confederate flag must be requested by a sponsoring historical or service organization, which must provide the flags. The sponsoring organization must also place and remove the flags at no cost to the government. The VA also permits the family members of a deceased veteran to display a Confederate flag during an interment, funeral, or memorial service at a national cemetery in accordance with federal law, which permits the display of "any religious or other symbols chosen by the family." In 2016, the House of Representatives agreed to an amendment to the Military Construction and Veterans Affairs and Related Agencies Appropriations Act, 2017, that would have prohibited the VA from implementing its policy that permitted a Confederate flag to fly from a flagpole, subordinate to the U.S. flag, at national cemeteries with Confederate veterans buried in mass graves on the same days that small graveside Confederate flags were permitted. The House of Representatives passed the bill as amended, but the Confederate flag provision was not included in the final omnibus appropriations legislation and did not become law. On August 12, 2016, the VA announced that the agency was amending its policy such that a Confederate flag may no longer fly from a fixed flagpole at any national cemetery at any time. The current controversy over the display of Confederate symbols on public lands and supported with federal funds affects the VA, its national cemeteries, and current law and policy regarding the provision of headstones for Confederate gravesites. The desire to remove Confederate symbols is balanced against federal policy that permits existing Confederate graves in national cemeteries to remain undisturbed and permits Confederate monuments and memorials in national cemeteries and the use of a Confederate symbol on government headstones. Legislation such as H.R. 3660 , which references Confederate symbols, raises questions about how existing headstones, monuments, and memorials would be treated within the context of maintaining national cemeteries as "national shrines," as well as whether or not future headstones issued by the VA for unmarked Confederate graves should include the Southern Cross of Honor. According to the Department of Defense (DOD), a servicemember's right of expression should be preserved to the maximum extent possible in accordance with the constitutional and statutory provisions of Title 10 of the U.S. Code , and consistent with good order and discipline and the national security. The Defense Department does not explicitly prohibit the display of the Confederate flag. However, if a commander determines that the display of the Confederate flag or Confederate symbols is detrimental to the good order and discipline of the unit, then the commander can ban such displays. Currently, the Navy is the only military service that has an overall policy concerning the Confederate flag. NSTCINST 5000.1F, Naval Service Training Command Policy Statement Regarding the Confederate Battle Flag , August 29, 2017 (Enclosure 7), states the following: 1. It is critical that all Naval Service Training Command (NSTC) Sailors, Marines, and civilians, as well as the general public, trust that NSTC is committed to providing an environment of equal opportunity (EO) and maintaining an ethnically-diverse workforce. To promote a positive EO environment, Command leaders must avoid associating the Navy with symbols that will undermine our message that NSTC is dedicated to providing an environment free of discrimination or harassment. 2. Reasonable minds differ on what the Confederate battle flag signifies. Some Americans see it as a symbol of racism and hatred, others view it as a symbol of Southern pride and heritage, while yet others consider it an outright political message. When Command leaders associate their unit with the Confederate battle flag, such as by displaying the Confederate battle flag or presenting an award that conspicuously emphasizes the Confederate battle flag, they link the Navy with the meanings that people associate with that symbol—good and bad. Command Leaders should not connect the Navy to the Confederate battle flag in a way that undermines the Navy's message of inclusiveness. However, not all displays of the Confederate battle flag will result in such inferences. A cased Confederate battle flag displayed alongside other Civil War artifacts in a Navy museum is unlikely to be viewed as a partisan statement by the Navy. Command leaders must use good sense in deciding which uses will not undermine our positive EO message. 3. While the First Amendment does not limit which messages the Navy as an organization chooses to convey, it does limit Navy regulation of individual expression rights. Therefore, Command leaders must preserve the free expression rights of NSTC Sailors, Marines, and civilians to the maximum extent possible in accordance with the Constitution and statutory provisions. That said, no Command leader should be indifferent to conduct that, if allowed to proceed unchecked, would destroy the effectiveness of a unit. Command leaders must use calm and prudent judgment when balancing these interests. Some military recruits with Confederate flag tattoos have been barred from joining the military on the basis of policies prohibiting certain types of tattoos. The Army, Navy, Air Force, and Marine Corps all have policies that prohibit tattoos that are injurious to good order and discipline. There is no explicit prohibition against the Confederate flag and symbols in tattoos. However, the Navy does have a general policy regarding the display of the Confederate flag (see above). Army Regulation (AR) 670-1, Uniform and Insignia Wear and Appearance of Army Uniforms and Insignia , prohibits soldiers from having any extremist, indecent, sexist, or racist tattoos or markings anywhere on their body. The Army has no specific prohibitions concerning the Confederate flag or symbols. Naval Personnel Command (NAVPERS) Instruction 15665I, General Uniform Regulations , Chapter 2, Grooming Standards, Article 2201.7 states the following: Tattoos/body art/brands located anywhere on the body that are prejudicial to good order, discipline, and morale or are of a nature to bring discredit upon the naval service are prohibited. For example, tattoos/body art/brands that are obscene, sexually explicit, and or advocate discrimination based on sex, race, religion, ethnic, sexual orientation or national origin are prohibited. In addition, tattoos/body art/brands that symbolize affiliation with gangs, supremacist or extremist groups, or advocate illegal drug use are prohibited. Marine Corps Bulletin 1020, Marine Corps Tattoo Policy , states, "Tattoos located anywhere on the body that are prejudicial to good order and discipline, or are of a nature to bring discredit upon the naval service, are prohibited. Examples include, but are not limited to, tattoos that are drug-related, gang-related, extremist, obscene or indecent, sexist, or racist." There is no specific prohibition for the Confederate flag, but some recruits with Confederate flag tattoos have reportedly been barred in the past for violating the Marine Corps' tattoo policy. Air Force Instruction (AFI) 36-2903, Dr ess and Personal Appearance of Air Force Personnel, Chapter 3.4.1, states, "Tattoos/brands/body markings anywhere on the body that are obscene, commonly associated with gangs, extremist, and/or supremacist organizations, or that advocate sexual, racial, ethnic, or religious discrimination are prohibited in and out of uniform." There is no explicit prohibition against the Confederate flag. For more information, see CRS Report R44321, Diversity, Inclusion, and Equal Opportunity in the Armed Services: Background and Issues for Congress . Arlington National Cemetery is under the jurisdiction of the U.S. Army. The Army policy states in Department of the Army (DA) Pamphlet 290–5, Administration, Operation, and Maintenance of Army Cemeteries , that on Memorial Day, or on the day when Confederate Memorial Day is observed, a small Confederate flag of a size not to exceed that of the U.S. flag may be placed on Confederate graves at private expense. Individuals or groups desiring to place these flags must agree in writing to absolve the federal government from any responsibility for loss or damage to the flags. Confederate flags must be removed at private expense on the first workday following Memorial Day or the day observed as Confederate Memorial Day. On June 6, 1900, Congress authorized $2,500 for a section of Arlington National Cemetery to be set aside for the burial of Confederate dead. Section 16 was reserved for Confederate graves, and among the 482 persons buried there are 46 officers, 351 enlisted men, 58 wives, 15 southern civilians, and 12 unknowns. To further honor the Confederate dead at Arlington, the United Daughters of the Confederacy petitioned to erect a monument that was approved by then-Secretary of War William Howard Taft on March 4, 1906, and sculpted by Moses Ezekiel (see Figure 3 and Figure 4 ). President Woodrow Wilson unveiled the memorial on June 4, 1914. Currently there are 10 major Army installations in southern states named after Confederate military leaders and no such installations for the other military departments. For more information on these installations and the naming policy and procedures for each military department, see CRS Insight IN10756, Confederate Names and Military Installations . The Department of the Army has no formal administrative process for renaming military installations. Following the 2015 shooting in Charleston, SC, then-Army Chief of Public Affairs Brigadier General Malcolm Frost said, "Every Army installation is named for a soldier who holds a place in our military history. Accordingly, these historic names represent individuals, not causes or ideologies." Legislation has been introduced in the 115 th Congress to rename the bases: H.R. 3658 , Honoring Real Patriots Act of 2017, would require the Secretary of Defense to rename any military property "that is currently named after any individual who took up arms against the United States during the American Civil War or any individual or entity that supported such efforts." H.R. 3660 would also direct that the bases be renamed and would prohibit the use of federal funds for maintenance of Confederate symbols, including on military installations. Proponents of renaming the bases contend that there are noteworthy national military leaders from other conflicts who demonstrated selfless service and sacrifice, including Medal of Honor recipients, who would be more appropriate for such an honor. Opponents of renaming these installations cite the bureaucracy of creating a new review process and the difficulty of satisfying the various viewpoints over which names (if any) would be selected as subjects of contention. In sum, Congress faces multiple questions and proposals concerning Confederate symbols on federal lands and in federally funded programs. Legislation in the 115 th Congress would address Confederate symbols in different ways. Proposals range from those concerned with individual Confederate symbols to those that would broadly affect all Confederate symbols on federal lands. In some cases, questions could arise about how the proposals would be implemented from a logistical and financial standpoint, and how they would interact with existing authorities.
|
In the wake of violent incidents in which symbols of the Civil War Confederacy have played a role, Congress is considering the relationship of Confederate symbols to federal lands and programs. A number of federal agencies administer assets or fund activities in which Confederate memorials and references to Confederate history are present. This report focuses on three federal entities—the National Park Service (NPS), the Department of Veterans Affairs (VA), and the Department of Defense (DOD)—that manage multiple sites or programs involving Confederate symbols. The report discusses the agencies' policies concerning Confederate symbols, recent legislative proposals, and issues for Congress. NPS manages over 70 units of the National Park System related to Civil War history, some of which contain works commemorating Confederate soldiers or actions. NPS also administers national cemeteries that display the Confederate flag at certain times. Further, the agency is connected with some state and local Confederate memorials through its historic preservation assistance to nonfederal sites. NPS manages its Confederate-related assets in the context of its statutory mission to preserve historic and cultural resources unimpaired for future generations. NPS engages in interpretation and education about these symbols. Through its National Cemetery Administration, the VA administers 135 national cemeteries, many of which contain the remains of Confederate soldiers. The VA also provides grants to assist with the establishment of state veterans' cemeteries. Confederate graves in VA cemeteries may have a special headstone that includes the Southern Cross of Honor, and may display the Confederate flag at certain times. The VA website also identifies 34 monuments and memorials in national cemeteries that explicitly honor Confederate soldiers or officials. Management takes place in the context of the VA's mandate to maintain national cemeteries as "national shrines." Within DOD, the Army administers 10 major installations named after Confederate military leaders; there are no such installations for the other military departments. The Army also has jurisdiction over Arlington National Cemetery, which contains a section for Confederate graves and a monument to Confederate dead. More broadly, the military services have considered Confederate symbols in the context of policies for good order and discipline within units. Only the Navy has an overall policy on the display of the Confederate flag. The presence of Confederate symbols in federal lands and programs may raise multiple questions for Congress. Confederate flags, statues, plaques, and similar memorials have been valued historical symbols for some Americans, but for others have symbolized oppression and discrimination. How should differing views on the meaning of these symbols be addressed? What constitutes a Confederate symbol, and should some or all of these symbols be removed from federal sites, or alternatively, preserved for their historical or honorary significance? Are current interpretive efforts adequate to convey the history of these symbols, or should federal agencies offer additional education and dialogue about their role in Civil War history and in subsequent historical eras? How, if at all, should current practices of honoring the Confederate dead in national cemeteries be changed? To what extent, if any, should the presence of Confederate symbols at nonfederal sites affect federal funding for programs connected to these sites? Recent legislative proposals, including H.R. 3658, H.R. 3660, H.R. 3701/S. 1772, H.R. 3779, and H.Res. 12 in the 115th Congress, would address these issues in different ways. They range from bills concerned with individual Confederate symbols to those that would broadly affect all Confederate symbols on federal lands. In some cases, questions could arise about how the proposals would be implemented from a logistical and financial standpoint, and how they would interact with existing authorities.
|
Over the last 40 years, air quality in the United States has improved substantially. Since the passage of the Clean Air Act in 1970, annual emissions of the six most widespread ("criteria") air pollutants have declined 180 million tons (59%), despite major increases in population, motor vehicle miles traveled, and economic activity. Emissions from shipping are a major exception to these trends. Although emission controls have reduced pollution from new cars and trucks by more than 90%, most ocean-going ships operate without any pollution controls at all. New and remanufactured engines on tug boats, ferries, and other smaller ships are subject to emission controls beginning in 2008 and 2009, but most existing engines in vessels of these types remain uncontrolled. Pollution from ships is also affected by the fuel they use. Marine vessels other than oceangoing ships have been required to use cleaner fuels, but ocean-going ships generally use bunker fuel, a fuel that contains a high level of contaminants: the average fuel used by oceangoing ships contains 27,000 parts per million (ppm) sulfur, for example—almost 2,000 times as much as would be allowed in trucks operating on U.S. roads. In the Los Angeles-Long Beach area—which is both the nation's busiest port and the nation's most polluted area —the problem is particularly acute. According to the South Coast [L.A.-Long Beach] Air Quality Management District (AQMD): Oceangoing vessels are among the largest sources of nitrogen oxides (NOx) in the area, emitting more NOx than all power plants and refineries in the South Coast air basin combined. NOx reacts with volatile organic compounds in the atmosphere to produce ozone/smog. 70% of the area's emissions of sulfur dioxide (SO 2 ) come from ships. These emissions need to be cut by over 90%, according to the AQMD, if the area is to attain the national air quality standard for particulates by the 2014 deadline. Particulates from marine vessels also create significant cancer risks; more than 700 premature deaths are caused in the Los Angeles area annually by these emissions, according to the AQMD. While the Los Angeles-Long Beach area may be the most extreme example, the problem is not limited to L.A. or to California. According to the Environmental Protection Agency (EPA), more than 40 U.S. ports nationwide are located in "nonattainment" areas for ozone, fine particulates, or both ( Figure 1 ). In addition, according to EPA, "... the problem is not limited to port areas alone. Santa Barbara County, which has no commercial ports, estimates that by 2020, 67 percent of its NOx inventory will come from shipping traffic transiting the California coast.... " Oceangoing ships are perhaps the largest source of port emissions, but they are not the only source. Ports make use of tug boats to guide ships entering and leaving the harbor. Ports make connections to land-based transportation networks, such as railroads, and they generally operate large truck terminals. Ships at rest in the port need a source of power, which often comes from running auxiliary engines. And, in many cases, a harbor is served by substantial local boat or barge traffic, sometimes including ferry service. Thus, addressing the sources of pollution in a port may require a multi-faceted approach. Pollution from ships (not only air pollution, but pollution of all kinds) is governed by the International Convention for the Prevention of Pollution from Ships, first negotiated through the International Maritime Organization (IMO) in 1973. The Convention, known as MARPOL (for "MARine POLlution") 73/78 (the dates referring to the 1973 Convention and its 1978 amendments), applies to all ships of the flag states that have ratified it. About 150 countries, representing over 98.7% of world shipping tonnage, have done so. The Convention also applies to ships of non-signatory states while they are operating in waters under the jurisdiction of parties to MARPOL. Six annexes to MARPOL 73/78 cover various sources of pollution from ships (oil, noxious liquids, sewage, garbage, etc.) and provide an overarching framework for implementation. Annex VI of the Convention, which was adopted in 1997 but did not enter into force until 2005, addresses the Prevention of Air Pollution from Ships. In its 1997 form, the annex represented a small first step toward controlling such pollution, particularly if one compares it to pollution controls that the United States and other developed countries impose on land-based sources. Annex VI: limits the sulfur content of the fuel used in oceangoing ships (bunker fuel) to 4.5% (45,000 parts per million (ppm)). By comparison, highway diesel fuel in the United States is limited to 15 ppm; allows special sulfur oxide (SOx) Emission Control Areas (currently the Baltic Sea, the North Sea, and the English Channel), where the sulfur content of fuel is limited to 1.5% (15,000 ppm) or SOx emissions are limited; limits NOx emissions from new engines and engines that have undergone major conversions to a range of 9.8-17.0 grams per kilowatt-hour (g/kwh), depending on the rated engine speed. By comparison, power plants in the eastern United States are limited to 0.45-0.73 g/kwh; allows the regulation of emissions of volatile organic compounds (VOCs) from tankers by parties to Annex VI in their ports and terminals; prohibits emissions of ozone-depleting substances; prohibits the incineration on ships of polychlorinated biphenyls (PCBs, a class of toxic chemicals widely used in electrical transformers until the 1970s). In the United States, PCB production and use were banned in 1976, and disposal has been strictly regulated since then; and prohibits the incineration of garbage containing more than traces of heavy metals and of refined petroleum products containing halogen compounds. The United States is a party to MARPOL 73/78 and most of its annexes, but did not enact legislation to implement Annex VI until the summer of 2008. The Senate gave its consent to ratification of Annex VI on April 7, 2006, but Congress needed to enact implementing legislation before the United States could submit the instrument of ratification. The House passed H.R. 802 to implement the annex on March 26, 2007. The Senate passed the bill, with an amendment, June 26, 2008, and the House agreed to the Senate amendment July 8, 2008. The President signed the bill July 21, 2008 ( P.L. 110-280 ). The Annex VI standards apply to: any oceangoing vessel that is registered in the United States; ships of any registry in ports, shipyards, terminals, or the internal waters of the United States; ships of any registry bound for or departing from the United States, while they are located in the navigable waters of the United States or designated emission control areas; and ships bearing the flag of any country that has ratified Annex VI traveling through U.S. waters or designated emission control areas, even if they are not bound for or departing from a U.S. destination. To the extent consistent with international law, the Annex also applies to any other ship in the U.S. exclusive economic zone. The United States has participated in negotiations to strengthen Annex VI, and more stringent limits on both fuels and emissions were approved by the IMO, October 10, 2008: The new limits cut the allowable sulfur content of bunker fuel to 3.5% (35,000 ppm) starting January 1, 2012, with a further drop to 0.5% (5,000 ppm) on January 1, 2020. This provision will have little effect prior to 2020, since bunker fuel currently averages 27,000 ppm sulfur, substantially cleaner than the 2012 requirements. New limits will also apply in Sulfur Emission Control Areas—currently the Baltic Sea, North Sea, and English Channel, but potentially including other areas. Sulfur content in those areas, currently capped at 1.5% (15,000 ppm), will be capped at 1.0% (10,000 ppm) effective July 1, 2010, and 0.10% (1,000 ppm) effective January 1, 2015. IMO also agreed to reductions in nitrogen oxide (NOx) emissions from marine engines, with the new standards to be phased in. For engines installed on ships constructed after January 1, 2011, but before 2016, NOx limits would be reduced about 20% to a range of 7.7 to 14.4 grams per kilowatt-hour, depending on the rated engine speed. For engines installed on ships constructed after January 1, 2016, the limits would be reduced about 80%, to a range of 2.0 to 3.4 g/kWh while ships are operating in designated emission control areas. Outside emission control areas, the prior limit (7.7 to 14.4 g/kWh) would apply. Before Congress enacted the Annex VI implementing legislation in 2008, EPA had already promulgated regulations under the Clean Air Act that were as stringent as the 1997 Annex VI standards, and shipping companies were already generally meeting the standards. In addition, the agency has promulgated standards for smaller engines. EPA groups ship engines in three categories. The largest of these engines—the main engines on oceangoing ships—are diesel engines with a per-cylinder displacement at or above 30 liters. These are referred to as "Category 3" or "C3" engines. Category 1 and 2 engines (those smaller than 7 liters per cylinder, and those from 7 to 30 liters per cylinder, respectively), are used in boats or smaller ships—tugs, ferries, some Great Lakes freighters, fishing boats, and recreational boats, for example. EPA began addressing emissions from Category 3 engines about a decade ago, and two steps the agency took in 2009 will significantly strengthen its regulations. But it is important to bear three factors in mind, as one considers the potential impact of the new regulations. First, the new EPA emission standards will only apply to engines installed on vessels flagged or registered in the United States. In 2007, only 6.7% of the world's ocean-going ships (and only 1.2%, if measured by carrying capacity) were registered in the United States. Thus, EPA's emission standards for C3 engines by themselves (i.e., apart from the similar Annex VI rules) will have little effect on the overall level of pollution from ocean-going ships. Second, when the more stringent requirements do take effect, they will apply only to new and remanufactured engines, so improvements resulting from the standards will be gradual. Third, EPA will be able to achieve more substantial emission reductions through standards for marine fuel. These will affect emissions from both new and existing engines, and from both U.S.- and foreign-flagged ships. The new C3 standards will require substantially cleaner fuel, a point to which we will return after describing the existing and proposed rules in more detail. Current C3 engine standards were promulgated February 28, 2003, and went into effect in 2004. These standards mirrored the relatively lenient requirements of Annex VI, adopted by the IMO in 1997. In October 1999, EPA also established a voluntary certification program so that engine manufacturers could show that their new engines were compliant with Annex VI. EPA believes that all marine Category 3 diesel engines sold in the United States since January 1, 2000, have met Annex VI requirements. When the 2003 standards were promulgated, EPA set itself a deadline of April 2007 to promulgate stronger standards for C3 engines. EPA subsequently reset this deadline to December 2009: the Administrator signed new regulations December 18. Thus, 2009 has seen several developments that will strengthen emission standards for ships and expand the use of cleaner fuels. The new standards are in line with the Annex VI amendments that were negotiated in 2008. EPA has also proposed to add U.S. waters to those areas designated as Emission Control Areas under the annex. Specifically: On March 27, 2009, EPA proposed that the entire U.S. coastline except portions of Alaska be designated by the IMO as an Emission Control Area (ECA), subject to the lower sulfur limits in bunker fuel discussed above. As shown in Figure 2 , the proposed ECA includes the entire coastline of the contiguous 48 states, Southeastern Alaska, and the main Hawaiian Islands, extending to a distance of 200 nautical miles from shore. EPA anticipates that this amendment will be adopted at the next IMO Marine Environment Protection Committee meeting (MEPC 60) which is scheduled for March 2010. Adoption of the ECA will set sulfur limits of 10,000 ppm as early as August 2012, and 1,000 ppm effective January 1, 2015. On July 1, 2009, EPA proposed regulations that will strengthen emission standards for new C3 marine engines and will implement the low sulfur fuel requirements that apply in ECAs starting in 2015. These regulations were finalized, with relatively minor changes on December 18, 2009. New marine engines will be required to meet these standards in two phases: Tier 2, which would apply to new engines beginning in 2011, would require "more efficient use of current engine technologies, including engine timing, engine cooling, and advanced computer controls," resulting in a 15% to 25% reduction in NOx emissions, compared to Tier 1 standards; Tier 3, effective in 2016, would reduce NOx emissions from new engines 80% below current standards through the application of aftertreatment technology such as selective catalytic reduction (SCR), a technology now widely used at electric power plants. In general, the Category 3 engine standards and the ECA proposal have been supported by the shipping industry and by environmental groups. The World Shipping Council (WSC), whose member companies carry over 90% of the United States' international containerized ocean cargo, in its comments on the C3 standards, stated, "... the WSC and its members fully support the proposal to codify and adopt these standards as proposed in the current rulemaking," although they went on to suggest a number of clarifications and technical improvements. Regarding the ECA proposal, a spokesman for the Pacific Marine Shipping Association was quoted as saying, "We've been waiting for this a long time. We're pleased to see everything moving forward as planned." The Clean Air Task Force, and 34 other environmental organizations stated, "EPA's proposed C3 Marine Engine rule is a substantial step in the right direction." They would have liked to see the proposed emission standards strengthened to cover all new ships travelling in U.S. waters, no matter where they are registered, and would have liked stronger standards for NOx and particulate matter from the existing fleet of ships. Environmental groups also support the ECA/fuel sulfur proposal, although they would like to see it expanded to include Alaska's Arctic waters. EPA estimates that the benefits of its new regulations for C3 engines and fuel will outweigh the costs by at least 30 to 1. The benefits include annually preventing between 12,000 and 31,000 premature deaths, 1,500,000 work days lost, and 9,600,000 minor restricted activity days, which the agency values at between $99 billion and $270 billion annually. The reductions in pollution, shown in Figure 3 , are greatest near the coasts, but more modest reductions would extend a substantial distance inland, according to EPA modeling. The agency's estimated cost of the proposals is approximately $1.85 billion in 2020, increasing to $3.11 billion in 2030. Of the 2020 costs, nearly 89% are attributable to the use of lower-sulfur fuel in the proposed ECA. These costs are substantial, but they will be spread over such a huge volume of traded goods that they may be little noticed. According to the agency: These costs are expected to be completely passed on to the consumers of ocean transportation. The impacts of these costs on society are estimated to be minimal, resulting in a small increase in the goods transported. For example, EPA estimates it will result in an increase of about $0.01 for a pair of tennis shoes, and about $0.03 for a bushel of grain. Perhaps the most controversial aspect of the ECA and Category 3 rules was their proposed application to the large ships that ply the Great Lakes. The Great Lakes would be included in the proposed ECA and, therefore, ships operating on the lakes would be required to burn low sulfur fuels under the ECA proposal. More than 100 U.S.- and Canadian-flagged cargo ships operate on the Great Lakes. These ships generally carry bulk cargoes, including iron ore, coal, limestone, agricultural products, and rock salt. The associations that represent the U.S. and Canadian ship owners estimate that they carry as much as 150 million tons of cargo annually. Many of these ships are old. The Lake Carriers' Association (LCA) identified one U.S.-flagged vessel built in 1906 and 17 others built between 1929 and 1960 that are still in operation. Thirteen of these ships have powerplants that were designed to burn heavy residual fuel. According to the LCA, It is theoretically possible to switch the fuel supply system for the boilers to distillate fuel. However, it would require modifications including new fuel pumps, bypass of the fuel heating systems, new burners and burner tips, and possibly new air diffusers. A number of upgrades to the automation system would also have to have been done to ensure the proper air to fuel ratio and that the fuel cut off valves are sufficient to ensure that absolutely no diesel fuel enters the boiler in the off position. LCA estimated the cost of converting these 13 steamers' powerplants to run on diesel fuel or of converting them to self-unloading barges powered by tugs to be $20 million to $27 million each. Another 13 vessels were identified by LCA as facing significant impacts because of higher fuel prices, even though they are able to safely burn low sulfur distillate fuel. The case made by the Lake Carriers Association and other industry commenters that older Great Lakes ships will face significant impacts appears not to have been considered by EPA when it proposed the ECA and C3 regulations. The Category 3 Regulatory Impact Analysis did indicate, however, that switching from residual fuel to lower sulfur distillate would increase costs borne by shipping companies $145 per tonne of fuel, or 44%. For ocean-going ships, this cost increase is not as great as it might seem, since they operate in an ECA only a small percentage of the time and can burn dirtier fuel outside of ECAs. Great Lakes ships, however, operate in the proposed ECA 100% of the time, and thus would face a greater increase in costs. The Great Lakes shipping companies made a sufficiently persuasive case that Congress addressed their concerns. Section 442 of H.R. 2996 , the FY2010 appropriations for Interior, Environment, and Related Agencies, signed by the President, October 30, 2009 ( P.L. 111-88 ), provides that: None of the funds made available for the Environmental Protection Agency in this Act may be expended by the Administrator of the Environmental Protection Agency to issue a final rule that includes fuel sulfur standards applicable to existing steamships that operate exclusively within the Great Lakes, and their connecting and tributary waters. This prohibition applies only to the period covered by the appropriation, i.e., FY2010. But language in the accompanying Conference Report ( H.Rept. 111-316 ), states that EPA has received comments detailing significant negative economic impacts for carriers that operate Category 3 engine vessels exclusively within the Great Lakes, and the report adds: Because of these economic impacts, EPA should include waiver provisions similar to those in other EPA rules in the final rule—one to waive the 10,000 ppm sulfur standard for Great Lakes Category 3 diesel engine vessels that burn residual fuel if EPA determines that 10,000 ppm residual fuel is not available; and one to waive fuel requirements for an owner/operator of a Great Lakes Category 3 diesel engine vessel based upon a showing of serious economic hardship. It is important that EPA structure such a waiver provision similar to the other fuels rules, where parties can apply for and receive a waiver in sufficient time prior to the implementation of the requirements. Finally, EPA should perform a study and issue a report within six months that evaluates the economic impact of the final rule on Great Lakes carriers. The final C3 rule provides the two Great Lakes waivers discussed in the report language. Category 1 and 2 engines (those smaller than 7 liters per cylinder, and those from 7 to 30 liters per cylinder, respectively), are used in boats or ships that operate in U.S. waters—tugs, ferries, smaller Great Lakes freighters, fishing boats, and recreational boats, for example—virtually all of which are registered in the United States. While smaller than Category 3 engines, these engines are still rather large: they generate at least 800 horsepower. EPA is further along in regulating the emissions of these categories, as compared to Category 3. Regulations that will reduce emissions of NOx from new or remanufactured engines by 24% and emissions of particulates by 12% when fully implemented, were promulgated in 1999 and began taking effect between 2004 and 2007. More stringent standards were promulgated May 6, 2008, and will take effect between now and 2014. The final 2014 standards will require ultra low sulfur diesel fuel (15 ppm sulfur) and high efficiency catalytic emission controls capable of reducing particulate matter emissions by 90% and NOx emissions by 80%, along with "sizeable reductions" of hydrocarbon, carbon monoxide, and air toxic emissions, according to EPA. As with the new Category 3 regulations, EPA estimates that benefits of the May 2008 rule will substantially exceed the costs of compliance – in this case, by a figure of at least 9 to 1. The principal benefits that the agency estimated are health benefits: a reduction of between 1,150 and 1,400 premature deaths, 120,000 work days lost, and approximately 1,000,000 minor restricted-activity days annually. The agency estimates that these benefits will be worth between $8.4 billion and $11 billion in 2030, whereas the annual social costs will be approximately $740 million in that year. The impact of these costs on society is expected to be manageable, with the price of marine transportation services estimated to increase by about 1.1%. California, being more adversely affected than most other areas, has also played a leadership role in identifying and implementing emission reduction measures applicable to shipping. The state has focused on port activities, in addition to fuel and emission standards for marine vessels. California's measures fall into four categories: (1) requiring the use of lower sulfur fuel; (2) requiring emission controls on harbor vessels and shore-side equipment; (3) providing alternative (electric) power to ships while they are docked at marine terminals; and (4) providing grants for the re-powering of harbor craft and short-haul trucks with cleaner engines. The California Air Resources Board (CARB), at a July 24, 2008, meeting, approved regulations that required both U.S.- and foreign-flagged vessels sailing within 24 miles of its coast to use low sulfur fuels in both main and auxiliary engines beginning July 1, 2009. Compliant fuels are marine diesel oil with 5,000 ppm or less sulfur or marine gas oil with 15,000 ppm or less sulfur. In January 2012, sulfur in both types of fuel will be limited to 1,000 ppm. The rules replace low sulfur fuel requirements that the state implemented in 2007, but which were overturned by the U.S. Court of Appeals for the Ninth Circuit in February 2008. The original rules would have set a 1,000 ppm limit two years earlier, in 2010. California has, in general, led the nation in imposing more stringent requirements on diesel engines. In addition, the ports of Los Angeles and Long Beach have developed procedures to require that trucks serving the ports will be replaced by newer, less-emitting models. According to a description of the ports' plan: ... all pre-1989 trucks will be barred from entering the ports' terminals beginning Oct. 1 [2008]. Effective Jan. 1, 2010, all 1989-1993 trucks and any 1994-2003 trucks without certified pollution control equipment will be banned. By Jan. 1, 2012, all trucks entering the port must meet the 2007 federal standard for heavy-duty diesel trucks.... A $35 gate fee for each 20-foot container unit that passes through the port will generate funds to help underwrite subsidies to upgrade and replace trucks. The Port of Los Angeles estimates that truck emissions have been reduced about 70% since October 1, 2008, as a result of these requirements. In addition, CARB has adopted regulations for harbor craft, including ferries, tugboats, and tow boats, which will require the replacement of unregulated engines beginning in 2009, and will accelerate the adoption of EPA's Category 1 and Category 2 marine engine pollution controls. These rules became effective November 19, 2008. In June 2004, the Port of Los Angeles opened the world's first Alternative Maritime Power (AMP) terminal for container ships, where cargo ships can plug in to power instead of operating auxiliary engines to generate electricity while at berth. The electrification project was the result of a lawsuit brought by the Natural Resources Defense Council and other groups, who sued the city claiming it failed to fully weigh air quality and other environmental impacts of a new container terminal. As a result of the suit, a state appeals court halted work on the terminal in October 2002, and Los Angeles subsequently agreed to electrify the terminal to cut diesel emissions while ships are at docks, among other measures. A second terminal was outfitted with AMP capability in 2005. To encourage shippers to use the AMP facilities, in December 2004, the Los Angeles Board of Harbor Commissioners passed a policy resolution to help each existing Port customer underwrite the cost of building or retrofitting their first container or cruise ship to run on electrical power when docked, a cost estimated at $320,000-$830,000 per vessel. Cruise ship terminals in San Francisco and Seattle are also implementing AMP, and CARB obtained final approval of regulations to require the use of AMP at the state's six largest ports, in December 2008. CARB, the Ports of Los Angeles and Long Beach, and the South Coast Air Quality Management District also intend to provide substantial amounts of financial support for the replacement of older, high-emitting engines and the conversion to lower emitting power sources. CARB awarded $247 million in FY2007-FY2008 funds for "goods movement emission reduction" projects (about $137 million of which was designated for ports); another $250 million was appropriated in FY2008-FY2009, and a third cycle of $250 million was appropriated in the FY2009-FY2010 state budget. According to CARB, most requests for the funds came from trucking companies, which would replace older engines or trucks with new models that reduce emissions as much as 90%. In February 2009, CARB noted that state funding for bond programs had been suspended, pending "effective resolution of the current fiscal year budget crisis and a restoration of the state's ability to access the bond market." This affected FY2007-FY2008 funds awarded to local agencies under the Goods Movement Program, as well as the FY2008-FY2009 funds that had not yet been awarded. Some funding has since been freed up, but a Department of Finance directive prohibited CARB from making allocations for the second and third installments ($250 million each) appropriated for this program. In addition to the CARB funding, the ports of Los Angeles and Long Beach, as noted earlier, will provide subsidies for truck and engine replacement from a fund generated by a $35 to $70 per container fee. The grants will provide $20,000 for the cost of each truck compliant with EPA's 2007 emission standards used by port concessionaires. The ports began distributing $44 million in incentive checks in December 2008, for the first 2,200 low-emission trucks purchased under the program. These grants have also experienced funding problems. The per-container fees that are to fund the system were to have been collected beginning in November 2008, but implementation was delayed by the Federal Maritime Commission (FMC), which maintained that the ports' program (referred to as the PortCheck Agreement) is anti-competitive and interferes with interstate commerce. FMC delayed implementation of the fees by requiring two 45-day review periods. These actions delayed the start of fee collection until February 18, 2009. The Port of Los Angeles is also collaborating with the South Coast Air Quality Management District to provide up to $100,000 for each natural gas (LNG or CNG) truck purchased by port concessionaires and up to 80% of the cost of electric trucks. This has led to the purchase of more than 400 alternate fuel trucks. About 8.5% of the cargo moves at the port were being made by these alternative fuel trucks as of October 2009. Besides state and local funding, U.S. EPA has become a source of funds for diesel emission reductions at ports. The stimulus package (the American Recovery and Reinvestment Act of 2009, P.L. 111-5 ) contained $300 million for diesel emission reduction grants. This money may be used for purposes authorized under Title VII, Subtitle G of the Energy Policy Act of 2005 ( P.L. 109-58 ), including retrofit of diesel trucks, marine engines, and cargo handling equipment, not only in California, but in other states as well. Of the first $156 million awarded, at least $29 million went for diesel reduction activities at ports, including $8 million to California ports. There is an additional $60 million in diesel emission reduction grant money in P.L. 111-88 , the Fiscal Year 2010 Interior, Environment, and Related Agencies Appropriation, signed by the President October 30, 2009. Ships are also an important source of greenhouse gas (GHG) pollutants. Although there is a wide range of estimates, the International Maritime Organization's consensus is that international shipping emitted 843 million metric tonnes of carbon dioxide, 2.7% of global CO 2 emissions in 2007. Including domestic shipping and fishing vessels larger than 100 gross tonnes, the amount would increase to 1.019 billion tonnes, 3.3% of global emissions. At these levels, only five countries (the United States, China, Russia, India, and Japan) account for a higher percentage of the world total of CO 2 emissions. In addition to the CO 2 emissions, the low quality fuel (bunker fuel) that ships use and the absence of pollution controls result in significant emissions of black carbon and nitrogen oxides, which also contribute to climate change. The refrigerants used on ships (hydrofluorcarbons and perfluorocarbons—HFCs and PFCs) are also potent greenhouse gases when released to the atmosphere. Thus, the total impact of ships on climate may be somewhat greater than 3%. For the most part, these emissions occur in international waters, and the sources are vessels not registered in the United States. Addressing the emissions, therefore, is likely to require international agreement. On the international level, however, there has been disagreement over who should take responsibility to abate GHG emissions. Rather than cover these emissions under the Kyoto Protocol, nations agreed to look to the IMO for sector-specific provisions to reduce GHG emissions from shipping. The IMO's Marine Environment Protection Committee has begun negotiations on the issue, and has stated that the issue is "high on the Committee's agenda." Thus far, however, it has agreed only on voluntary guidelines on ship design and operational efficiency, while continuing to discuss market-based instruments to reduce GHG emissions. Some in the industry, including shipping industry associations from several European countries, have suggested applying a cap-and-trade scheme to shipping's GHG emissions. At U.N.-sponsored climate negotiations, on the other hand, there has been talk of imposing a tax on bunker fuel. As with many other sectors, the European Union has been a driving force in getting international consideration of controlling the shipping sector's GHG emissions. The EU has considered adding the shipping industry to its cap-and-trade system, the EU Emissions Trading Scheme (ETS), but for now is deferring to the IMO. Approving a broad package of climate measures on December 17, 2008, the European Parliament left shipping out of the package, pending the outcome of the IMO discussions. Satu Hassi, a Finnish lawmaker from the Parliament's Green Group, who oversaw negotiations on emission reduction targets for non-ETS sectors, was quoted as saying the "EU will act unilaterally" should IMO discussions not produce sufficient results. Ocean-going ships are already by far the most efficient means of goods movement. As noted by the United Nations Conference on Trade and Development (UNCTAD): While in absolute terms GHG emissions from international shipping are significant, in relative terms maritime transport – in particular where larger ships are used – surpasses other modes of transport in terms of fuel efficiency and climate friendliness. On a per ton kilometre (km) basis and depending on ship sizes, CO 2 emissions from shipping are lower than emissions from other modes. For example, emissions from rail could be 3 to 4 times higher than emissions from tankers, while emissions from road and air transport could, respectively, be 5 to 150 times and 54 to 150 times higher. Equally, in terms of fuel consumption (kilowatt (kW)/ton/km), a container ship (3,700 twenty-foot equivalent units (TEUs)), for instance, is estimated to consume on average 77 times less energy than a freight aircraft (Boeing 747-400), about 7 times less than a heavy truck and about 3 times less than rail. But, in general, shipping does not compete with other modes of transport. Only in a small number of cases involving high value or perishable commodities, or relatively short distances between countries that also have land links, are mode shifts between shipping and air, truck, or rail transport possible. Ships move more than 80% of the volume of international trade, and are likely to continue doing so. As the overall volume of trade grows, GHG emissions from shipping are projected to be 2.4 to 3 times the current level by 2050 unless control measures are adopted. A number of measures might be taken to reduce the shipping sector's GHG emissions. One of the more common suggestions is that ships operate at lower speeds. The IMO's 2000 study of GHG emissions from ships concluded that a 10% reduction in speed would result in a 23.3% reduction in emissions. Slowing speeds is not without problems. According to the 2000 IMO report: For most ship engines, running at reduced speed / slow steaming may ... cause problems. Such problems may be vibrations (critical RPM of engine / shaft) and accelerating sooting in the exhausted gas channel. Sooting problems are normally coincident with incomplete combustion and increasing GHG emission per fuel unit consumed. For ships permanently operating at slow speed, however, engine modifications / de-rating may be a solution. In addition, of course, cargo owners may consider the lost time in reaching the ship's destination to be more valuable than the fuel and GHG savings. Thus, in a competitive market with low fuel costs, ship owners will tend to offer as swift a service as they can safely provide. Nevertheless, it is possible without changes in technology or fuels to achieve significant GHG emission reductions, and shipping companies have begun to implement slow steaming policies to reduce their emissions. A.P. Moller – Maersk Group, the world's largest container shipper, for example, reports that it reduced fuel consumption in its transport group 6% in 2008 compared to the fuel used for the same level of business activity in 2007. In addition to slow steaming, the company has implemented waste heat recovery systems on 32 ships, has installed software in containers to reduce energy consumption for cooling, and has developed a voyage planning program to identify the most fuel-efficient routes, and a "just in time" steady running strategy that minimizes engine loads. Cleaner fuels and emission controls could also lower emissions, particularly if one focuses on emissions of black carbon and nitrogen oxides. Like slow steaming, these could be implemented without the need to replace ship engines or the ships themselves. The use of alternative power in ports may also reduce GHG emissions, if the shore power is derived from low-carbon sources such as natural gas, or no-carbon sources (hydropower, wind, solar, or nuclear). New ships may be able to reduce emissions further through better hull design, more efficient propulsion, and propeller coatings, among other options. A detailed discussion of options (in the context of Navy ships) is provided in CRS Report RL33360, Navy Ship Propulsion Technologies: Options for Reducing Oil Use—Background for Congress , by [author name scrubbed] As pollution from cars, trucks, and land-based stationary sources has been more tightly controlled over the last 40 years, the contribution of ships and port operations to air pollution in port cities has become more important. Simultaneously, foreign trade has grown dramatically, adding to the burden of pollution from these sources. Thus, pollution from ships and the port operations that serve them is now among the most important sources of sulfur oxides, nitrogen oxides, particulates, and other pollutants in numerous U.S. cities. Controlling these sources of pollution is complicated by the fact that most oceangoing ships are registered in foreign countries. As a result, initial efforts at control were focused on international negotiations through the IMO, which established a basic structure (MARPOL Annex VI) that appears likely to be the basis of more stringent future controls. Negotiating, ratifying, and implementing MARPOL agreements has been time-consuming, but now has resulted in significant levels of regulation that will gradually be implemented over the next six years. EPA and state and local agencies (particularly those in California) have also begun to address pollution from ships using the Clean Air Act and comparable state authorities. Not all pollution from marine vessels comes from foreign ships. Smaller craft, such as ferries, tugboats, and fishing boats do tend to be registered in the United States, and are thus more amenable to control. Even for these smaller craft, the technical issues can be complex, as the vessels include a wide variety of engine sizes and ship configurations. Safety also poses important considerations, as ships must be able to depend on their sources of power in what may be extreme weather conditions and while dealing with a variety of navigational hazards. A particular issue has arisen regarding Great Lakes freighters, many of which were built more than 50 years ago, and might face significant costs in upgrading to burn cleaner fuel. The FY2010 appropriation for EPA has prohibited the expenditure of funds in this fiscal year to issue final fuel sulfur standards applicable to existing steamships operating exclusively within the Great Lakes, and accompanying report language states that EPA should develop waiver provisions available to these ships. Because ships and port operations are now such significant sources of air pollution, and because of the importance of shipping to the national and world economy, implementation of the emissions regulations for ships and ports, including the cleaner fuels requirements, may continue to be of interest to Congress. In addition, ships are a large and growing source of greenhouse gas emissions; how and whether to regulate these emissions are the subject of IMO discussions and are a small part of the larger debate over legislation to address climate change. Congress has begun efforts to address these problems, by enacting legislation to implement MARPOL Annex VI in July 2008. But this is likely to be just the start of Congressional attention to air pollution from ships. Action at the state level, in the courts, and at U.S. EPA will continue to bring the issue to Congress's attention, with numerous opportunities for oversight and legislation.
|
This report provides information regarding pollution from ships and port facilities; discusses some of the measures being implemented and considered by local, state, and federal regulatory agencies; discusses the efforts to strengthen Annex VI of the International Convention for the Prevention of Pollution from Ships (MARPOL); and describes legislation in Congress to control emissions from ships, as well as efforts in Congress to address the applicability of proposed EPA regulations to ships on the Great Lakes. As pollution from cars, trucks, and land-based stationary sources has been more tightly controlled over the last 40 years, the contribution of ships and port operations to air pollution in port cities has become more important. In the same period, foreign trade has grown dramatically; thus, pollution from shipping and port operations is growing as a percentage of total emissions. In many cities, ships are now among the largest sources of air pollution. As Congress and the Administration turn their attention to climate change, there is also a growing recognition that marine vessels are an important source of greenhouse gas (GHG) emissions. Controlling these sources of both conventional and greenhouse gas pollutants is complicated by the fact that most ocean-going ships are not registered in the United States and may not even purchase the fuel they are using here. Thus, controlling such pollution would seem to lend itself to an international approach. Such efforts have been slow to yield results: in 1997, the United States and most countries signed an international agreement known as MARPOL Annex VI, setting extremely modest controls on air pollution from ships, but the agreement did not enter into force until 2005, and the United States did not enact legislation to implement it until July 21, 2008 (P.L. 110-280). Negotiations to strengthen Annex VI accelerated in 2008, however, and amendments that will strengthen its provisions have received preliminary approval. Discussions regarding GHG emissions have also begun, although without results to date. While awaiting congressional action and international agreement, the Environmental Protection Agency (EPA), port cities, and states have begun to act on their own. This report discusses a number of these efforts, including EPA measures that will require cleaner fuels and will greatly strengthen emission standards, and measures being implemented in California to reduce pollution from ships and ports. In the current Congress, greenhouse gas emissions from ships are addressed in H.R. 2454, the Waxman-Markey climate change bill. As passed by the House, the bill would direct EPA to establish emission standards for nonroad vehicles and engines (a category that includes ships), by December 31, 2012. In other action, Congress added a provision to the FY2010 EPA appropriation (P.L. 111-88) that prohibits FY2010 funds being used to implement cleaner fuel requirements as they apply to Great Lakes ships. Accompanying report language directs EPA to develop provisions to establish waivers of the low sulfur fuel requirements for Great Lakes ships if the fuel is not available or in cases of serious economic hardship.
|
Because Congress did not provide funding for FY2014, the new fiscal year beginning October 1, 2013, the Department of Defense (DOD), like other agencies, is now subject to a lapse in appropriations. In that event, agencies are generally required to shut down, although the Office of Management and Budget (OMB) has identified a number of exceptions to that rule, including a blanket exception for activities that "provide for the national security." Other than continuing to perform such "excepted" activities, agencies are generally required to terminate operations, and personnel who are not performing "excepted" activities are now furloughed after working only long enough to ensure an orderly shutdown. On September 25, 2013, Deputy Secretary of Defense Ashton B. Carter issued guidance and a contingency plan to continue essential activities in the event that appropriations lapsed. These activities included not only the war in Afghanistan (including preparing troops to deploy) but also other (unspecified in this guidance) military operations, and "many other operations necessary for safety of human life and protection of property, including operations essential for the security of our Nation." Such activities would be considered "excepted" from furloughs. All other activities would shut down. In testimony before the Senate Finance Committee on October 10, 2103, Secretary of the Treasury Jacob J. Lew suggested that Treasury believes that the federal government will "run out of borrowing authority" on October 17, 2013, and will have insufficient cash on hand to meet all government obligations "including Social Security and Medicare benefits, payments to our military and veterans, and contracts with private suppliers—for the first time in our history." Under this scenario, DOD benefit programs for military retirement and concurrent receipt could be delayed if the debt ceiling is not raised, which is not the case during the current government shutdown, where payments to military retirees are protected, as are salaries of troops, and DOD civilians after enactment of H.R. 3210 , Pay Our Troops Act. If the debt ceiling is reached, there is some controversy, however, about whether Treasury could make distinctions between one type of payment and another rather than simply paying bills as they come due and are processed. Some have argued that in such a situation the Treasury could prioritize payments in order to avoid a technical default by paying interest due on debt first as part of a policy to choose to make certain types of payments before others. The Treasury argues that it does not have the authority to make such distinctions. In addition, some suggest that making such distinctions would violate the Impoundment Control Act of 1974 as amended, which prohibits deferring particular payments. In addition to prioritizing payments, Treasury, in 2012, considered but rejected other options, including asset sales—as against taxpayer interests; across-the-board reductions—as difficult to implement; or, the "least harmful" one of delaying payments, which would be "worsened each day ... potentially causing great hardships to millions of Americans and harm to the economy." It is difficult, if not impossible, to predict potential effects on Department of Defense programs or benefits because of the uncertainties. If payments to defense contractors were delayed, the government could incur interest penalties, and contractors could eventually face liquidity problems. If payments to trust funds (Tricare for Life, military retirement) were delayed and not repaid, the solvency of those funds could be affected. If payments to troops or DOD civilians were delayed, this could be seen as breaking a contractual relationship, as well as harming morale. On September 30, 2013, President Obama signed H.R. 3210 , the Pay Our Military Act (POMA), which was passed unanimously earlier in the House and Senate. This act provides appropriations to cover the pay and allowances of all members of the armed forces performing "active service" ("active service" includes both active duty and full-time National Guard duty), and those DOD civilians and contractor personnel whom the Secretary of Defense determines are providing support to these members of the armed forces. This act ensures that those personnel will be paid on time rather than being dependent on passage of a full continuing resolution (CR) or regular appropriations act. On October 10, 2013, the President signed H.J.Res. 91 , which provides for the payment of death gratuities and other funeral expenses for military personnel. Known as the "Honoring the Families of Fallen Soldiers Act," this act was passed in response to considerable controversy in Congress and the press about the Secretary of Defense's determination that these expenses were not covered under the Pay Our Military Act (POMA), passed on September 30, 2012. According to the Administration's interpretation, the language in POMA providing appropriations to cover "pay and allowances" of active-service personnel did not cover death gratuities, an interpretation questioned by some Members of Congress and some analysts. An October 9, 2013, CRS memo, "Payment of Death Gratuities under the Pay Our Military Act," argues that previous statutory language provides that death gratuity payments are to be made from "payment to members" and that POMA language could be construed to include this type of payment. During a House Armed Services hearing on October 10, 2013, on implementation of POMA, several Members raised concerns about the Department's interpretation. CBO estimates that H.J.Res. 91 will cost $150 million on an annualized basis. Like POMA, the act is in effect until passage of a regular or continuing appropriations act. On October 5, 2013, Secretary of Defense Chuck Hagel announced that after consultation with the Department of Justice, it was decided that the new law, H.R. 3210 , would permit DOD to recall most, but not all, DOD civilians from furlough rather than the fewer number "excepted" from furlough under DOD's original September 25, 2013, Contingency Plan. Under the original plan, only those DOD civilians whose "support activities are felt directly by covered members of the armed forces" (i.e., those performing military operations or required for health and safety) were "excepted" (see Appendix A ). The Administration interpreted H.R. 3210 as also permitting the recall of those DOD civilians " whose responsibilities contribute to the morale, well-being, capabilities and readiness of service members [italics added]" . This revision of DOD's Contingency Plan would increase the number of DOD civilians returning to work from roughly 50% to about 95%, according to DOD Comptroller Robert Hale. Under DOD's revised Contingency Plan reflecting this interpretation of H.R. 3210 , DOD civilians are being recalled from furlough if they: "contribute support to service members and their families on an ongoing basis [italics added]" (such as health care and family support programs, repair and maintenance of weapon systems on bases, training associated with readiness, installation support, commissary, payroll activities, and administrative support); and "contribute to capabilities and sustaining force readiness and that, if interrupted, would affect service members' ability to conduct assigned missions in the future [italics added]" (such as acquisition program management, depot maintenance, intelligence, information technology and other administrative support) (see Appendix B for complete text). The services and defense agencies are currently determining how to carry out the revised guidance. As the services and DOD components implement this decision, civilians will return to work starting this week and will become eligible to be paid on time under H.R. 3210 . Because H.R. 3210 only covers the pay and allowances of personnel, but not "critical parts and supplies" necessary to provide that support, Secretary of Defense Chuck Hagel warned that at some point once current inventories run out, DOD civilians would not be able to do their jobs. At that point, he would be "forced once again to send them home." It is also possible that scheduled two-week annual training for reservists could be delayed if the necessary travel and support are not available. DOD is continuing to review whether the number of contractor personnel, also covered under H.R. 3210 , will be increased. Expanding the number of contractor personnel covered could be problematic because it could be difficult to determine the amount of monies providing pay, the funding covered in POMA. Contracts are typically written in terms of the goods or services to be provided rather than the amount for pay, one element of cost. Those defense civilian or contractor personnel who were or remain furloughed would only receive pay for that period if Congress passes legislation to pay furloughed personnel. Civilians recalled under POMA will also not be paid for furloughed time in early October unless Congress chooses to do so. On October 5, 2013, the House unanimously passed H.R. 3223 , which would provide retroactive pay for all federal employees, as occurred during the 1995 to 1996 shutdown. The President has announced his support. The Senate has not taken up the bill at this time. On October 3, 2013, the House passed H.R. 3230 , Pay Our Guard and Reserve Act, which would provide appropriations to cover the pay of inactive-duty weekend training reservists in FY2014 until a regular or continuing resolution appropriations act is passed. (Reservists performing two-week annual training are already covered under H.R. 3210 .) Although reservists would be paid, it is not clear how much training would take place because H.R. 3230 does not provide appropriations to cover related training costs (e.g., fuel, spare parts, food services, and ammunition). Reservists might be confined to training that did not involve additional expenses beyond their pay, although DOD might be able to draw on existing stocks or existing contracts to address these issues at least in the short-term. This bill is part of a package of five "mini" CRs that would provide funding, generally at the FY2013-enacted level including the effects of sequestration, for the District of Columbia, the National Institutes of Health, various museums, Veterans Administration funding, and pay for guard and reservists. According to press reports, the Senate leadership is not interested in considering partial funding appropriations of particular agencies, and the White House has issued a veto threat. In a September 30, 2013, press conference, DOD Comptroller Robert Hale suggested that while all military personnel would continue to report for duty, only those reservists, DOD civilians, and contractor personnel providing support for the Afghanistan war and other unspecified military operations would continue to work. As an example, DOD Comptroller Hale suggested that civilians providing support for some military operations, such as ships deployed in the Mediterranean, would be "excepted," but that civilian personnel supporting other military activities, such as peacetime training off of Norfolk, would be furloughed. Individual commanding officers are making these decisions. Comptroller Hale agreed that roughly half of DOD's civilian workforce of about 800,000 would be furloughed, as was estimated in 2011 during previous shutdown planning. In DOD's September 23, 2013, memorandum to all its employees, Deputy Secretary of Defense Ashton B. Carter said that under the department's plan in the event of a funding lapse, while "all military personnel would continue in a normal duty status, a large number of our civilian employees would be temporarily furloughed." Three days later, in a September 26, 2013, memo, the Deputy Secretary said that " commanders and supervisors will ... provide additional detail [and] your status under a potential lapse. For those activities that are not excepted, personnel were expected to come in to carry out "orderly shutdown activities" that are expected to take no more than three or four hours. Although the President signed H.R. 3210 on September 30, 2013, the Department of Defense did not revise its contingency plan until October 5, 2013, after consulting the Department of Justice. This delay appears to reflect some debate about how to interpret the language in the new law, which provides appropriations to cover the pay and allowances of those DOD employees who are currently "excepted" from furlough, hence paying those personnel on time, and gives the Secretary of Defense authority to bring previously furloughed civilians and contractor personnel back to work, provided he determines that they are providing support to members of the armed forces performing active service. Some argued that this latter group could constitute all or nearly all DOD civilians and contractors. Initially, Secretary of Defense Hagel indicated that this issue of designating additional groups of civilians or contractors for return from furlough was under review in the Administration. In an October 1, 2013, press conference, Secretary of Defense Chuck Hagel said: Our lawyers are now looking through the law that the president signed, along with the Department of Justice lawyers and OMB, to see if there's any margin here or widening in the interpretation of the law regarding exempt versus non-exempt civilians. Our lawyers believe that maybe we can expand the exempt status. We don't know if that's the case, but we are exploring that, so that we could cut back from the furloughs some of the civilians that had to leave. That same day, Representative Bud P. McKeon, the Chair of the House Armed Services Committee, sent a letter to Secretary Hagel arguing that H.R. 3210 provides the Secretary with "broad latitude" to end the furloughs for DOD civilians. I believe the legislation provides you with broad latitude and I encourage you to use it. The text does not limit to provision of pay to civilians who were previously categorized by the Administration as "excepted" or "essential" for the purposes of Department of Defense operations in the event of a government shutdown. Therefore, I strongly encourage you to use the authority Congress has given you to keep national security running, rather than keeping defense civilians at home when they are authorized to work. The congressional intent of the legislation is not entirely clear. In a recent statement, Representative Mike Coffman, sponsor of H.R. 3210 , suggested that H.R. 3210 would protect "the pay for Department of Defense civilian employees and contractors whose work is essential for military operations." On October 5, 2013, after several days of consultation, the Department of Defense made a determination that H.R. 3210 allowed the department to revise its guidance and recall most of its civilian workforce. The Secretary of Defense has not yet made a determination of whether to revise its guidance about contractor employees (see " DOD Revises Its Guidance on Furloughing Certain Civilians "). The 2013 DOD guidance, like 2011 guidance, provides that many DOD activities would continue during the period of a funding lapse, though other activities would halt. Some personnel would be "excepted" from furloughs, including all uniformed military personnel on active duty, while others would be subject to furlough. "Excepted" military, reservists, and civilian personnel who would continue to work during a lapse in appropriations would be paid on time because of the passage of H.R. 3210 . Other furloughed personnel would not be paid, and may be paid retroactively if Congress chooses to do so once annual appropriations are enacted. This report provides an overview of recent guidance and precedents over the past 30 years that have governed planning for DOD operations in the event of a funding lapse, and it discusses their implications for a shutdown. Among the questions addressed are the effects of a shutdown on pay for uniformed military personnel and DOD civilians; how reservists and military technicians may be affected; types of activities to protect persons and property that are "excepted;" potential effects on contracting; whether DOD Dependent Schools or childcare centers would continue to operate during a shutdown; how long operations of the Defense Finance and Accounting Service could continue; and whether the "Feed and Forage Act," 41 U.S.C. 11, which allows the Defense Department to obligate funds in advance of appropriations for certain purposes, might be invoked to provide additional flexibility during a funding lapse. Answers to some of these questions are quite simple, others complex, and others uncertain. Assuming that past Attorney General, OMB guidance, recent DOD guidance, and current new law are followed in the event of a shutdown, brief answers to these questions are as follows: Pay of Uniformed Military Personnel and DOD Civilians: The current DOD guidance provides that all active-duty military personnel would be "excepted" from furloughs during a lapse in funding, as they have been in the past. H.R. 3210 , the Pay Our Military Act, signed by President Obama on September 30, 2013, provides appropriations to allow the Defense Department to cover the pay and allowances of members of the armed forces performing active service, and the DOD civilians and contractors who provide support to them. H.R. 3210 provides this authority through January 1, 2015, or until other regular or continuing appropriations are enacted. This bill means that today's experience differs from the previous government shutdown in 1995 and 1996, when this authority was not provided and DOD was marginally affected by the first short shutdown and not by the second, longer shutdown because a defense appropriations bill had been enacted. Potential effects on reservists : DOD's Contingency Plan specifies that activated reservists, like active-duty military, would continue to conduct their duties. The Contingency Plan also specifies that reservists will not perform inactive duty training (e.g., weekend drills) "except where such training directly supports an excepted activity" and may not be ordered to active duty (e.g., for annual training) "except in support of those military operations and activities necessary for national security, including fulfilling associated pre-deployment requirements." This would include those reservists currently "training up" for deployments. H.R. 3210 provides appropriations to cover the pay and allowances of activated reservists, but would not cover the compensation of any reservists performing inactive duty training. Under DOD's Contingency Plan, military technicians—who are federal civilian employees required to hold membership in the reserves as a condition of their civilian employment—will continue to perform their civilian duties only if they are deemed necessary to carry out excepted activities. National Security and Protection of Life and Property : The 2013 DOD guidance includes not only military operations in Afghanistan but also some training and other support necessary for the Afghan war or other military operations. Excepted military activities are those considered necessary to "execute planned or contingency operations necessary for national security," including "administrative, logistical, medical, and other activities in direct support of such activities." Other military activities deemed necessary to carry out those operations are recruiting during contingency operations, command, control, communications, computer, intelligence, surveillance and reconnaissance. Not listed are depot maintenance repair of equipment or base support, activities which typically do not involve active-duty personnel. Presumably, civilians performing activities not directly required to support military operations would be furloughed under DOD's original plan. This plan was modified with new guidance issued after enactment of H.R. 3210 (see " Recent Developments "). Contractor Activities: Contracts that rely on previously appropriated funds, whether for weapon systems with deliveries over several years or support services where contracts may span fiscal years, would continue. The Defense Department, however, would only be able to sign new contracts for goods funded with FY2014 funds for activities deemed necessary to support military operations, and no monies could be disbursed (checks sent out) under those contracts. An exception could be any contractor personnel covered by H.R. 3210 , whose support was necessary for military operations, such as contractor personnel in Afghanistan. Operation of DOD Dependent Schools and Childcare: The 2013 and 2001 DOD guidance provides that, the support that dependent schools provide to military personnel is directly enough related to national security that the schools may continue to operate during a shutdown. The 2013 guidance also concludes that child care "essential to readiness" may continue as well as emergency family support. Operation of the Defense Finance and Accounting Service (DFAS) and Other Working Capital Funds: Some DFAS operations would be likely to continue through a funding lapse, initially using funds drawn from reimbursements from prior year funds, and then to issue paychecks for those covered under H.R. 3210 (see " Recent Developments "), and to control funds for contracts in support of excepted activities. DFAS personnel needed to administer military retired pay and other retiree benefits would be expected to work during a funding lapse because the authority to distribute benefits drawn from multi-year funds, including retirement funds, is implied by the responsibility agencies have to provide payments to which recipients are entitled. Military pensions and other retirement benefits are entitlements financed through the military retirement and health care fund, which is available independently of annual defense appropriations. Though new appropriations are not available during a funding lapse, a substantial amount of money provided to the Defense Department is available for obligation for more than one year, including funding for R&D, procurement, military construction, and purchases of material for inventories of stock funds. The 2013 shutdown guidance provides that DFAS can make adjustments for prior year unobligated balances, suggesting that some administration, contract oversight, and auditing functions, some of which are carried out by DFAS, may also continue. Many DFAS personnel are paid through reimbursements from other appropriated accounts for services that DFAS provides to organizations within DOD, and those funds could be available to support DFAS services to continue national security-related operations. DOD's 2013 guidance provides that other activities funded through reimbursements would also continue operations as long as cash was available, recently estimated as about two weeks, according to DOD Comptroller Robert Hale. Authority to Obligate Funds Under the "Feed and Forage Act": The Feed and Forage Act, 41 U.S.C. 11, says, in part, No contract or purchase on behalf of the United States shall be made, unless the same is authorized by law or is under an appropriation adequate to its fulfillment, except in the Department of Defense and ... the Coast Guard when it is not operating as a service in the Navy for clothing, subsistence, forage, fuel, quarters, transportation, or medical and hospital supplies. During the Vietnam War, the law was used to provide funds when supplemental appropriations were delayed. In more recent years, it has been used mainly to provide short-term funding for unplanned military operations. If invoked during a funding lapse, the act would give DOD authority to obligate funds in advance of appropriations for the limited number of purposes specified. While the DOD 2013 guidance mentions the Feed and Forage Act, use of the Feed and Forage Act during a funding lapse appears unnecessary during earlier shutdowns, Attorney General and OMB guidance has allowed national security-related operations to continue. The authority for DOD to continue national security-related activities appears to be considerably broader than that provided by the Feed and Forage Act, which is limited in purpose and which does not directly provide authority to obligate funds for pay of military personnel. Moreover, like the authority provided by the Antideficiency Act, the Feed and Forage Act permits only the obligation of funds and not disbursements until funds are subsequently appropriated—neither law allows the Defense Department to issue pay checks or to make other payments. While invocation of the Feed and Forage Act during a shutdown is conceivable, it is not clear what purpose it would serve. Activities to Protect Health and Safety: The 2013 DOD guidance includes a broad range of activities under the "safety of persons and protection of property" category. These activities range from emergency response and intelligence support to terrorist threat warnings to emergency repair of utilities and associated equipment, and some counterdrug activities. The legal authority for critical military operations to continue is reasonably clear. The 2013 guidance also provides that all other activities needed, in the view of DOD, to support these "excepted" activities, may carry on, including logistics, intelligence, communications, and contracting functions. Guidance also defines quite broadly the range of activities that are permitted to continue in support of operational forces, including personnel support activities such as defense dependent schools and child care, temporary duty travel in support of exempted activities, and new contracts for exempted activities. The Administration is free to change these guidelines, based on its own interpretation of relevant laws and regulations. Nonetheless, though authority to sustain ongoing military operations is clear in principle, a lapse in appropriations, if it were to extend for more than a very limited period of time, could disrupt operations to some degree. As the DOD guidance illustrates, efforts to distinguish between, on the one hand, those activities that are sufficiently important for national security to warrant continuation during a lapse in appropriations and, on the other hand, activities that do not directly support national security involve difficult, and to some degree, arbitrary judgments. Unit training would continue for some combat units, but not for others, depending on their place in deployment or force generation plans. For example, military personnel preparing to deploy to Afghanistan would continue. Medical personnel would continue to provide services to active duty personnel, but not to dependents or retirees who might normally receive non-emergency services in the same facilities. Issuance of some contracts would continue during a shutdown, but other contracting activity, perhaps done by the same people, would not. Local commanders would have the authority to make final judgments on which activities and missions are essential and must be supported; this could result in inconsistent decisions on what activities may continue and what must be shut down across the whole force. Virtually all military personnel and most civilians are normally paid out of annual appropriations. With passage of H.R. 3210 , funds for all active-duty military, activated reservists, and those DOD civilian and contractor personnel whose support is necessary for military operations, for other DOD "excepted" activities, and to support active service personnel will be paid on time despite the lapse in other appropriations. Other DOD civilian and contractor personnel would not be paid. DOD is continuing to review the status of many contractor personnel under H.R. 3210 . Reservists performing weekend drills would not report for duty or be paid under DOD guidance unless Congress decides otherwise at a later time. Furloughed personnel could be subject to financial hardships if a lapse in appropriations extends past a normal pay date, since no disbursements may be made. The hardships that a sudden stop in pay would impose on civilian or contractor personnel, would, of course, vary depending on individual circumstances. Families with a second income and with substantial savings might be able to manage with few problems. Others, particularly those with young families and limited savings, might be affected very badly. In the event of a lapse in funding, the Defense Department would have the authority to obligate funds for goods and services needed to sustain its continuing operations—that is, it can sign contracts with a binding commitment to pay providers—for activities deemed essential to support military operations, but the Antideficiency Act prohibits expenditures or issuing checks for amounts obligated in advance of appropriations. While contracts for activities necessary to support military operations could be signed, reimbursements could not be provided and it is not clear that all vendors would be willing to provide goods or services under these circumstances, particularly if a shutdown appears likely to continue for an extended period. Other new contracts, for example, for new weapon system programs or for higher production rates could be delayed until FY2014 appropriations are enacted if the connection to ongoing military operations is indirect. There is also likely to be some confusion among contractors because funds remaining available from prior years can continue to be distributed, but not new funds. In DOD appropriations acts, funding for R&D is typically available for obligation for two years, for most procurement for three years, and for shipbuilding for five years. Contract authority to purchase stocks of material for inventories is not limited by fiscal year. Unobligated balances of funds for those purposes would remain available even in the absence of new funding. Money for operation and maintenance, however, is generally available for obligation for only one year, so most funding for day-to-day operations of the department would lapse and operations could continue only under the Antideficiency Act exceptions that allow the obligation of funds, but not disbursements. Whether vendors could be paid, therefore, depends on which pot of money obligations are made from, and money for more immediate, readiness-related activities would generally not be used to make prompt payments. Under the circumstances, the Defense Department can be expected to sustain its most important operations, but not without some difficulties in managing the acquisition of material and services from vendors. Based on the 2013 guidance, as well as earlier precedents followed over the past 30 years, the Department of Defense may continue, in the absence of appropriations, to carry on a quite broad range of activities. The most far-reaching authority that affects DOD is authority to continue activities that "provide for the national security." Even DOD's authority to provide for national security, however, may be constrained by legal limits on the financial procedures that are permitted when appropriations lapse. Among other things, in order to carry on activities that are permitted to continue, but for which appropriations have lapsed, funds may be obligated in advance of appropriations (i.e., legally binding contractual commitments may be made), but expenditures of funds that derive from such obligations (i.e., the payment of bills with checks or electronic remittances) are prohibited. As a result, though uniformed military personnel and many DOD civilian employees may be expected to continue in their duties during a funding lapse, those normally paid with current-year appropriated funds, including virtually all uniformed personnel and most civilians, will not receive pay until after appropriations become available. Nor will payments to vendors for goods and services be permitted if the payments derive from contracts entered into in advance of appropriations. The legal authority under which the Department of Defense may continue operations in the event of a funding lapse is established by the Antideficiency Act, now codified at 31 U.S.C. 1341 and 1342. The legal interpretation of the conditions under which operations may continue has been established, in turn, by Department of Justice legal opinions and Office of Management and Budget directives issued initially in 1980 and 1981, and that OMB has referred to in providing guidance on shutdowns since then. Agencies, including DOD, have also been required to prepare detailed plans for implementing a shutdown when lapses in appropriations were anticipated. Ultimately, federal agency plans, based on OMB guidance, determine which activities will continue in the event of a shutdown and which will not. Current agency plans are now posted on OMB's website or by individual agencies. DOD operations in the event of a shutdown would also be governed by financial management procedures that would, in turn, affect how a shutdown is managed. The following discussion (1) briefly reviews the legal basis for the Department of Defense to continue operations during a funding lapse and the attendant legal constraints on the scope of activities and the financial mechanisms that are permitted; (2) provides a brief overview of the possible impact of a lapse in funding on military and civilian personnel, on current military operations including operations in Afghanistan, and on day-to-day business operations of the Department of Defense; and (3) provides selected excerpts from DOD guidance on activities that may continue during a funding lapse and those that may not. The Antideficiency Act, now codified at 31 U.S.C. 1341 and 1342, generally prohibits the obligation or expenditure of funds exceeding amounts appropriated. It provides two quite broad exceptions, however: Section 1341 says that an employee of the United States Government may not "involve [the] government in a contract or obligation for the payment of money before an appropriation is made unless authorized by law." Subsequent Attorney General Opinions on operations permitted during a lapse in appropriations have been intended, in part, to identify what obligations in advance of appropriations should be considered to be "authorized by law." Section 1342 says, in part, that "An officer or employee of the United States Government may not accept voluntary services … or employ personal services exceeding that authorized by law except for emergencies involving the safety of human life or the protection of property." One basis for Department of Defense operations to continue during a funding lapse is this authority to employ personnel to protect human life and property. Department of Justice opinions have found that the authority to employ personal services implies the authority to procure material that personnel may need to carry out their emergency responsibilities (see below for a discussion). OMB guidance to agencies on preparations for a shutdown has identified a quite extensive range of activities that are permitted to continue in the absence of appropriations in order to protect human life and property. While the Antideficiency Act permits certain exceptions to the requirement that agency operations cease when appropriations are not provided, the exceptions permit only the obligation of funds in advance of appropriations for the excepted activities, not the expenditure of funds. Contracts for material and services may be signed, and personnel may continue to be employed, but the Antideficiency Act does not permit agencies to make payments to vendors or issue pay checks to personnel if the payments would have to be drawn from amounts obligated in advance of appropriations. To be absolutely clear, no money is actually available, but only the promise to provide funds at some time in the future. Attorney General opinions released in April 1980 and January 1981 and OMB memoranda issued in September 1980 and November 1981—and referred to repeatedly in later years—provide the basic guidance on activities that DOD and other executive branch agencies may be allowed to continue when appropriations are not provided. In general, these activities are understood to be "authorized by law" under Section 1341 of the Antideficiency Act or to permit the employment of personal services for emergencies involving the safety of human life or the protection of property under Section 1342. The principal activities that the Justice Department and OMB have determined may continue include the following. Activities "necessary to bring about the orderly termination of an agency's functions": The Attorney General found that agencies may obligate funds to shut down operations after a funding lapse under the terms of the Antideficiency Act itself, since "it would be impossible in fact for agency heads to terminate all agency functions without incurring any obligations whatsoever in advance of appropriations." In general, such activities are expected to be very limited—OMB guidance in 2013 said that "orderly shutdown activities should take no more than three or four hours following the expiration of funding." Administration of benefit payments provided through funds that remain available in the absence of new appropriations: The Attorney General found that departments are "authorized to incur obligations in advance of appropriations for the administration of benefit payments under entitlement programs when the funds for the payments themselves are not subject to a one-year appropriation." This follows, he said, from the premise that funding is "authorized by necessary implication from the specific terms of duties that have been imposed on, or authorities that have been invested in, the agency." The Social Security Administration, by this reasoning, may continue to pay personnel and to fund operations needed to manage pensions during a lapse in funding because of its responsibility to distribute benefits that are provided through a permanent trust fund that is not affected by a lapse in appropriations. Presumably, DOD administration of military retired pay and medical benefits may continue as well. Activities and purchases financed with prior year funds and ongoing activities for which funding has already been obligated: Substantial amounts of DOD funding are provided in accounts that are available for obligation for more than a year—R&D funding is typically available for two years, most procurement for three years, and shipbuilding funds for five years. Contract authority to procure material for stockpiles is also available as "no year" money. Contract authority provided understanding law and unobligated balances in the acquisition accounts remain available during a lapse in funding because they have previously been provided—only current-year funding is affected by a lapse in appropriations. Similarly, contracts which have already been signed, and which may require delivery of services or material as ordered, remain valid. Most significantly, obligations already made or new obligations made from funds appropriated in prior years may lead to expenditures of funds, in contrast to obligations made in advance of appropriations. Whether vendors may be paid during the period of a funding lapse, therefore, depends on which pot of money the funds are drawn from—some contractors may be paid as usual while others may not be. At the very least, a degree of confusion is likely. A further complicating factor is whether administrative personnel needed to manage contracts are permitted to continue working. To the extent that acquisition personnel are paid with annual appropriations—which is generally the case—personnel may be available to manage contracts only if they are excepted from a shutdown. It is not necessarily to be assumed that agencies have authority under the Antideficiency Act to except from furloughs personnel needed to administer the use of funds available from prior year appropriations or other sources. Both the 2011 and 2013 DOD guidance, however, say that personnel may continue to administer activities financed with prior year or other available funds that are necessary to support excepted activities. Activities undertaken on the basis of constitutional authorities of the President: The Attorney General found that the President has an inherent constitutional authority to obligate funds in advance of appropriations to carry out "not only functions that are authorized by statute, but functions authorized by the Constitution as well." When the Constitution grants a specific power to the President, the Attorney General reasoned, "Manifestly, Congress could not deprive the President of this power by purporting to deny him the minimum obligational authority sufficient to carry this power into effect." This does not mean that the President can "legislate his own obligational authorities." But in the opinion of the Attorney General, "the policy objective of the Antideficiency Act … should not alone be regarded as dispositive of the question of authority." The Attorney General did not specifically address whether this provides a basis for the President to direct that funds be obligated in advance of appropriations for reasons of national security. OMB memoranda since 1980 repeat the conclusion that funding may be continued to "Provide for the national security, including the conduct of foreign relations essential to the national security or the safety of life or property." This wording might be read to imply that the authority of agencies to continue operations related to national security is independent of the authority to continue activities related to the safety of life or the protection of property. National security-related activities may, then, be among those for which obligations in advance of appropriations are considered to be "authorized by law" under Section 1341 of the Antideficiency Act and are permitted independently of Section 1342 and whether or not they protect life or property. For its part, however, the Defense Department has generally not cited any authority beyond that provided in Section 1342. Activities that protect life and property: OMB guidance periodically issued in preparation for a shutdown concludes that agencies have the authority to "Conduct essential activities to the extent that they protect life and property." The guidance reflects Section 1342 of the Antideficiency Act. Section 1342, however, directly permits the obligation of funds only for employment of "personal services" and not for other purposes. Rather than accept such a limited view of what is permitted, the January 16, 1981, Attorney General opinion provided a basis for expanding the scope of activities permitted under Section 1342 to include the acquisition of material needed to respond to emergencies to those: in which a government agency may employ personal services … it may also … incur obligations in advance of appropriations for material to enable the employees involved to meet the emergency successfully. In order to effectuate the legislative intent that underlies a statute, it is ordinarily inferred that a statute "carries with it all means necessary and proper to carry out properly the purposes of the law." OMB memoranda provide a fairly long list of examples of activities permitted to continue on the grounds they protect life and property, including inpatient and emergency outpatient medical care; public health and safety activities; air traffic control; border protection; care of prisoners; law enforcement; disaster assistance; preservation of the banking system; borrowing and tax collection; power production and distribution; and protection of research property. The "protection of property" exception in itself appears to provide the basis for a quite wide range of government activities to continue. Appendix A. 2013 DOD Guidance on Operations During a Lapse of Appropriations Below are excerpts (in italics) from the September 25, 2013, guidance issued by Deputy Secretary of Defense Ashton B. Carter, "Guidance for Continuation of Operations in the Absence of Available Appropriations." General guidance is followed by a specific list of excepted activities in an attachment. Excerpts from Memorandum The Department will, of course, continue to prosecute the war in Afghanistan, including preparation of forces for deployment into that conflict. The Department must, as well, continue many other operations necessary for the safety of human life and protection of property, including operations essential for the security of our nation. These activities will be "excepted" from cessation; all other activities would need to be shut down in an orderly and deliberate fashion, including —with few exceptions— the cessation of temporary duty travel. All military personnel will continue in a normal duty status regardless of their affiliation with excepted or non-excepted activities. Military personnel will serve without pay until such time as Congress makes appropriated funds available to compensate them for this period of service. Civilian personnel who are engaged in excepted activities will also continue in normal duty status and also will not be paid until Congress makes appropriated funds available. Civilian employees not engaged in excepted activities will be furloughed, i.e., placed in a non-work, non-pay status. The responsibility for determining which functions would be excepted from shut down resides with the Military Department Secretaries and Heads of DOD Components, who may delegate this authority as they deem appropriate. The attached guidance should be used to assist in making this excepted determination. The guidance does not identify every excepted activity, but rather provides overarching direction and general principles for making these determinations. It should be applied prudently in the context of a Department at war, with decisions guaranteeing our continued robust support for those engaged in that war, and with assurance that the lives and property of our Nation's citizens will be protected. Excerpts from Attachment: Examples of "Excepted" Activities Following are excerpts (in italics) from the 2013 DOD shutdown planning guidance which, although not comprehensive, provides in more detail illustrative examples of the types of DOD activities that would and would not be excepted, in case of a lapse of appropriation. The information provided in this document is not exhaustive, but rather illustrative, and is intended primarily to assist in the identification of those activities that may be continued notwithstanding the absence of available funding authority in the applicable appropriations (excepted activities). Activities that are determined not to be excepted, and which cannot be performed by utilizing military personnel in place of furloughed civilian personnel, will be suspended when appropriated funds expire. The Secretary of Defense may, at any time, determine that additional activities shall be treated as excepted. Military Personnel Military personnel are not subject to furlough. Accordingly, military personnel on active duty, including reserve component personnel on Federal active duty, will continue to report for duty and carry out assigned duties. In addition to carrying out excepted activities, military personnel on active duty may be assigned to carry out non-excepted activities, in place of furloughed civilian personnel, to the extent that the non-excepted activity is capable of performance without incurring new obligations. Reserve component personnel performing Active Guard Reserve (AGR) duty will continue to report for duty to carry out AGR authorized duties. Reserve component personnel will not perform inactive duty training resulting in the obligation of funds, except where such training directly supports an excepted activity, and may not be ordered to active duty, except in support of those military operations and activities necessary for national security listed in Attachment 2, including fulfilling associated pre-deployment requirements. Orders for members of the National Guard currently performing duties under 32 U.S.C. 502(f) will be terminated unless such duties are in support of excepted activities approved by the Secretary of Defense. Civilian Personnel Civilian personnel, including military technicians, who are not necessary to carry out or support excepted activities, are to be furloughed. Only the minimum number of civilian employees necessary to carry out excepted activities will be exempt from furlough. Positions that provide direct support to excepted positions may also be deemed excepted if they are critical to performing the excepted activity. Determinations regarding the status of civilian positions will be made on a position by position basis, using the guidance in this document. Determinations shall be made for all positions, including those in the Senior Executive Service or equivalent, as well as those located overseas. Following the expiration of appropriations, a minimum number of civilian employees may be retained as needed to execute an orderly suspension of non-excepted activities within a reasonable timeframe. Civilian personnel whose salaries are paid with expired appropriations and later reimbursed from a non-DOD source (e.g., the Foreign Military Sales Trust Fund) are not exempt from furlough solely on that basis. Personnel whose salaries are paid from a DOD appropriation or fund that has sufficient funding authority (e.g., multiyear appropriations with available balances from prior years) will not be subject to furlough. Heads of activities may, on their authority, require the return to work of civilian personnel in the event of developments (natural disasters, accidents, etc.) that pose an imminent danger to life or property. Contracts Contractors performing under a contract that was fully obligated upon contract execution (or renewal) prior to the expiration of appropriations may continue to provide contract services, whether in support of excepted activities or not. However, new contracts (including contract renewals or extensions, issuance of task orders, exercise of options) may not be executed unless the contractor is supporting an excepted activity. No funds will be available to pay such new contractors until Congress appropriates additional funds. The expiration of an appropriation does not require the termination of contracts (or issuance of stop work orders) funded by that appropriation unless a new obligation of funds is required under the contract and the contract is not required to support an excepted activity. In cases where new obligation is required and the contract is not required to support an excepted activity, the issuance of a stop work order or the termination of the contract will be required. The Department may continue to enter into new contracts, or place task orders under existing contracts, to obtain supplies and services necessary to carry out or support excepted activities even though there are no available appropriations. It is emphasized that this authority is to be exercised only when determined to be necessary -where delay in contracting would endanger national security or create a risk to human life or property. Additionally, when authorized by the Secretary of Defense, contracts for covered items may be entered into under the authority of the Feed and Forage Act. Protection of Life and Property/National Security Military operations and activities authorized by deployment or execute orders, or otherwise approved by the Secretary of Defense, and determined to be necessary for national security, including administrative, logistical, medical, and other activities in direct support of such operations and activities; training and exercises required to prepare for and carry out such operations. Activities of forces assigned or apportioned to combatant commands to execute planned or contingent operations necessary for national security, including necessary administrative, logistical, medical, and other activities in direct support of such operations; training and exercises required to prepare for and carry out such operations.Activities necessary to continue recruiting for entry into the Armed Forces during contingency operations (as such term is defined in 10 U.S.C 101(13)), including activities necessary to operate Military Entrance Processing Stations (MEPS) and to conduct basic and other training necessary to qualify such recruited personnel to perform their assigned duties. Command, control, communications, computer, intelligence, surveillance, and reconnaissance activities required to support national or military requirements necessary for national security or to support other excepted activities, including telecommunications centers and phone switches on installations, and secure conference capability at military command centers.Activities required to operate, maintain, assess, and disseminate the collection of intelligence data necessary to support tactical and strategic indications and warning systems, and military operational requirements. Activities necessary to carry out or enforce treaties and other international obligations. Safety of Persons and Protection of Property Response to emergencies, including fire protection, physical and personnel security, law enforcement/counter terrorism, intelligence support to terrorist threat warnings, Explosive Ordnance Disposal operations, emergency salvage, sub-safe program, nuclear reactor safety and security, nuclear weapons, air traffic control and harbor control, search and rescue, utilities, housing and food services for military personnel, and trash removal.Emergency repair & non-deferrable maintenance to utilities, power distribution system buildings or other real property, including bachelor enlisted quarters (BEQ), bachelor officers' quarters (BOQ), and housing for military personnel. Repair of equipment needed to support services for excepted activities, including fire trucks, medical emergency vehicles, police vehicles, or material handling vehicles.Monitoring and maintaining alarms and control systems, utilities, and emergency services. Receipt/safekeeping of material delivered during shutdown. Control of hazardous material and monitoring of existing environmental remediation. Oil spill/hazardous waste cleanup, environmental remediation, and pest control, only to the extent necessary to prevent imminent danger to life or property. 56 Safe storage or transportation of hazardous materials, including ammunition, chemical munitions, photo processing operations. Emergency reporting response and input to the National Response Team and coordinating with Environmental Protection Agency (EPA) and other agencies on fire, safety, occupational health, environmental, explosive safety for vector borne disease management. Activities, both in the Continental United States (CONUS) and overseas, required for the safety of DOD or other U.S. Government employees or for the protection of DOD or other U.S. Government property. Defense support to civil authorities in response to disasters or other imminent threats to life and property, including activities of the U.S. Army Corps of Engineers with respect to responsibilities to state and local governments that involve imminent threats to life or property. Foreign humanitarian assistance in response to disaster or other crises posing an imminent threat to life. Emergency counseling and crisis intervention intake screening and referral services. Suicide and substance abuse counseling. Counterdrug activities determined to be necessary for the protection of life or property. Operation of mortuary affairs activities and attendant other services necessary to properly care for the fallen and their families. Other activities authorized by the Secretary of Defense to provide for the safety of life or protection of property. Medical and Dental Care Inpatient care in DOD Medical Treatment Facilities and attendant maintenance of patient medical records. 58Acute and emergency outpatient care in DOD medical and dental facilities. Private Sector Care under TRICARE. Certification of eligibility for health care benefits. Veterinary Services that support excepted activities (i.e., food supply and service inspections). Acquisition and Logistic Support Contracting, contract administration, and logistics operations in support of excepted activities.Activities required to contract for and to distribute items as authorized by the Feed and Forage Act (e.g., clothing, subsistence, forage, fuel, quarters, transportation, and medical and hospital supplies).Central receiving points for storage of supplies and materials purchased prior to the shutdown. Education and Training Education and training necessary to participate in or support excepted activities.DOD Education Activity (DODEA) educational activities. 60 Legal Activities Litigation activities associated with imminent or ongoing legal action, in forums inside or outside of 000, to the extent required by law or necessary to support excepted activities.Legal support for excepted activities, including legal assistance for military and civilian employees deployed, or preparing to deploy, in support of military or stability operations.Legal activities needed to address external (non-judicial) deadlines imposed by non-DOD enforcement agencies, to the extent necessary to continue excepted activities. Audit and Investigation Community Criminal investigations related to the protection of life or property, including national security, as determined by the head of the investigating unit, and investigations involving undercover activities. Counterterrorism and counterintelligence investigations. Morale, Welfare and Recreation/Non-appropriated Funds Morale, Welfare, and Recreation (MWR) and Non-Appropriated Fund (NAF) activities necessary to support excepted activities, e.g., operation of mess halls; physical training; child care activities required for readiness. 61 Financial Management Activities necessary to control funds, record new obligations incurred in the performance of excepted activities, and manage working capital funds. 62Activities necessary to effect upward adjustment of obligations and the reallocation of prior-year unobligated funds in support of excepted activities. Working Capital Fund/Revolving Fund Defense Working Capital Fund (DWCF)/ Revolving Fund (RF) activities with positive cash balances may continue to operate until cash reserves are exhausted.When cash reserves are exhausted, DWCF/RF activities must continue operations in direct support of excepted activities. DWCF/RF activities may continue to accept orders financed with appropriations enacted prior to the current fiscal year or unfunded orders from excepted organizations. Unfunded orders will be posted to accounts receivable and not actually billed until appropriations are enacted. Appendix B. DOD, "Guidance for Implementation of Pay Our Military Act," October 5, 2013 See below for complete text of DOD guidance to reflect the Administration's interpretation of the effects of H.R. 3210 , Pay Our Military Act, identifying the number and categories of DOD civilians to be recalled from furlough. SUBJECT: Guidance for Implementation of Pay Our Military Act Appropriations provided under the Consolidated and Further Continuing Appropriations Act,2013 (P.L. 113-6) expired at midnight on Monday, September 30, 2013. Hours before that occurred, the Congress passed and the President signed the Pay Our Military Act. That Act provides appropriations for specified purposes while interim or full-year appropriations for fiscal year 2014 are not in effect, as is currently the case. First, the Act appropriated such sums as are necessary to provide pay and allowances to members of the Armed Forces, "including reserve components thereof, who perform active service during such period[.] " This provision provides the Department with the funds necessary to pay our military members (including Reserve Component members) on active duty or full-time National Guard duty under Title 32, U.S. Code. Second, the Act appropriated such sums as are necessary to provide pay and allowances to contractors of DoD who the Secretary determines are providing support to members of the Armed Forces in active service. The Department's lawyers are analyzing what authority is provided by this provision. Third, the Act appropriated such sums as are necessary to provide pay and allowances to the civilian personnel of the Department of Defense "whom the Secretary ... determines are providing support to members of the Armed Forces" performing active service during such period. The term "pay and allowances" includes annual leave and sick leave. This Memorandum provides instructions for identifying those civilian personnel within the Department who "are providing support to members of the Armed Forces" within the meaning of the Act. The responsibility for determining which employees fall within the scope of this statute resides with the Military Department Secretaries and Heads of other DoD Components, who may delegate this authority in writing. This guidance must be used in identifying these employees. The guidance does not identify every activity performed by DoD's large civilian workforce, but rather it provides overarching direction and general principles for making these determinations. It should be applied prudently, and in a manner that promotes consistency across the Department. The Department of Defense consulted closely with the Department of Justice, which expressed its view that the law does not permit a blanket recall of all civilians. Under our current reading of the law, the standard of "support to members of the Armed Forces" requires a focus on those employees whose responsibilities contribute to the morale, well-being, capabilities, and readiness of covered military members during the lapse of appropriations. I have determined that this standard includes all those who are performing activities deemed "excepted" pursuant to the "CONTINGENCY PLAN GUIDANCE FOR CONTINUATION OF ESSENTIAL OPERATIONS IN THE ABSENCE OF AVAILABLE APPROPRIATIONS, SEPTEMBER 2013" because these support activities are felt directly by covered members of the Armed Forces. I want to make it clear that every DoD employee makes an essential contribution to the Department's ability to carry out its mission of defending the Nation. However, under this Act, we must determine who provides support to the members of the Armed Forces in active service, in a way that respects Congress's specific appropriation. There are two distinct categories of civilian employees who fall within the scope of this statutory provision, in addition to those performing excepted activities. The first category includes those employees whose responsibilities provide support to service members performing active service and their families on an ongoing basis. The second category consists of those employees whose responsibilities contribute to sustaining capabilities and Force Readiness and which, if interrupted by the lapse in appropriations, will impact service members' ability to conduct assigned missions in the future. To fall within this second category, there must be a causal connection between the failure to perform the activity during the duration of an appropriations lapse and a negative impact on military members in the future. In other words, if the activity is not performed over the duration of an appropriations lapse, would it be possible to identify a negative impact that will be felt by military members at some time in the future? In undertaking this analysis, it should be assumed that regular appropriations will be restored within the near term. Examples of activities that provide support to service members on an ongoing basis are: i) Health Care Activities and Providers; ii) SAPRO, Behavioral Health, and Suicide Prevention Programs; iii) Transition Assistance Programs for Military Members in active service; iv) Family Support Programs and Activities; v) Activities related to the repair and maintenance of weapons systems and platforms at the Operational and Intermediate level; vi) Training Activities associated with military readiness; vii) Supply Chain Management activities in support of near term Force Readiness; viii) Human Resource Activities associated with organizing, equipping, manning and training functions; ix) Installation Support and Facilities maintenance; x) Commissary operations; xi) Payroll activities; xii) The provision of guidance or advice to military members when such guidance or advice is necessary for the military members to execute their functions (e.g., legal advice); and xiii) Necessary support for all activities listed above, including legal, human resources, engineering, and administrative support. Examples of activities that contribute to capabilities and sustaining force readiness and that, if interrupted, would affect service members' ability to conduct assigned missions in the future include: i) Acquisition Program oversight and management (including inspections and acceptance), financial management, contract, logistics, and engineering activities, which support long term readiness; ii) Activities related to the repair and maintenance of weapons systems and platforms at the Depot level; iii) Supply chain management activities in support of long-term force readiness; iv) Intelligence functions; v) Information Technology functions; and vi) Necessary support for all activities listed above determined to be within the scope of the Act, including legal, human resources, engineering, and administrative support. Employees performing these activities are within the scope of the Act only if a delay in the performance of these activities over the duration of a lapse in appropriations would have a negative impact on members of the Armed Forces in the future. Delays in the availability of new or repaired equipment would be one such impact. Those employees of the Department who do not fall within the scope of the Act (unless they have been determined to be "excepted" and unless engaged in activities that support service members) include: i) CIO functions; ii) DCMO functions, at the OSD and Component level; iii) Legislative Affairs and Public Affairs functions not previously excepted or required in support of internal communications to members ofthe Armed Forces in active service; iv) Auditor and related functions, not previously excepted, and DF AS functions that otherwise would not be determined to be "excepted" upon exhaustion of its working capital fund budgetary resources, and not required to process payrolls; v) Work done in support of non-DoD activities and Agencies (except the U.S. Coast Guard); and vi) Civil works functions of the Department of Army. As I stated above, all DoD employees perform work that is critical to the long-term strength of our Armed Forces, and our Nation. I fervently hope that the time will be short until I can recall all employees of the Department of Defense back to the vital work that they do helping to defend this Nation and secure our future. I will continue to explore all possibilities to this end. Those falling outside the scope of the Act include men and women who have devoted their lives to service of this country, and whose work on our behalf and on behalf of the Nation is enormously valuable and critical to the maintenance of our military superiority over the long term. The Act provides appropriations for personnel; it does not provide appropriations for equipment, supplies, materiel, and all the other things that the Department needs to keep operating efficiently. While the Act permits the Department to bring many of its civilian employees back to work, and to pay them, if the lapse of appropriations continues, many of these workers will cease to be able to do their jobs. Critical parts, or supplies, will run out, and there will be limited authority for the Department to purchase more. If there comes a time that workers are unable to do their work, I will be forced once again to send them home. Within the Office of the Secretary of Defense, the Under Secretary of Defense (Comptroller) will take the lead in overseeing the implementation of this guidance, assisted by other offices as necessary. Thank you all for your strong leadership at a very difficult time. The President, the country and I are all grateful for and depend on your leadership, courage, and commitment to our troops, their families and our country. cc: Director of National Intelligence
|
Because Congress did not provide any FY2014 funding for the Department of Defense (DOD) by October 1, 2013, the beginning of the new fiscal year, DOD, like other agencies, is now subject to a lapse in appropriations during which agencies are generally required to shut down. The Office of Management and Budget (OMB), however, has identified a number of exceptions to the requirement that agencies cease operations, including a blanket exception for activities that "provide for the national security." With the approach of the Treasury Department's estimate of an October 17, 2013, deadline for raising the debt ceiling, concerns have grown about the potential effect on government programs and workers. If the Treasury Department were to continue the current practice of paying bills as they come due, DOD programs ranging from payments to military retirees to contractor bills could be delayed or reduced, a situation that differs from the current government shutdown. It is difficult to predict effects because of the uncertainty about Treasury actions, but payment delays could affect all programs and personnel. Negotiations are currently underway to deal with the upcoming deadline. Concerns about DOD's implementation of the government shutdown continue. On September 25, 2013, DOD issued guidance and a contingency plan that limited the types of "excepted" activities that would continue to be carried out during a shutdown to military operations, unspecified other operations and national security activities, and those necessary to protect the safety of persons and property. As a result, during the lapse in appropriations, some DOD personnel would be "excepted" from furloughs, including all uniformed military personnel, while others would be furloughed and, thus, not be permitted to work. Those civilian personnel who support "excepted" activities—roughly half of DOD's 750,000 civilians—would continue to report for work while the remainder would be furloughed and not paid. Normally, such "excepted" military and civilian personnel would continue to work but would not be paid until after appropriations are subsequently provided. With enactment of H.R. 3210, the Pay Our Military Act (POMA), on September 30, 2013, however, many defense personnel will be paid on time, including all active-duty personnel, most civilians, and some contractor personnel. On October 5, 2013, Secretary of Defense Chuck Hagel announced that the language in H.R. 3210 would allow DOD to recall most but not all of its civilian employees to work. In addition to those DOD civilians already designated as "excepted," the Administration interpreted H.R. 3210 as permitting the Secretary to recall (and start to pay) those DOD civilians "whose responsibilities contribute to the morale, well-being, capabilities and readiness of service members." This revision of DOD's Contingency Plan would increase the number of DOD civilians returning to work from roughly 50% to about 95%, according to DOD Comptroller Robert Hale. As the services and DOD components implement this decision, civilians will return to work starting this week, and be paid on time under H.R. 3210. DOD is continuing to review whether the number of contractor personnel, also covered under H.R. 3210, will be increased. Those defense civilian or contractor personnel who were or remain furloughed would only receive pay for that period if Congress passes legislation to pay furloughed personnel. On October 5, 2013, the House unanimously passed H.R. 3223, which would provide retroactive pay for all federal employees, as occurred during the 1995 to 1996 shutdown. The President has announced his support of the bill. The Senate has not yet taken it up. On October 10, 2013, in reaction to considerable controversy in Congress, the President signed H.J.Res. 91, Honoring the Families of Fallen Soldiers Act, to provide for payment of death gratuities and other funeral expenses. Both houses had passed the bill unanimously. Previously, the Secretary of Defense had determined that such expenses were not covered under POMA. CBO estimates that the new law would cost about $150 million over the course of a year. On October 2 and October 3, 2013, the House passed five "mini" Continuing Resolutions (CRs) providing funding for the District of Columbia, NIH, various museums, Veterans Administration disability programs, and pay for non-activated reservists, generally at FY2013 levels including the sequester now in effect. That package includes H.R. 3230, which would expand the number of reservists who would be paid on time from activated reservists (such as those deployed for the Afghan war) who are already covered by H.R. 3210, to non-activated duty reservists who are performing weekend drills. Based on press reports of reactions from the Senate leadership, however, the Senate is not likely to take up the bill. The authority to continue some activities during a lapse in appropriations is governed by the Antideficiency Act, codified at 31 U.S.C. 1341 and 1342, as interpreted by Department of Justice (DOJ) legal opinions and reflected in Office of Management and Budget (OMB) guidance to executive agencies. Subject to review by OMB, each agency is responsible for making specific determinations on which activities may continue during a shutdown and which may not. Legally, according to DOJ and OMB guidance, activities that may continue during a lapse in appropriations include (1) activities "necessary to bring about the orderly termination of an agency's functions"; (2) administration of benefit payments provided through funds that remain available in the absence of new appropriations, including, in the case of DOD, military retirement benefits; (3) activities and purchases financed with prior year funds and ongoing activities for which funding has already been obligated; (4) activities undertaken on the basis of constitutional authorities of the President; and (5) activities related to "emergencies involving the safety of human life or the protection of property." The Defense Department attributes its authority to carry on national security-related operations mainly to Section 1342 of the Antideficiency Act, which permits the continuation of activities to protect human life and property. In addition to military operations, other activities that would continue under a shutdown by virtue of the Anti-Deficiency Act include operation of DOD Dependent Schools, child care centers, and DOD medical activities, including TRICARE services for dependents, but not non-essential services, such as elective surgery in military medical facilities. Passage of POMA considerably broadened the types of support activities, primarily performed by civilians, that would continue during the shutdown. A CBO estimate suggests that POMA appropriated $200 billion, or about one-third or of DOD's $614 billion FY2014 request. The roughly 5% of DOD's civilians who would continue to be furloughed continue to face a pay gap, potentially imposing hardships on many families, unless legislation providing retroactive pay is enacted. Contracting activities that supported military activities and payments to vendors derived from prior multiyear appropriations could also continue. The status of many contractor personnel remains unclear. While some new contract obligations to support "excepted" activities could be signed, monies could not be disbursed while other new contracts would be delayed. This could create some confusion and, potentially, disruptions to supplies of some material and services, particularly if full funding for DOD is not restored soon.
|
Congressional oversight refers to the review, monitoring, and supervision of federal agencies, programs, activities, and policy implementation. Congress exercises this power largely through its standing committee system. However, oversight, which dates to the earliest days of the Republic, also occurs in a wide variety of congressional activities and contexts. These include authorization, appropriations, investigative, and legislative hearings by standing committees; specialized investigations by select committees; and reviews and studies by congressional support agencies and staff. Congress's oversight authority derives from its "implied" powers in the Constitution, public laws, and House and Senate rules. It is an integral part of the American system of checks and balances. Underlying the legislature's ability to oversee the executive branch are democratic principles as well as practical purposes. John Stuart Mill, the British Utilitarian philosopher, insisted that oversight was the key feature of a meaningful representative body: "The proper office of a representative assembly is to watch and control the government." As a young scholar and future President, Woodrow Wilson—in his 1885 treatise, Congressional Government —equated oversight with lawmaking, which was usually seen as the supreme function of a legislature. He wrote, "Quite as important as legislation is vigilant oversight of administration." The philosophical underpinning for oversight is the Constitution's system of checks and balances among the legislative, executive, and judicial branches. James Madison, known as the "Father of the Constitution," described the system in Federalist No. 51 as establishing "subordinate distributions of power, where the constant aim is to divide and arrange the several offices in such a manner that each may be a check on the other." Oversight, as an outgrowth of this principle, ideally serves a number of overlapping objectives and purposes: improve the efficiency, economy, and effectiveness of governmental operations; evaluate programs and performance; detect and prevent poor administration, waste, abuse, arbitrary and capricious behavior, or illegal and unconstitutional conduct; protect civil liberties and constitutional rights; inform the general public and ensure that executive policies reflect the public interest; gather information to develop new legislative proposals or to amend existing statutes; ensure administrative compliance with legislative intent; and prevent executive encroachment on legislative authority and prerogatives. In sum, oversight is a way for Congress to check on, and check, the executive branch. Although the Constitution grants no formal, express authority to oversee or investigate the executive or program administration, oversight is implied in Congress's impressive array of enumerated powers. The legislature is authorized to appropriate funds; raise and support armies; provide for and maintain a navy; declare war; provide for organizing and calling forth the national guard; regulate interstate and foreign commerce; establish post offices and post roads; advise and consent on treaties and presidential nominations (Senate); and impeach (House) and try (Senate) the President, Vice President, and civil officers for treason, bribery, or other high crimes and misdemeanors. Reinforcing these powers is Congress's broad authority "to make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof." The authority to oversee derives from these constitutional powers. Congress could not carry them out reasonably or responsibly without knowing what the executive is doing; how programs are being administered, by whom, and at what cost; and whether officials are obeying the law and complying with legislative intent. The Supreme Court has legitimated Congress's investigative power, subject to constitutional safeguards for civil liberties. In 1927, the Court found that, in investigating the administration of the Department of Justice, Congress was considering a subject "on which legislation could be had or would be materially aided by the information which the investigation was calculated to elicit." The "necessary and proper" clause of the Constitution also allows Congress to enact laws that mandate oversight by its committees, grant relevant authority to itself and its support agencies, and impose specific obligations on the executive to report to or consult with Congress, and even seek its approval for specific actions. Broad oversight mandates exist for the legislature in several significant statutes. The Legislative Reorganization Act of 1946 (P.L. 79-601), for the first time, explicitly called for "legislative oversight" in public law. It directed House and Senate standing committees "to exercise continuous watchfulness" over programs and agencies under their jurisdiction; authorized professional staff for them; and enhanced the powers of the Comptroller General, the head of Congress's investigative and audit arm, the Government Accountability Office (GAO). The Legislative Reorganization Act of 1970 (P.L. 91-510) authorized each standing committee to "review and study, on a continuing basis, the application, administration and execution" of laws under its jurisdiction; increased the professional staff of committees; expanded the assistance provided by the Congressional Research Service; and strengthened the program evaluation responsibilities of GAO. The Congressional Budget Act of 1974 ( P.L. 93 - 344 ) allowed committees to conduct program evaluation themselves or contract out for it; strengthened GAO's role in acquiring fiscal, budgetary, and program-related information; and upgraded GAO's review capabilities. Besides these general powers, numerous statutes direct the executive to furnish information to or consult with Congress. For example, the Government Performance and Results Act of 1993 ( P.L. 103 - 62 ) requires agencies to consult with Congress on their strategic plans and report annually on performance plans, goals, and results. In fact, more than 2,000 reports are submitted each year to Congress by federal departments, agencies, commissions, bureaus, and offices. Inspectors general (IGs), for instance, report their findings about waste, fraud, and abuse, and their recommendations for corrective action, periodically to the agency head and Congress. The IGs are also instructed to issue special reports concerning particularly serious and flagrant problems immediately to the agency head, who transmits them unaltered to Congress within seven days. Inspectors general also communicate with Members, committees, and staff of Congress in other ways, including testimony at hearings, in-person meetings, and written and electronic communications. The Reports Consolidation Act of 2000 ( P.L. 106 - 531 ), moreover, instructs the IGs to identify and describe their agencies' most serious management and performance challenges and briefly assess progress in addressing them. This new requirement is to be part of a larger effort by individual agencies to consolidate their numerous reports on financial and performance management matters into a single annual report. The aim is to enhance coordination and efficiency within the agencies; improve the quality of relevant information; and provide it in a more meaningful and useful format for Congress, the President, and the public. In addition to these avenues, Congress creates commissions and establishes task forces to study and make recommendations for select policy areas that can also involve examination of executive operations and organizations. There is a long history behind executive reports to Congress. Indeed, one of the first laws of the First Congress—the 1789 Act to establish the Treasury Department (1 Stat. 66)—called upon the Secretary and the Treasurer to report directly to Congress on public expenditures and all accounts. The Secretary was also required "to make report, and give information to either branch of the legislature ... respecting all matters referred to him by the Senate or House of Representatives, or which shall appertain to his office." Separate from such reporting obligations, public employees may provide information to Congress on their own. In the early part of the 20 th century, Congress enacted legislation to overturn a "gag" rule, issued by the President, that prohibited employees from communicating directly with Congress (5 U.S.C. 7211 (1994)). Other "whistleblower" statutes, which have been extended specifically to cover personnel in the intelligence community ( P.L. 105 - 272 ), guarantee the right of government employees to petition or furnish information to Congress or a Member. Chamber rules also reinforce the oversight function. House and Senate rules, for instance, provide for "special oversight" or comprehensive policy oversight, respectively, for specified committees over matters that relate to their authorizing jurisdiction. House rules also direct each standing committee to require its subcommittees to conduct oversight or to establish an oversight subcommittee for this purpose. House rules also call for each committee to submit an oversight agenda, listing its prospective oversight topics for the ensuing Congress, to the House Committee on Oversight and Government Reform, which reports the oversight plans to the House, and the Committee on House Administration. The House Oversight and Government Reform Committee and the Senate Homeland Security and Governmental Affairs Committee, which have oversight jurisdiction over virtually the entire federal government, furthermore, are authorized to review and study the operation of government activities to determine their economy and efficiency and to submit recommendations based on GAO reports to the House and the Senate, respectively. In addition, the House Oversight and Government Reform Committee may conduct an investigation of any matter. For any investigation it does conduct, the committee shall provide its findings and recommendations to any other standing committee that has jurisdiction over the matter. Oversight occurs through a wide variety of congressional activities and avenues. Some of the most publicized are the comparatively rare investigations by select committees into major scandals or into executive branch operations gone awry. Cases in point are temporary select committee inquiries into: Homeland Security matters following the terrorist attacks on September 11, 2001; China's acquisition of U.S. nuclear weapons information, in 1999; the Iran-Contra affair, in 1987; intelligence agency abuses, in 1975-1976, and "Watergate," in 1973-1974. The precedent for this kind of oversight actually goes back two centuries: in 1792, a special House committee investigated the ignominious defeat of an Army force by confederated Indian tribes. By comparison to these select panel investigations, other congressional inquiries in recent Congresses—into intelligence information and its sharing among federal agencies prior to the 9/11 attacks, U.S. intelligence about weapons of mass destruction before the invasion of Iraq, Whitewater, access to Federal Bureau of Investigation files, and campaign financing—have relied for the most part on standing committees. The impeachment proceedings against President Clinton in 1998 in the House and in 1999 in the Senate also generated considerable oversight. It not only encompassed the President and the White House staff, but also extended to the office of independent counsel, prompted by concerns about its authority, jurisdiction, and expenditures. Although such highly visible endeavors are significant, they usually reflect only a small portion of Congress's total oversight effort. More routine and regular review, monitoring, and supervision occur in other congressional activities and contexts. Especially important are appropriations hearings on agency budgets as well as authorization hearings for existing programs. Separately, examinations of executive operations and the implementation of programs—by congressional staff, support agencies, and specially created commissions and task forces—provide additional oversight. Senate Rule XXII, paragraph 2. U.S. Senate, Committee on Rules and Administration, Senate Manual, Containing the Standing Rules, Orders, Laws, and Resolutions Affecting the Business of the United States Senate , S.Doc. 110-1, 110 th Congress, 2 nd session, prepared by Matthew McGowan under the direction of Howard Gantman, Staff Director (Washington: GPO, 2008), sec. 22.2. Joel D. Aberbach, Keeping Watchful Eye: The Politics of Congressional Oversight (Washington: Brookings Institution, 1990). [author name scrubbed], "Congressional Oversight of the Presidency," Annals , vol. 499, Sept. 1988, pp. 75-89. David R. Mayhew, Divided We Govern: Party Control, Lawmaking, and Investigations, 1946-1990 (New Haven: Yale University Press, 1991). [author name scrubbed], "Legislative Oversight," Congressional Procedure and the Policy Process (Washington: Congressional Quarterly Press, 2005), pp. 274-297. Arthur M. Schlesinger and Roger Bruns, eds., Congress Investigates: A Documented History, 1792-1974 , 5 vols. (New York: Chelsea House Publishers, 1975). Charles Tiefer, "Congressional Oversight of the Clinton Administration and Congressional Procedure," Administrative Law Review, vol. 50, Winter 1998, pp. 199-216. U.S. Congress, House Committee on House Administration, "Oversight," History of the House of Representatives, 1789-1994 , H.Doc. 103-324, 103 rd Congress, 2 nd session (Washington: GPO, 1994), pp. 233-266. U.S. General Accounting Office, Investigators' Guide to Sources of Information, GAO Report OSI-97-2 (Washington: 1997). CRS Report RL30240, Congressional Oversight Manual , by [author name scrubbed] et al. CRS Report R41079, Congressional Oversight: An Overview , by [author name scrubbed] CRS Report RL32525, Congressional Oversight of Intelligence: Current Structure and Alternatives , by [author name scrubbed] and [author name scrubbed] CRS Video Series, Congressional Oversight (2004), dealing with tools and techniques, avenues and approaches, and authorities and assistance; on seven videos (MM70003-MM70009), available by calling [phone number scrubbed].
|
Congressional oversight of policy implementation and administration has occurred throughout the history of the United States government under the Constitution. Oversight—the review, monitoring, and supervision of operations and activities—takes a variety of forms and utilizes various techniques. These range from specialized investigations by select committees to annual appropriations hearings, and from informal communications between Members or congressional staff and executive personnel to the use of extra-congressional mechanisms, such as offices of inspector general and study commissions. Oversight, moreover, is supported by a variety of authorities—the Constitution, public law, and chamber and committee rules—and is an integral part of the system of checks and balances between the legislative and executive branches. This report will be updated as events require.
|
This report discusses recent legislation and decisions by the Government Accountability Office (GAO) and the U.S. Court of Federal Claims regarding jurisdiction over orders issued under civilian agency contracts. On December 31, 2011, President Obama signed legislation that effectively overturned two recent decisions by GAO and the Court of Federal Claims finding that they have jurisdiction over protests challenging the issuance of task and delivery orders of any size under civilian agency contracts, even if these orders do not increase the scope, period, or maximum value of the underlying contract. Prior to these decisions, executive branch agencies and many commentators had construed the Federal Acquisition Streamlining Act (FASA) of 1994, as amended by the National Defense Authorization Act (NDAA) for FY2008, as authorizing only protests concerning the issuance of orders under civilian agency contracts that (1) increased the scope, period, or maximum value of the underlying contract or (2) were valued in excess of $10 million, as well as granting GAO temporary exclusive jurisdiction over protests involving the latter. However, GAO and the court rejected this interpretation, finding that what expired on May 27, 2011, were limitations on their jurisdiction imposed by FASA, as amended by the NDAA for FY2008. Thus, they concluded that they and, potentially, procuring agencies had jurisdiction over protests of orders of any size issued under the contracts of civilian agencies, regardless of whether these orders increased the scope, period, or maximum value of the underlying contract. Had they not been overturned by Congress, these decisions would have resulted in protests of orders under civilian agency contracts being treated differently than protests of similar orders under defense contracts, and could also have increased the number of bid protests. The decisions by GAO and the Court of Federal Claims arose from questions regarding the meaning of certain provisions of FASA and amendments made to it by the NDAA for FY2008 and the Ike Skelton NDAA for FY2011. For various reasons, including agencies' use of detailed specifications to restrict competition and difficulties procuring commercial items during the Gulf War, by the early to mid-1990s, many Members of Congress and commentators had become concerned that the federal procurement process was excessively cumbersome and time-consuming for both agencies and contractors. FASA represented Congress's first attempt to respond to these concerns "by greatly streamlining and simplifying [the federal government's] buying practices." FASA did so, in part, by explicitly recognizing "task and delivery order contracts," and by limiting contractors' ability to protest alleged improprieties in agencies' issuance of orders under task and delivery order (TO/DO) contracts, among other things. TO/DO contracts are contracts for services or goods, respectively, that do not "procure or specify a firm quantity of supplies (other than a minimum or maximum quantity)," but rather "provide[] for the issuance of orders for the delivery of supplies during the period of the contract." Because the time of delivery and the quantity of goods or services to be delivered are not specified (outside of stated maximums or minimums) in TO/DO contracts, such contracts are sometimes referred to as indefinite delivery/indefinite quantity (ID/IQ) contracts. TO/DO contracts are sometimes also described as single-award or multiple-award contracts, a designation based upon the number of firms—one or more than one, respectively—able to compete for task and delivery orders under the contract. Before FASA was enacted, disappointed bidders and offerors could generally protest agency conduct in the award, or proposed award, of federal contracts that was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law" before GAO, the federal courts, or procuring agencies. GAO, in particular, had found that it had jurisdiction over protests regarding the issuance of orders under TO/DO contracts. Use of TO/DO contracts can greatly simplify the procurement process for federal agencies because agencies can issue orders to contractors holding the underlying TO/DO contract without complying with the requirements of the Competition in Contracting Act (CICA) of 1984, among other things. This, in itself, can significantly reduce the time necessary for agencies to procure goods or services. However, FASA further simplified the procurement process for federal agencies by limiting the ability of bidders or offerors to protest alleged improprieties or illegalities in the issuance of orders under TO/DO contracts. In identical provisions codified in Titles 10 and 41 of the United States Code, FASA expressly prohibited protests challenging the issuance of orders except on certain narrow grounds: A protest is not authorized in connection with the issuance or proposed issuance of a task or delivery order except for a protest on the ground that the order increases the scope, period, or maximum value of the contract under which the order is issued. The provisions codified in Title 10 apply to the procurements of defense agencies, while those codified in Title 41 apply to the procurements of civilian agencies. By 2008, congressional and public concerns regarding federal procurement had shifted, largely because of alleged waste, fraud, and abuse in contracts supporting military, diplomatic, and reconstruction efforts in Iraq and Afghanistan. Rather than viewing the federal procurement process as too burdensome and time-consuming, as they did when FASA was enacted, some Members of Congress and commentators now believed that agencies had used their authority under FASA and similar laws to evade the spirit, if not the letter, of competition and other requirements. These concerns persisted notwithstanding a series of judicial and administrative decisions finding that GAO and the federal courts could exercise jurisdiction over certain protests involving the issuance of orders that did not increase the scope, period, or maximum value of the underlying contract. In fact, the Acquisition Advisory Panel, chartered under Section 1423 of the Services Acquisition Reform Act (SARA) of 2003, explicitly recommended that contractors be able to protest the issuance of "large" orders that do not increase the scope, period, or maximum value of the underlying contract. Congress responded, in part, to these concerns when it enacted the NDAA for FY2008. This act amended FASA to promote competition for orders under TO/DO contracts by (1) prohibiting agencies from using single-award TO/DO contracts valued in excess of $103 million (including options) unless certain conditions are met, and (2) specifying what constitutes a "fair opportunity to be considered" for orders valued in excess of $5 million. In addition, the NDAA for FY2008 also expanded protesters' ability to challenge alleged improprieties or illegalities in the issuance of orders. Specifically, the NDAA for FY2008 amended FASA to read as follows: A protest is not authorized in connection with the issuance or proposed issuance of a task or delivery order except for— (A) a protest on the ground that the order increases the scope, period, or maximum value of the contract under which the order is issued; or (B) a protest of an order valued in excess of $10,000,000. The 2008 amendments further specified that GAO was to have exclusive jurisdiction over protests of orders valued in excess of $10 million that did not increase the scope, period, or maximum value of the underlying contract, and that This subsection shall be in effect for three years, beginning on the date that is 120 days after January 28, 2008. Many commentators interpreted the word "subsection" here to refer to the provisions regarding GAO's exclusive jurisdiction over protests of orders valued in excess of $10 million because these provisions were added, along with the sunset clause, in 2008. In addition, the legislative history of the 2008 amendments arguably indicated that Congress intended to temporarily authorize protests of "large" orders in order to gauge their effects on the procurement and protest processes before permanently authorizing such protests. Three years and 120 days after the enactment of the NDAA for FY2008 would have been May 27, 2011. However, before this date arrived, the 111 th Congress amended FASA's provisions regarding protests of orders issued under defense contracts to extend the sunset date and clarify that it applies only to GAO's exclusive jurisdiction over protests of "large" orders. Specifically, the Ike Skelton NDAA for FY2011 amended those provisions of FASA codified in Title 10 of the United States Code to read as follows: (1) A protest is not authorized in connection with the issuance or proposed issuance of a task or delivery order except for – (A) a protest on the ground that the order increases the scope, period, or maximum value of the contract under which the order is issued; or (B) a protest of an order valued in excess of $10,000,000. (2) Notwithstanding section 3556 of title 31, the Comptroller General of the United States shall have exclusive jurisdiction of a protest authorized under paragraph (1)(B). (3) Paragraph (1)(B) and paragraph (2) of this subsection shall not be in effect after September 30, 2016. The 111 th Congress did not make similar changes to the provisions of FASA codified in Title 41 of the United States Code governing protests of orders under civilian agency contracts. Thus, the provisions in Title 41 differed slightly from those in Title 10 at the time when GAO and the Court of Federal Claims issued their decisions. When their decisions were issued, subsection (B)(3) in Title 41 stated that " This subsection shall be in effect for three years, beginning on the date that is 120 days after January 28, 2008," not " Paragraph (1)(B) and paragraph (2) of this subsection shall not be in effect after September 30, 2016." In its June 14, 2011, decision in Technatomy Corporation , GAO found that it had jurisdiction over an order placed under a civilian agency contract that apparently did not expand the scope, period, or maximum value of the underlying contract. The Department of Defense (DOD), which had issued the challenged order under a General Services Administration (GSA) contract, argued that because Congress had not extended the sunset date as to the orders of civilian agencies, GAO's jurisdiction to hear protests concerning task and delivery orders valued in excess of $10 million issued under civilian agency contracts expired on May 27, 2011. GAO disagreed, because of the "plain meaning" of the relevant provisions of FASA. GAO found that the word "subsection" in 41 U.S.C. §4106(f)(3) "unambiguously refers" to the entirety of subsection (f), which governs protests of civilian agency orders generally, not just subsection (f)(2), which grants GAO jurisdiction over protests of "large" orders. Based upon this interpretation of "subsection," GAO found that what expired in May 2011 were the limitations on its jurisdiction under FASA, as amended by the expansion of its jurisdiction under the NDAA for FY2008. Thus, it concluded that, because of the expiration of these limitations, its jurisdiction "revert[ed] to that originally provided in CICA," and it could hear protests concerning orders of any value under civilian agency contracts, regardless of whether the order increased the scope, period, or maximum value of the underlying contract. Subsequently, in its August 19, 2011, decision in Med Trends, Inc. v. United States , the Court of Federal Claims also found that it had jurisdiction over protests of orders of any value issued under civilian agency contracts. In so finding, the court rejected the government's argument that, "notwithstanding the clear language of the statute, the legislative history associated with the 2008 amendment makes clear that the grant of jurisdiction to GAO in 2008 was a short-term experiment." The court did so, in part, because it, like GAO, found that the word "subsection" referred to the entirety of FASA's provisions regarding protests of task and delivery orders issued under civilian agency contracts, not just those provisions regarding GAO's jurisdiction over "large" orders issued under civilian agency contracts. Because it viewed this statutory text as "unambiguous," the court accorded no weight to a 2007 conference report expressing the conferees' view that the expiration of GAO's jurisdiction over "large" orders would provide "Congress with an opportunity to review the implementation of the provision and make any necessary adjustments." It similarly declined to rely upon legislation introduced in the 112 th Congress and accompanying committee reports that purportedly evidenced Congress's intent that the sunset date apply only to GAO's exclusive jurisdiction over protests of orders valued in excess of $10 million. Had the 112 th Congress not enacted legislation extending the sunset date, these decisions would have resulted in protests of orders issued under civilian agency contracts being treated differently than protests of similar orders under defense contracts, and could also have increased the number of bid protests. The legislation also arguably resolves certain questions that had been raised about the authority of the Federal Acquisition Regulatory Council to promulgate an interim final regulation amending the Federal Acquisition Regulation (FAR) to provide that (i) No protest under Subpart 33.1 is authorized in connection with the issuance or proposed issuance of an order under a task-order contract or delivery-order contract, except for— (A) A protest on the grounds that the order increases the scope, period, or maximum value of the contract; or (B) A protest of an order valued in excess of $10 million. Protests of orders in excess of $10 million may only be filed with the Government Accountability Office, in accordance with the procedures at 33.104. (ii) The authority to protest the placement of an order under this subpart expires on September 30, 2016, for DoD, NASA and the Coast Guard (10 U.S.C. 2304a(d) and 2304c(e)), and on May 27, 2011, for other agencies (41 U.S.C. 4103(d) and 4106(f)). Both the meaning of this provision and the FAR Council's authority to promulgate such a regulation could have been in doubt, particularly after the decision by the Court of Federal Claims. As amended, the regulation could have been construed to mean that neither protests of orders that allegedly increased the scope, period, or maximum value of the underlying contract, nor protests of orders valued in excess of $10 million, were authorized for civilian agency contracts. However, such an interpretation could potentially have been found not to be entitled to deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc . Under Chevron , courts generally defer to an agency's formal interpretation of a statute that the agency administers whenever the agency's interpretation is reasonable, and the statute has not removed the agency's discretion by compelling a particular disposition of the matter at issue. Agency interpretations are not granted such deference, though, when "Congress has directly spoken to the precise question at issue," and the agency's interpretation is at variance with the statutory language. The NDAA for FY2012 amended Title 41 of the United States Code so that it reads like Title 10: (1) A protest is not authorized in connection with the issuance or proposed issuance of a task or delivery order except for – (A) a protest on the ground that the order increases the scope, period, or maximum value of the contract under which the order is issued; or (B) a protest of an order valued in excess of $10,000,000. (2) Notwithstanding section 3556 of title 31, the Comptroller General of the United States shall have exclusive jurisdiction of a protest authorized under paragraph (1)(B). (3) Paragraph (1)(B) and paragraph (2) of this subsection shall not be in effect after September 30, 2016. Because of these amendments, and the amendments made to Title 10 in 2011, GAO and the Court of Federal Claims are unlikely to find that they have jurisdiction over orders that do not increase the scope, period, or maximum value of the underlying contracts after September 30, 2016, absent congressional action. However, because the provisions governing orders under civilian agency contracts are codified in a different section of the United States Code than those governing orders under defense agency contracts, it is possible that differences in the treatment of civilian and defense agency orders could again arise if Congress were to amend Title 10 without amending Title 41, or vice versa.
|
On December 31, 2011, President Obama signed the National Defense Authorization Act for FY2012. This act amends Title 41 of the United States Code to extend the Government Accountability Office's (GAO's) jurisdiction over protests involving "large" orders issued under civilian agency contracts and clarifies that protests of such orders may not be heard after September 30, 2016, if this jurisdiction is not reauthorized (P.L. 112-81, § 813). Title 41's provisions regarding the protests of "large" orders previously had a May 27, 2011, sunset date. However, the language of these provisions was such that GAO and the U.S. Court of Federal Claims construed them to mean that they could hear protests of orders of any size issued under civilian agency contracts after May 27, 2011. These cases arose because of amendments that the Federal Acquisition Streamlining Act (FASA) of 1994 and the National Defense Authorization Act (NDAA) for FY2008 made to the Armed Services Procurement Act and the Federal Property and Administrative Services Act. Before FASA was enacted, GAO, the federal courts, and procuring agencies had jurisdiction over protests alleging that agency conduct in the issuance of orders under federal contracts was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law. However, FASA limited this jurisdiction, barring all protests regarding the issuance of orders except those alleging that the order increased the scope, period, or maximum value of the underlying contract. Later, the NDAA for FY2008 amended FASA to expand the grounds upon which the issuance of orders could be protested, authorizing GAO to hear protests of orders valued in excess of $10 million that did not increase the scope, period, or maximum value of the underlying contract. The NDAA for FY2008 also included a sunset provision, specifying that this "subsection" expired on May 27, 2011. Executive branch agencies and many commentators construed this language to mean that GAO's jurisdiction over protests of "large" orders expired on May 27, 2011. However, GAO and, later, the Court of Federal Claims disagreed. First, in Technatomy Corporation, GAO relied upon the statute's "plain meaning" to find that "subsection" meant the entirety of FASA's provisions regarding protests of orders, as amended, and not just the amendments made to these provisions by the NDAA for FY2008. According to GAO, what expired on May 27, 2011, were the limitations on its jurisdiction over protests that do not increase the scope, period, or maximum value of the underlying contract, as amended by the expansion of its jurisdiction to include protests of "large" orders. Thus, it concluded that it may hear protests of orders of any size issued under civilian agency contracts, regardless of whether the protest alleges that the order increased the scope, period, or maximum value of the underlying contract. Later, in Med Trends, Inc. v. United States, the court similarly relied upon the "plain meaning" of FASA, as amended by the NDAA for FY2008. However, the court also explicitly rejected the government's argument that the legislative history of the NDAA for FY2008 supported construing "subsection" to mean only those provisions of FASA granting GAO jurisdiction over protests of orders valued in excess of $10 million. These decisions would have resulted in protests of orders under civilian agency contracts being treated differently than protests of similar orders under defense contracts, and could also have increased the number of bid protests. The 111th Congress (P.L. 111-383, § 825) had previously amended Title 10 of the United States Code, which governs the procurements of defense agencies, with language identical to that in P.L. 112-81.
|
Profit analysis may be carried out using total profits and their yearly growth, or with profitrates. Total profit analysis is useful in evaluating the effect of the industry's profitability onexpenditure flows within the economy as well as the potential command over resources held bycompanies in the industry. Yearly growth of profits can show whether the industry is becomingmore or less of a factor in over-all expenditure flows in the economy. Profit analysis based on profit rates is useful in examining the effectiveness of the firm'smanagement in using available resources. Profit rate analysis is also useful in making comparisonsbased on the relative performance of firms in the industry and is widely used by investment analysts. In this report, the focus is on total profits and the growth of profits within the oil industry andthe likely uses of profits by the industry, specifically the potential ability of the industry to invest inoil supply related projects. (4) Profits in the oil industry have been volatile over the past three decades, reflecting oil pricechanges as well as other market effects. For example, net income for the major energy companies,as defined by the Energy Information Administration (EIA), increased almost threefold by 1981,compared to 1977, on the oil price increases associated with the Iran-Iraq war. By 1986, net incomesof the major energy companies had sunk below 1977 levels. Profits peaked and declined at leastthree other times during the period 1987-2002. (5) Volatility in the price of oil, which leads to volatility in profits,makes investment planning risky. Investments which might qualify for implementation if a high oilprice is assumed may not qualify if a lower price of oil is assumed. This uncertainty may havecontributed to the cyclical nature of investment and capacity expansion in the industry. Oil industry profits are widely identified as related to world oil price levels. Figure 1 showsthe movement of the monthly price of WTI crude oil at Cushing, Oklahoma from 2003 through2005. (6) Figure 1. Spot Price of WTI, 2003-2005 Upward pressure on the price of WTI, which began in 2003, strengthened during the summerof 2004, leading to peak price levels in October 2004. The daily peak price for the year, $55.17 perbarrel of WTI, occurred in late October. The average price of WTI for the second half of 2004,$46.01 per barrel, was 25%, or almost $10 per barrel, higher than the average price for the first sixmonths of the year, which was $36.79 per barrel. If the profit performance of the oil industry wasbased, or related, only to the price of oil, given normal lags in the production chain betweenproducing crude oil and distributing petroleum products, it might have been expected that profitsmight have risen late in 2004 and into 2005. Table 1. Refiners Composite Acquisition Cost of Crude Oil,2003-2005, Quarterly (dollars per barrel) Source: Energy Information Administration, Petroleum Marketing Monthly, June 2005, Table 1, p.5. Although the price of WTI attracts the most headlines through its association with both thefuture and spot market prices, a more reliable measure of the real cost of crude oil to the nation'srefiners is the refiner's acquisition cost of crude oil as shown in Table 1 for 2003 through 2005. Thiscomposite cost measure is a weighted average of the cost of domestic and imported crude oils usedby refiners and also reflects the mix of various qualities of crude oils used in refineries. Refineries of different levels of technological complexity can use different mixes of crudeoil to produce varying mixes of petroleum products within technological limits. This ability to varythe production mix can be used to enhance profitability when price differentials between sweet lightand heavy sour crude oils or between light and heavy product mixes change. Figure 2 shows thedifference between light and heavy crude oils was generally less than $10 per barrel during theperiod 1992 to 2002. The spread increased in 2004 and into 2005. The average monthly differencebetween light and heavy crude oil in 2003 was approximately $7 per barrel. The average differenceincreased to over $10 per barrel in 2004, approaching $15 per barrel at times. For the first threemonths of 2005, the differential remained at approximately $12 per barrel. (7) Figure 2. Real Price Difference Between Light Crude Oil and Heavy Crude Oil,1978-2003 Source : Energy Information Administration, Performance Profiles of Major Producers 2003, March2005, Figure 31, p. 31. Figure 3 shows the movement of the monthly spot market price of reformulated regulargasoline at New York harbor during 2003 and 2004. (8) Figure 3. U.S. Spot Market Price for Reformulated Regular Gasoline, New YorkHarbor, 2003-2005 After a relatively stable year in 2003, gasoline prices peaked twice in 2004, reaching recordnominal levels. The first peak, of almost $1.41 per gallon, occurred in May, before the summerdriving season began in the United States. The second peak, of almost $1.38 per gallon, occurredin October. The timing of these peaks are similar to those observed in the crude oil market. Pricescontinued to be high in 2005, with a peak price of over $1.52 per gallon attained in April 2005. The high gasoline prices of 2004 also brought what some identified as a partial decouplingof the oil and gasoline markets. Fears related to limited refinery capacity, low inventory levels, andstrong demand growth in China and other parts of the world led some analysts to conclude that gasoline prices might remain high even if crude oil markets weakened. These conditions might beexpected to yield high margins for refiners. Table 2 reports the basic financial performance of the major integrated oil companies from2002 through 2004. Table 2. Financial Performance of the Major Integrated Oil Companies, 2002-2004 (million of dollars) Source : Oil Daily , Profits Profile Supplement, vol. 55, no. 39, February 28, 2005, p. 8; andFinancial Data by Company at http://www.Hoovers.com . Aggregate net income rose in 2004 for the major integrated oil companies, compared to 2003,which itself was a strong year for industry profit performance, and rose by an even greater amountcompared to 2002. Only ExxonMobil (17.8%) experienced a gain of less than 20%, and onlyMarathon (-4.5%) experienced lower net income in 2004 than in 2003. Five of the companies in thisgroup posted net income gains in excess of 50% for 2004, while the average gain in net income wasapproximately 40%. Comparing 2004 to a 2002 base, the gains in net income totaled over 175% forthe major integrated oil companies. Total revenue growth for 2004 compared to 2003 was 35% for the group, which was less thanthe 44% growth in net income, suggesting that possibly the greater profitability of the major oilcompanies in 2004 did not arise solely from the higher price of crude oil. Compared to 2002,revenue growth for 2004 was approximately 70%, less than the 175% growth in net income for the same period. The profit rate on sales for this group of oil companies, based on the totals of revenue andnet income reported in Table 2, were 7% for 2004, 6.5% for 2003, and 4.3% in 2002. The growthin the profit rate experienced by these companies suggests that the stronger underlying marketfundamentals in the crude oil and oil product markets were successfully translated into increasedperformance by the companies. Table 3 shows the upstream (exploration, development, and production) performance of themajor integrated oil companies in 2004. This segment of the firms' business accounted forapproximately 60% of the net income for the group. Table 3. Upstream Financial Performance of the MajorIntegrated Oil Companies, 2004 (millions of dollars) Source : Oil Daily , Profits Profile Supplement, vol. 55, no. 39, February 28, 2005, p. 8. As shown in Table 3 , increased net income was not derived from large increases in oil andgas production for most companies. For 2004, more than half of the companies produced less oilduring this year of high prices than they did in 2003. The total increase in oil production by thegroup of 1.9% was largely attributable to the 19% increase of one company, BP. The productionresults for natural gas are even more uniform. Every company, except one, Occidental, producedless natural gas in 2004 than in 2003, yielding a total 3.1% decrease in production from the groupas a whole. Table 4 reports the downstream (refining and marketing) results for the major integrated oilcompanies. This sector accounts for approximately 23% of the total net income earned by thesecompanies. Data in Table 4 show that net income from this sector increased by almost 100% in2004, compared to 2003, but production increased by only 1.5%. Again, consistent with theupstream results, it seems the integrated oil companies derived increases in net income from priceincreases with little support from increased production in the short term. Table 4. Downstream Financial Performance of the MajorIntegrated Oil Companies, 2004 (millions of dollars) Source : Oil Daily , Profits Profile Supplement, vol. 55, no. 39, February 28, 2005, p. 8. NA = Not Available. The recent record of the major integrated oil companies in expanding production of crude oil and oil products may be the result of several factors. Unfavorable geologic and politicalfactors might have inhibited output expansion. While the decision to expand oil and gas productionin the United States is generally based on the underlying market economics, the geology of many producing regions in the United States maynot support large increases in output, especially without financial investment in new technologies. Many U.S. oil and gas fields have either peaked or are in decline, making it difficult to expandproduction, irrespective of the available price incentives. Overseas, oil and gas production decisionsmay reflect the policies of the host governments, the Organization of Petroleum Exporting Countries(OPEC) quotas, or host nation's tax policies. Another possible explanation for the relatively slow production response by the majorintegrated oil companies in reaction to high oil prices might be that significant investments arerequired and that the resulting time lags might be long enough to delay the appearance of additionalsupply on the market. The major oil companies have been active in international investment,although a good part of that investment has been in new product technologies, such as gas to liquidsand liquefied natural gas. These projects, requiring multi-billion dollar investments, take up to fiveto seven years to complete. This could be one explanation why little additional output of gasolineand other refined products has appeared to result from higher prices in the short term. Oil companies are owned by shareholders and managerial performance is evaluated in termsof corporate earnings. It is possible that because of limitations on the ability of the firms to investin additional oil and gas production in the short term, profits have been returned to investors in theform of dividends, or the buy back of shares to enhance the market capitalization of the companies. The profit picture for the independent oil and gas producers with respect to net incomes andtotal revenues in 2004 was, in some ways, similar to that of the major integrated companies. However, some features of their performance differed from that of the major companies. Table 5 presents data for ten independent producers. Aggregate net income for the group of 10 independent oil and gas producers in 2004 rose byapproximately the same rate, just below 40%, as that of the major integrated oil companies. Similarly, revenues grew by over 25%. The major difference in the picture for the independent oiland gas producers is that they raised output during 2004 by a multiple of the amounts registered bythe major companies. Oil production was up by over 12.5% and natural gas production rose byalmost 4%. This increased production may, however, be partly the result of asset acquisition by theindependent companies. Over the past several years the major integrated oil companies have soldoff smaller producing fields and facilities which have been acquired by the independent companies. For this reason, it is possible that the increased production in this sector as well as the smallproduction increases recorded by the major companies might be related, and reflect an ownershiptransfer of existing assets. Table 5. Financial Performance of Independent Oil Companies, 2004 (millionsof dollars) Source : Oil Daily , Profits Profile Supplement, vol. 55, no. 39, February 28, 2005, p. 8. Independent refiners and marketers are typically only involved in thedownstream activities of the oil industry. They typically purchase crude oil, processit in their refineries, and market the resulting petroleum products either directly toconsumers or wholesale the products to other firms. As shown in Table 6 , thefinancial performance of this sector was the strongest of any in the petroleumindustry, surpassing even the downstream performance of the major integrated oilcompanies that are among their major competitors. Table 6. Financial Performance of IndependentRefiners and Marketers, 2005 (millions of dollars) Source : Oil Daily , Profits Profile Supplement, vol. 55, no. 39, February 28, 2005,p. 8. NA = Not available. As shown in Table 6 , these firms did expand their product sales in responseto the high prices of 2004. The 9% expansion in product sales by these firms in 2004was about six times the magnitude of the increase in production generated by themajor integrated oil companies in their comparable downstream business, althoughthe independent's production base was smaller. (9) The 9%increase in product sales translated into a 45% increase in revenues which resultedin a 190% increase in net income, with every company in the reporting category,except one, achieving at least triple digit increases. This performance, coupled withthe downstream profitability of the major integrated oil companies, gives somesupport to the viewpoint that, in addition to high oil prices, conditions in thepetroleum product markets, especially gasoline, decoupled from their traditionallinkage to crude oil and generated independent market tightness and higher prices. Key profit indicators in the refining industry are the gross and net refiningmargins. (10) Table 7 presents data for the twenty four firmsincluded in the EIA's set of major energy companies. (11) Table 7. Refining Margins,1996-2004 (dollars per barrel) Source : Energy Information Administration, Performance Profiles of Major EnergyProducers 2003, Table B-32, p. 101, and Financial News for Major EnergyCompanies, updated March 9, 2005, Table 2. For the years 1996 through 2002, the net refining margin averaged $1.44 perbarrel of refinery throughput. The value of the gross refining margin in 2003 wasapproximately 7 times the average for the previous seven years. The gross marginincreased by a further 29% in 2004 compared to 2003. With domestic refinerythroughput approximately 13.5 million barrels per day, and the gross refining marginapproaching $14 per barrel, the source of the profit performance of the oil companiesdownstream operations and the independent refiners and marketers is clear. The gross refining margins of 2003 and 2004, which increased by a greaterpercentage than the price of crude oil, are a likely indication that tightness in thegasoline market, which is linked to a refining sector running at nearly full capacity,has led to profits that increased by a larger percentage than the price of crude oil. Another indication of tightness in the refining sector is that imports of finishedgasoline, as well as gasoline blending components, have been increasing and wereat record levels in 2004. It is also true that the number of operating refineries in theUnited States has declined to 149 from a peak of 324 in 1981. No significant newrefineries have been constructed in the United States for a quarter of a century. Therefining capacity growth that has occurred in the United States since 1990 has beenlargely due to improvements made at existing facilities, called capacity creep. An expansion of refinery capacity in the United States might alleviate theportion of petroleum product price increases not due to the high price of crude oil. Construction of new refineries in the United States would add stability to the supplyof gasoline and other petroleum products; the current capacity is stretched nearly tothe limit to accommodate growing petroleum product demand. In addition, thegrowing U.S. dependence on imported gasoline and petroleum products would bereduced. Re-investing profit into a growing, profitable business is also a normalbusiness strategy. However, current conditions may limit potential expansion. The key factor in determining whether new refinery capacity will beconstructed in the United States is the underlying economics. An oil companyseeking to meet gasoline demand in the U.S. market can do that in any of three ways. The company can either expand existing refineries, build a new refinery, or importadditional gasoline from overseas. The economics dictate that companies choose thecheapest alternative, given that all gasoline will sell for the same price, irrespectiveof source. In 2005, it is likely that the cheapest source of gasoline is through imports. Europe is thought to have surplus gasoline capacity as their vehicle fleet is intransition to diesel fuel, and refineries are still largely oriented toward now excessgasoline production. (12) Expansion of existing refineries is likely the nextcheapest source of product. Expansion of existing refineries avoids many, or all, ofthe fixed costs associated with a new refinery and allows firms to benefit fromeconomies of scale in the refining process. Construction of new refineries is likelythe most expensive source of new product. As shown in Table 7 , not only have the returns to refiners been low, onaverage, but they have also been volatile. Even recent profit performance has notbeen uniformly good. Although returns in 2004 and 2003 were favorable, 2002 wasa year of very low return. As a result of the observed volatility in returns, theindustry might question whether the current increases in profitability are thebeginning of a new era of profitability, or an upward aberration that will be reversedwith the next market correction. Related to the uncertainty with respect to the permanence of high refiningreturns is a longer term projection for the price of crude oil. Supply increases up anddown the oil supply chain are normally linked to investment. Based on net presentvalue analysis, investment is likely to take place only if the long term, forecastedprice of crude oil is high enough to generate projected cash flows sufficient to justifythe multi-billion dollar costs of major petroleum projects. If the companies useprojected oil prices in the $25 to $35 per barrel range in investment planningdecisions, limited extra investment and supply expansion can be expected to develop. One oil analyst has asserted that prices might need to remain in the $50 to $80 perbarrel range for a sustained period for investment to occur in sufficient volume tobuild up a comfortable cushion of spare oil production capability. (13) A reluctance to invest based on current price levels might reflect historicalexperience with the price-investment-supply dynamic of the oil market. As a result of the rise in the price of crude oil associated with the Iran-Iraq War of 1979-80,supply from non-OPEC sources increased and demand declined. Prices during thisperiod reached real values (corrected for inflation) of between $50 and $80 per barrel,and then declined to a nominal value of $11 per barrel by 1985. Investmentsundertaken early in the decade based on an expectation of continued high priceswould have likely not been profitable in the market conditions that actually evolved. Refinery investment trends over the past two decades have been influencedby environmental compliance requirements. EIA has studied the effect of refineryinvestment required by environmental regulations, and its relationship to profitability. The EIA report found that return on investment in the refining industry was reducedby 42% from 1996 to 2001 as a result of mandated investment expenditures. (14) Theindustry is currently preparing to expand and introduce low sulfur gasoline and dieselfuels. These investment requirements may claim a share of the companies capitalbudget and reduce returns, in parallel with past experience. The permitting process has been identified by some as an impediment torefinery investment in the United States. Critics contend that even if it is possible toassemble all of the necessary permits to construct a refinery, the long time linerequired for approvals will tend to make the investment less attractive. One examplethat has been cited concerning the length of the time required for the permittingprocess associated with the possible construction of a new, grassroots refinery, is thefacility planned to be constructed near Yuma, Arizona. The refinery has an estimatedcost of $2.5 billion, a capacity of 150,000 barrels per day and is to be located onvacant desert land owned by the federal government. The refinery is planned byArizona Clean Fuels, formerly Maricopa Refining. The refinery is scheduled toprocess imported Mexican crude oil. The refineries output of gasoline is to bemarketed in southern California, an area which has a tight product market becauseof limited pipeline access to major U.S. refineries on the Gulf coast as well otherfactors. (15) The company first applied for an air permit in 1999 at another Arizona site. The application was withdrawn in 2004. Local groups opposed the project based onpossible health and environmental risks. The U.S. Environmental Protection Agencydecided not to object to an air permit for the refinery on March 21, 2005. Thecompany awaits an air permit from the Arizona Department of EnvironmentalQuality, expected to be issued in 2005. After that permit is obtained approximatelytwo dozen additional permits need to be obtained, ranging from a county permit forzoning approval to a presidential permit from the U.S. State Department to allow theimportation of Mexican crude oil. (16) The tight petroleum products market in California, with the resulting highprices, as well as the generally good returns to refining since 2000 have maintainedinterest in this project. The long delays in construction start-up might have led to theproject being cancelled if the underlying economics, especially in the Californiamarket, had not been so strong in recent years. The oil industry of today has evolved to its current structure partly throughyears of mergers, acquisitions, and joint ventures. In May 2004, the GovernmentAccountability Office (GAO) released a study on the effects of mergers and the restructuring of the U.S. petroleum industry. (17) GAOfound that between 1991 and 2000 there were over 2,600 mergers, acquisitions, andjoint ventures in the U.S. petroleum industry. A majority of the transactions tookplace in the last five years of the decade. The transactions took place at all stages inthe chain of production, from exploration and production, through refining andmarketing. These transactions included deals among the very largest oil companies. For example, in 1999 Exxon Corporation acquired Mobil Oil; in 1998 BritishPetroleum and Amoco formed BP-Amoco, which acquired ARCO in 2000; and in2001 ChevronTexaco was formed. Merger activity is again on the rise in the U.S. petroleum industry. In April2005, ChevronTexaco made a $17 billion stock and cash bid to acquire Unocal, thenumber 9 oil company in the United States, ranked by reserves of crude oil. Unocalwas also targeted for takeover by CNOOC Ltd., a company majority-owned by theChinese government, in a bid that has since been withdrawn. (18) In the samemonth, Valero Energy Corp. bid to acquire Premcor Inc., to form the largest refiningcompany in the United States in a $6 billion deal. As a result of the profitability of the last year, companies with large cashreserves on their balance sheets are searching for ways to better position themselveson the world oil market, increase their crude oil reserves and other assets, and createeconomies of scale and cost savings. Individually, they are able to accomplish thesegoals through mergers and acquisitions. In addition, a large amount of accumulatedprofits is returned to investors, usually at a premium price, through these transactions. Although these transactions may improve the market position of the firmsinvolved and imply the expenditure of billions of dollars of accumulated profit, theydo little to improve the nation's demand and supply balance with respect to oil andpetroleum products in the near term. The firms that make up the oil industry are private firms that use shareholdercapital to engage in business operations. When they make profits they are obligedto return those profits to shareholders, unless management deems it likely thatbusiness opportunities exist such that reinvestment will yield even larger futureprofits for shareholders. The major oil companies have increased dividends for shareholders, but ingeneral, by less than increases in available funds. For example, ExxonMobilincreased quarterly dividends by $0.02 per share during 2004, an increase of about8%. However, during the last quarter of 2004 earnings per share increased by $0.42,an increase of about 47%. For the years 2002 through 2004, earning per shareincreased from $1.68 to $3.89, an increase of approximately 130%, but dividends,the amount actually paid out to shareholders, increased by only about 15%. ExxonMobil did however reduce the number of shares outstanding over the periodby about 300 million, to 6.4 billion from 6.7 billion. If a company re-purchases itsshares, the value of shares outstanding is likely to increase and the company maychoose to re-sell them on the market if it needs capital in the future. ExxonMobilalso held over $18 billion in cash at the end of 2004, an increase of 75% over theyear. A similar dividend strategy was in place at ChevronTexaco, where quarterlydividends increased by $0.03 per share during 2004, an increase of about 8%, whileearnings per share almost doubled compared to levels attained in the last quarter of2003. For ChevronTexaco, earnings per share increased over the period 2002 to2004 by an approximate factor of 10, from $0.54 to $6.28, while yearly dividends pershare increase from $1.40 to $1.53, an increase of about 9%. The number ofChevronTexaco shares outstanding declined by about 29 million. ConocoPhillips, over the period 2002 through 2004 increased yearlydividends from $0.74 per share to $0.90 per share, an increase of about 21%. However, earnings per share increased from a loss of $0.31 in 2002 to $5.81 in 2004. ConocoPhillips increased the number of shares outstanding over the period by about34 million. Limited dividend payouts, coupled with a modest expansion of investmentin relation to profit has left oil companies highly liquid and well positioned to takeadvantage of future market opportunities. Since oil price increases began in 2004, the oil industry has earned increasedprofits. These profits might have resulted from other factors in addition to theincreased price of oil. A key factor in increased profitability might be the tightnessin the U.S. gasoline market, a factor related to the lack of enough refinery capacityto meet U.S. demand for petroleum products. If oil and petroleum product prices are to decrease, supply will likely have toincrease relative to demand. Expanded supply results from investment in the variousstages of the oil industry production process, from exploration and development ofnew oil fields to increased refinery capacity. If the underlying economic parametersand the regulatory environment are not encouraging, investment might not beundertaken. Historically volatile prices and profit levels coupled with a tightregulatory environment contribute to industry uncertainty. Other legitimate uses for earned profits include paying higher dividends andretiring outstanding shares, acquiring assets through merger and acquisition, andinvesting in new product areas. These uses of profit may benefit shareholders andstrategically position the firm in the global market, but they do less to expand thesupply of oil and products on the market and thereby reduce prices for consumers. As a result of significant time lags that tend to occur in the oil industry, it maybe too soon to know whether or not investments in the industry, if taken, will resultin the increased supply of oil and petroleum products needed to reduce prices andconsumers' costs. In a market economy, a firm's key measure of success is its ability to earn aprofit. Profit is important to firms because it is a signal to the financial markets andinvestors that the firm is worthy of funding either through debt or equity capital. Firms that earn less profit than expected by the market have difficulty fundinginvestment opportunities with negative implications for growth. Firms thatconsistently earn less than adequate profits tend to experience slow growth,stagnation, and ultimately, failure. Profit is seemingly a simple concept. Total cost is subtracted from totalrevenue, leaving a residual, total profit. In this approach, profit is measured indollars. For the oil industry, the simple total revenue minus total cost approach iscomplicated by the difficulty in neatly separating the revenue-generating outputs ofthe firms from the cost-creating production inputs. For any given oil company, crudeoil price changes may affect both the revenues and costs of the company. If thecompany is an upstream producer and sells crude oil, the production of crude oil isrevenue generating. However, downstream operations, notably refining andmarketing, make use of crude oil as a raw material, and for them, the acquisition ofcrude oil is a cost. As a result, it is not always clear that an increase in the price ofcrude oil will raise, or lower, profits for firms with differing positions in the upstreamand downstream segments of the industry. Another key factor in the profit calculation is how easily the increase in thecost of crude oil can be passed on to consumers in the form of higher prices forgasoline and other refined products without suffering a more than proportionatedecrease in sales. If cost increases can be passed on to consumers, and the firm hassignificant upstream business interests, then it is more likely that an increase in theprice of crude oil will yield increased profits. A simple way to rank companies, for comparative purposes, is by total profit. However, this type of simple ranking is likely to provide a misleading picture of therelative performance of the companies in the oil industry. While the total dollar value of profit is important, it may be equally importantto know the value of the resources, or assets, at a firm's disposal that were used toearn a given dollar level of profit. The size of the firm relative to the level of totalprofit is important, especially for investment analysts. For this reason, the mostcommonly used measures of profit in investment analysis are expressed aspercentages, or rates, independent of specific magnitudes. The use of percentagesallows meaningful comparisons to be made between companies of different sizes anddiffering access to resources. Profit also can be measured to include or exclude special, non-recurring itemsthat may temporarily affect a company's revenues and costs. For example, if acompany incurs substantial costs and legal penalties associated with anenvironmental cleanup due to an oil spill at one of its facilities, its profit performancefor the relevant time period might well be negatively affected. However, profitnumbers that include the costs resulting from the spill may tell potential investorsand other interested parties little about the real, continuing, business performance ofthe company. (20) Profits from continuing operations, excludingone-time charges (or revenues), may be more informative for some purposes. All stakeholders in a company do not necessarily have an interest in the sameconceptual definition of profit. Accountants are interested in profit calculations thatmeet generally accepted accounting practices and are consistent with the tax code. Economists use profit as a signal to judge the efficiency of resource allocationdecisions and include opportunity costs in their calculations. (21) Potentialinvestors in the company's stocks and bonds may choose to evaluate profit from astill different perspective, comparing profit to a measure of the assets managementhad available for business purposes relative to the risk the company faced. Even once the efficacy of using a profit rate is determined, measurementissues still need to be addressed. Since profit as a rate, or percentage, must beexpressed relative to some base, an appropriate base must be specified. Threepossible bases, widely used in business analysis, are sales, assets, and net worth, orshareholder equity. Each is useful in answering particular questions about theoperation of the business, but none necessarily serves as an all-purpose profitmeasure. The profit margin on sales uses the total sales revenue of the business as thebase and expresses profit, or net income, as a percentage of sales revenue. Profitrates expressed in this manner can answer questions as to whether increasing salesbecome more or less profitable as the business grows. (22) This profitmeasure can also lead analysts to basic questions as to whether the businesses' priceswere too low or too high, or whether adequate cost controls were in place as thebusiness expanded. A variation on this profit measure results from replacing netincome in the calculation with operating income. (23) Profits based on assets, or the return on assets, divides profit, or net income,by the value of the total assets of the business. This measure allows analysts todetermine how well management uses the asset base of the company to generateprofits for investors. If the asset base represents the tools available to managementto carry out business activities, the return on assets gives an indication of howeffective management has been in using those tools. This approach has beencriticized by some because certain "intangibles" important to the functioning of thebusiness may not receive adequate weight in this measure. A profitability rate popular with potential investors is the return on equity, orthe return on net worth. This measure divides profit, or net income, by the value ofshareholders equity in the firm. Since the fundamental accounting identity, Assets=Liabilities + Owners Equity, must always hold, for every business, this profit rate isgenerally greater than, and at least equal to, the return on assets. (24) Thismeasure is especially interesting to investors who might plan to buy shares of stockin the business. While this profit measure may be revealing to potential investors,care should be exercised in its use. If two businesses have the same asset value andthe same level of profits, differences in return on net worth can arise solely as a resultof the amount of debt financing on the firm's balance sheet, a difference purely offinancial structure, unrelated to a firm's ability to efficiently produce goods and earnrevenues from selling goods. This can generate misleading conclusions about thestrength of the firm's performance, because the choice of financial structure for abusiness is not generally related to its current profitability from continuingoperations. Another measure, sometimes identified with profitability, is earnings pershare. This measure divides profit, or net income, by the total number of shares ofcommon stock outstanding. Earnings per share provides the prospective maximumof dividends per share that might be paid by the firm. However, it is not a relevantmeasure to evaluate profit. Like the return on net worth, it is affected by the capitalstructure of the company, the division between equity and debt financing. Earningsper share can also be directly affected by strategic management decisions. Firms maydecide to buy back shares of common stock and retire them, holding them as treasuryshares. This type of strategy raises earnings per share by decreasing the number ofoutstanding shares over which any level of net income is divided. This strategymight well be viewed negatively by financial analysts, who might interpret it as asignal that the firm does not have, or recognize, profitable investment opportunitiesavailable, and hence chooses to return to shareholders the money they had investedin the company. An important factor in analyzing profit data is that in many cases it is moreinformative to use comparative analysis. Comparisons can be made over time, withother companies in the same industry, or with other companies that bear the samelevel of risk. Time-based comparative profit analysis may be helpful because it suggeststhe direction the company is heading, or the direction of market trends. A particularrate of profit might be viewed as favorable if it was embedded in a trend of risingprofit rates, or unfavorable if embedded in a trend of falling profit rates. Time trendsmight also help to identify correlations between profit and other factors whichinfluence profits. In addition, key lags that affect profit are also more likely to beidentified in a time trend. Standing alone, any rate of profit might be difficult to evaluate. Comparisonscan be drawn with other firms in the same, or closely related, lines of business todetermine whether a particular firm is a profit leader, average, or a low profit earnerwithin its industry cohort. Barring special circumstances, which should be clearlyreported in the company's financial statements, if two firms in the same line ofbusiness, with approximately the same asset base, report very different profit rates,it is possible that this differential might suggest that one or the other firm'smanagement strategy is superior. Looking at profit rates of different sized firmswithin the same industry allows the analyst to assess whether growth of the firm toa larger scale may imply any advantage or disadvantage with respect to profit. In some cases, particularly for investment decisions, the most relevantcomparison is with firms with a comparable level of risk, independent of the line of business in which the firms are engaged. (25) This approach is appropriate for prospectiveinvestors because they may have less interest in what business activity a firmundertakes, than the results of that activity in terms of profits earned and risk borne. In many cases, profits can be expressed in comparison to an index of firms designedto show average, or market, returns and risk.
|
High prices for crude oil in 2004 and into 2005 have reduced consumers' purchasing powerand raised costs for businesses while providing billions of dollars to the oil industry and oil exportingcountries. The industry's increased revenues have led to record profit levels. As the 109th Congressengages in oversight of recent broad energy legislation which aims to increase the domestic supplyof crude oil to mitigate oil price increases in the longer term, another key factor in determiningincreased supply is how oil companies decide to allocate their profits between shareholder returnsand investment in oil production. This report is written in response to a number of requests fromCongress concerning profits in the oil industry. This report provides background informationconcerning the level of oil industry profits, the sources of those profits, and a discussion of thepotential uses of profits. In response to the increased price of crude oil since the fall of 2004, profits of virtually allfirms in all segments of the oil industry have increased. However, the greatest increases have beenin the downstream, or refining and marketing, segments of the industry. These increases in profitare apparent whether the major integrated oil companies, the independents, or refiners areconsidered, lending some credence to the viewpoint that industry profits are the result of factorsbeyond the elevated price of crude oil. Historically, the current combination of high oil prices andhigh profits have been seen before, and periods of low prices and profits tended to follow. The relatively high profit levels earned in refining and marketing suggest that conditions inthe petroleum products markets, including the gasoline, diesel, and jet fuel segments, contributedto earned profits above and beyond the effect of higher crude oil prices. Key factors in these marketsincluded tight refining capacity and low inventory levels. Mergers, acquisitions, and asset sales mayalso have changed the relative profit positions of many firms in the industry. All of these factorshave been influenced by investment decisions in the oil industry. Firms in the oil industry are likely to use their recently earned profits in a variety of ways. They are holding record cash balances, buying back their shares and increasing dividends. Mergerand acquisition activity in the industry again appears to be on the rise. In addition, the major oilcompanies are investing in a variety of energy related projects, although not necessarily oil, includingliquified natural gas and gas-to-liquids technologies. These projects tend to be international inscope. In the longer term, investments in exploration, production, and refining capacity are likelyto be needed to mitigate the high prices of 2004-2005. This report will not be updated.
|
The invasion of Normandy on June 6, 1944, was the largest air, land, and sea invasion ever undertaken, including over 5,000 ships, 10,000 airplanes, and over 150,000 American, British, Canadian, Free French, and Polish troops. There are no exact figures for the total number of D-Day participants nor exact casualty figures. Some historians estimate that more than 70,000 Americans and more than 80,000 combined British, Canadian, Free French, and Polish troops participated, including 23,000 men arriving by parachute and glider. According to estimates from the National D-Day Memorial Museum, the Allied forces suffered 9,758 casualties, of which 6,603 were Americans. The Jubilee of Liberty Medal was first awarded in June 1994 to American servicemen for their participation in the Battle of Normandy. The medals were minted at the request of the Regional Council of Normandy to be presented to veterans attending the 50 th anniversary of the D-Day landing on June 6, 1994. Eligible veterans included all who served in Normandy from June 6 to August 31, 1944, comprising land forces, off-shore supporting personnel, and airmen flying cover overhead. The only stipulation was that the medal be presented during an official ceremony, and the veteran be present to accept. On the front of the medal is inscribed, "Overlord 6 Juin 1944" on the upper part of the medal, with the flags of the allied nations and the names of the landing beaches completing the face of the medal. On the reverse side is the Torch of Freedom surrounded by the device of William the Conqueror 'Diex Aie' ("God is with us" in Norman French). Unfortunately, these medals are no longer being awarded by the French government. All medals to commemorate the 50 th anniversary ceremony on June 6, 1994, have been distributed by the French government. Additional medals for those veterans who were unable to attend the anniversary ceremony were later distributed through the Association Debarquement et Bataille de Normandie 1944 in France, which is now defunct. Some Members of Congress have awarded the Jubilee of Liberty Medals to U.S. veterans who were unable to attend the ceremony in France on June 6, 1994. These medals were obtained either from the Association Debarquement et Bataille de Normandie 1944 or from a commercial source. Commercially-minted Jubilee of Liberty Medals are being manufactured by Sims Enterprises, a private company in Kansas, that is selling these medals at a cost of $17 for each individual medal (includes shipping and handling ) or $13 each for orders of 10 or more medals (plus an additional charge for shipping). Please note: This company is not affiliated with either the French or U.S. governments. Veterans are asked to send copies not the originals of their service record for verification; copies will not be returned unless specifically requested along with the medals. For additional information, please contact Sims Enterprises, 617 Main Street, Newton, KS 67114; Tel: [phone number scrubbed]. The French government is no longer distributing the Jubilee of Liberty medals. Instead, the government of France is distributing a "Thank-You-America Certificate 1944-1945" for U.S. veterans. According to a letter sent in December 2000 by former Ambassador of France to the United States, His Excellency François Bujon de l'Estang, to then Secretary of Veterans Affairs Hershel W. Gober, the government of France is issuing a certificate to recognize the participation of American and allied soldiers who participated in the Normandy landing and subsequent battles leading to the liberation of France. Veterans who served on French territory and in French territorial waters and airspace, from June 6, 1944, to May 8, 1945, are still eligible. The certificate will not be issued posthumously. In agreement with the U.S. Secretary of Veterans Affairs, the French Consulates General and state veterans affairs offices, veterans service organizations, and veterans associations will identify eligible veterans, review and certify the applications, prepare the certificates, and organize the ceremonies to present the certificates. D-Day participants living in Delaware, the District of Columbia, Maryland, Ohio, Pennsylvania, Virginia, and West Virginia may obtain applications for certificates from the French embassy in Washington, DC, or directly from the Internet at http://www.ambafrance-us.org/news/statmnts/2000/ww2/index.asp . French Consulate/"Thank-You-America" 4101 Reservoir Road Washington, DC 20007 Tel: [phone number scrubbed] Fax: [phone number scrubbed] D-Day veterans living in other states may wish to contact the nearest French consulate listed below. The American Battle Monuments Commission's Web page on the Normandy Cemetery at http://www.abmc.gov/cemeteries/cemeteries/no.php has information on the cemetery and links on how to locate those interred at American World War II cemeteries overseas. The National D-Day Museum in New Orleans, Louisiana, at http://www.ddaymuseum.org provides historical information on events from D-Day as well as information on annual commemorative events. The website of the National D-Day Memorial in Bedford, Virginia, at http://www.dday.org includes information on the memorial, local events, and tours. The official website in English of the Comité Régional de Tourisme de Normandie lists various D-Day tours in the region as well as general tourist information at http://www.normandy-tourism.org/gb/16tours/index.html . The official site of the Western France Tourism Board offers information on tours and travel in the region by clicking on "Normandy" at http://www.westernfrancetouristboard.com .
|
This report details the Jubilee of Liberty Medal awarded to U.S. veterans by the French government to commemorate the 50 th anniversary of the invasion of Normandy by the Allied forces on June 6, 1994 (D-Day). These medals are no longer distributed by the French government. Included is information on how to obtain this medal from a commercial source and how U.S. veterans may obtain an official "Thank-You-America 1944-1945" certificate of participation from the French government. This report will be updated as needed.
|
Land management is a principal mission for four federal agencies: the Bureau of Land Management (BLM), the National Park Service (NPS), and the Fish and Wildlife Service (FWS) in the Department of the Interior (DOI); and the Forest Service (FS) in the Department of Agriculture. Together, these agencies administer 626 million acres, about 95% of all federal lands. In addition, the agencies have various programs that provide financial and technical assistance to state or local governments, other federal agencies, and/or private landowners. The four agencies have substantial annual budget authority: $15.1 billion in FY2009—$1.76 billion for the BLM; $3.67 billion for the NPS; $2.72 billion for the FWS; and $7.00 billion for the FS. Most of the FY2009 funds—$12.4 billion (82%)—came from annual appropriations, but each agency has numerous trust funds or special funds with mandatory spending authority that provides funding without any subsequent action by Congress. Many of the accounts with mandatory spending authority are quite modest, but a few exceed $100 million in annual funding. The mandatory spending is generally valued by the agencies and supported by many interest groups. However, other groups have expressed concerns about the incentive structures and impacts on taxpayers of the trust funds and special funds with mandatory spending authority. This report summarizes the mandatory spending provided to the four major federal land management agencies; it excludes all programs that have appropriations in the annual Interior appropriations acts. It discusses relevant issues for Congress, then defines and describes mandatory spending, and presents a general overview of the types of sources and uses of such mandatory spending. These are followed by descriptions of each agency's accounts with mandatory spending authority. The information is drawn largely from the agencies' annual budget justifications that are submitted to the Appropriations Committees, and from the statutes that provided each mandatory spending authority. The report concludes with a summary and comparison of the agencies' programs. Congress is responsible for enacting all appropriations for agency programs. For many trust funds and special funds, Congress has provided mandatory spending, which requires no annual enactments by the appropriations committees. A number of issues arise for Congress in providing mandatory spending. Some general issues are relevant for all such spending, while other issues are relevant only for one of the purposes for which such spending is generally provided—grant programs that provide benefits to particular groups who pay the fees; agency activities for federal land management; and compensation programs to state and local governments for the tax-exempt status of federal lands. In general, those advocating mandatory spending for particular programs ultimately are seeking greater fiscal security for their preferred programs. Mandatory spending often provides such stability, compared to the vagaries of the annual federal budget and appropriations processes. However, mandatory spending also may fluctuate more widely than annual appropriations, if the authority depends on revenue sources that vary with economic conditions, since spending from these accounts is limited by the receipts. Opponents of mandatory spending present several arguments against providing and sustaining such authority. Most of the land management agencies' mandatory spending is funded by selling or leasing federal, taxpayer-owned assets. Thus, opponents argue, those receipts should be used for the benefit of taxpayers generally, not just the beneficiaries of the mandatory spending programs. In addition, mandatory spending raises questions about the possible impacts on federal spending levels and the budget deficit. Finally, opponents charge that mandatory spending programs commonly receive less congressional oversight than programs whose funding is debated annually in the appropriations bills. One example of the concerns over the relative lack of oversight is the restrictions imposed on the use of mandatory spending for administrative and overhead costs. In 1998, Congress limited the use of FS funds for "indirect obligations" (identified as "overhead, national commitments, indirect expenses, and any other category of use of funds which are expended at any units, that are not directly related to the accomplishment of specific work on-the-ground") to not more than 20% of the obligations from six specific FS mandatory spending programs. Similar concerns led Congress to enact ceilings on administrative costs for the Pittman-Robertson and Dingell-Johnson/Wallop-Breaux accounts in 2000. In general, both competitive and formulaic grant programs have seen little controversy. The FWS has several such accounts, including two of the largest mandatory spending programs among the federal land management agencies (the Pittman-Robertson and Dingell-Johnson/ Wallop-Breaux Funds). Controversies typically have been avoided, because the programs mostly provide benefits to the individuals paying the fees or taxes that fund the programs. For example, the Pittman-Robertson account is funded from excise taxes on hunting equipment (guns, ammunition, and bows and arrows) while funding state wildlife management and hunter education programs. The individuals generally support the excise taxes, because they recognize that the taxes provide them direct benefits. Such a direct linkage between the funders and the beneficiaries reduces controversy and increases accountability for mandatory spending. Mandatory spending programs that fund agency activities on federal lands have historically been the most controversial accounts. The level of controversy is typically related to the funding level of the account, the source of the money deposited in the account, and the agency's discretion in using the funds. Before 1990, FS mandatory spending garnered much of the congressional attention devoted to such funds. FS mandatory spending accounted for a larger share of agency activities than was true for other agencies—as much as a third of agency funding for land management activities. In addition, six of the seven largest accounts were largely funded from timber sale receipts, and timber sales can be controversial because of their environmental effects. Finally, some of the accounts, notably the Knutson-Vandenberg (K-V) Fund, provide broad discretion to agency managers over the activities and locations that can be funded. Critics have argued that broad discretion over agency use of receipts can create "perverse incentives"—internal rewards for environmentally damaging activities to generate the funds needed to mitigate those environmental damages. With the K-V Fund, for example, FS wildlife managers may receive funding for projects from timber receipts, even though many of those projects are intended to mitigate damages to wildlife habitat from the timber harvesting, and thus wildlife managers may support timber sales they might otherwise oppose. The controversies over mandatory spending for agency activities seem to have declined. This is largely due to the substantial decline in FS timber sales since 1990, making the FS accounts smaller in aggregate and a smaller portion of total funding for agency activities. Mandatory spending has become much more significant for the BLM in the past decade, but the sources of funding—selling helium and selling potentially developable land in suburban Las Vegas—have been less controversial than timber sales, and the uses of the funds are more narrowly prescribed, with less agency discretion, at least for administering the helium program. The southern Nevada land sales have generated some controversy, because of the amount of money available and the discretion in using the funds—for acquiring environmentally sensitive lands or agency management and development activities in Nevada. Similarly, the NPS mandatory spending programs seem not to have been controversial, probably because the funds are generated from recreation receipts and are generally used for recreation-related services (i.e., the individuals who pay are the ones benefitting from the funds). The FWS has faced relatively little concern over its accounts, because its largest accounts are grant programs, not discretionary land management activities. The idea of compensating state and local governments for the tax-exempt status of federal lands has generally not been controversial. However, there have been numerous debates over the level of and basis for that compensation. For some lands and/or some resources, there is no compensation at all. For others, the compensation has traditionally been based on a portion of receipts (gross or net), and the proportion that is granted to state and local governments varies widely—from as low as 4% of receipts to as much as 90% of receipts for mineral leasing in Alaska. Many, but not all, of these compensation programs reduce payments under the Payments in Lieu of Taxes (PILT) Program. This implicitly raises questions about consistent and comprehensive compensation for all federal lands. One compensation arrangement has been somewhat controversial in recent years. As noted below, the FS 25% Payments and BLM Oregon and California (O&C) grant land payments declined substantially in the 1990s as timber harvests fell substantially. The payments fell to as little as 10% of payments in the 1980s, forcing major cuts in local programs, especially school funding. The Secure Rural Schools and Community Self-Determination Act of 2000 (SRS) was enacted in response, to allow counties to receive payments based on historic compensation rather than current receipts. The legislation generated some debate, not about the compensation level, but about the source of funds to pay for the additional compensation. In the end, funds from the General Treasury were to be used after all available receipts had been exhausted. Reauthorization efforts in 2006 and 2007 were more controversial, both in finding a feasible and acceptable funding source and because the allocation was seen as strongly favoring areas of historically high timber sales. Similar debates seem likely when the current authorization for SRS expires at the end of FY2011. The Constitution (Article I, § 9) prohibits withdrawing funds from the Treasury unless they are appropriated by law, but there is no constitutional limit on the duration of an appropriation. Most programs receive their funds through appropriations bills enacted each year (called discretionary funds). Some, however, are established with mandatory spending (also called direct spending or permanent appropriations ) in the law that created them. Two terms—trust fund and special fund—commonly used in federal budget documents are often misunderstood, because the "Federal budget meaning of the word 'trust,' as applied to trust fund accounts, differs significantly from the private sector usage." In a glossary of federal budget terms, one distinction between trust funds and special funds is that trust funds are designated as trust funds in their authorizing legislation. Confusion over the operation of federal trust funds and special funds is typically greatest where there is a disparity between the receipts supplying the account and the amount obligated annually; generally, the greater the disparity between receipts and obligations, the greater the confusion over "special" funding that is not immediately available for spending. The authorizing legislation for many, but not all, trust funds and special funds includes mandatory spending authority. Mandatory spending can generally be identified in the authorization by the phrase "available without further appropriation" (or similar language), meaning the funds in these accounts can be spent by the relevant agency without any additional action by Congress. The money in any trust fund or special fund created without such language generally can be spent only when Congress enacts an appropriation from that account. These funds depend on current or discretionary appropriations, and are not included in this report. Most mandatory spending authority of the federal land management agencies is funded with agency receipts. A few programs, including some of the largest ones, are funded from other sources, including excise and fuel taxes, license fees, import duties, donations, and the General Treasury. These sources are described below. All four of the federal land management agencies collect money from the sale, lease, or other use of the lands and resources under their jurisdiction, but the amounts of the receipts vary widely among agencies and over time. Most of the natural resource trust funds and special funds have been created to use receipts for specified purposes, such as to rehabilitate sites following an extractive use or to otherwise invest in federal land and resource management. Their creation attests to the belief that such use of receipts is warranted, and their persistence attests to the benefits they have produced over the years, but critics have expressed various concerns. (See " Issues for Congress ," above.) The discretion over disposition of receipts varies among agencies and programs. Some dedicate 100% of certain receipts to specific purposes (e.g., each agency's Operation and Maintenance of Quarters accounts). Others direct a portion of receipts to be used in specific ways (e.g., 10% of FS receipts for road and trail construction and maintenance). Still others allow the agency to decide the amount deposited into the account (e.g., the BLM's Forest Ecosystems Health and Recovery Fund). Direction on disposing receipts is a distinctive characteristic of each account and may be a significant factor in any controversies over the account. Most NPS receipts result from recreation uses, since the agency's mission is to provide recreation while preserving the lands and resources it manages. FY2009 NPS receipts were $352 million. FWS receipts result from a wide array of activities—timber sales, grazing leases, recreation uses, and more—but are relatively modest, because the agency's mission is to administer the lands and resources primarily to benefit fish and wildlife; the FWS does not separately identify receipts in its annual budget justifications (as do the other three agencies), but rather shows receipts in each program that generates them. The BLM and FS have similar missions—to produce sustained yields of multiple goods and services (recreation, grazing, timber, water, and wildlife). Timber sales historically accounted for the vast majority of receipts for these two agencies, about 90% of FS receipts and more than half of BLM receipts. Because federal timber sale levels have declined considerably from 1980s levels, FS receipts have declined substantially. FY2009 FS receipts were $581 million (44% from timber sales), down from their FY1989 peak of $1.515 billion (90% from timber sales). In contrast, BLM receipts have risen because of helium sales and land sales in Nevada. In FY2009, BLM receipts were $564 million, with timber accounting for about 5% of the total. Mineral leasing on federal lands also generates receipts, but the four land management agencies do not collect the receipts from mineral leasing. The DOI Bureau of Ocean Energy Management, Regulation, and Enforcement (previously the Minerals Management Service, MMS) handles financial administration of mineral leases on all federal lands. This bureau was excluded from this report because it does not manage lands. MMS reported FY2009 collections from onshore leases at $3.7 billion. Federal excise taxes are one funding source for two major FWS programs—Federal Aid in Sport Fish Restoration (Dingell-Johnson/Wallop-Breaux) and Federal Aid in Wildlife Restoration (Pittman-Robertson). Licensing fees fund one major FWS program—the Migratory Bird Conservation Fund (the Duck Stamp program), and two minor FS programs—Woodsy Owl and Smokey the Bear. It is not required that programs funded by excise taxes or license fees be mandatory spending. However, all five accounts of the federal land management agencies funded at least partly by excise taxes or license fees have mandatory spending authority for these receipts in their authorizing legislation. Excise taxes are taxes charged on specific items or groups of items. Sometimes, the receipts from federal excise taxes are deposited in special funds, which can then be used for various purposes. In the FWS Federal Aid programs, the taxes are paid substantially by the people who benefit from the subsequent expenditures. For the Wildlife Restoration program, taxed items include the sales of guns (including handguns), ammunition, and archery equipment, with the funds used for wildlife programs. Under the Sport Fish Restoration program, the taxed items are sales of sport fishing tackle and equipment, electric trolling motors and fishfinders, with the funds used for programs to benefit sport fishing. In addition, a substantial portion of the funds deposited in the Sport Fish Restoration account are from gasoline taxes on users of motorboats and small engines, although many of these taxes are allocated to other agencies (or the General Treasury) for other purposes. Under licensing fee programs, users pay for some particular privilege or right. The resulting receipts may be placed in a fund to benefit either an outside user group or to support the continued existence of an agency program. For duck stamps, for example, the program beneficiaries (waterfowl hunters and refuge visitors) purchase the licenses that fund the program. Waterfowl hunters over 16 years old must buy a duck stamp, which must be displayed on their hunting licenses, while nonhunters purchase the stamps for various reasons: to gain admission to fee areas in the National Wildlife Refuge System; to provide support for the FWS land acquisition program, which it funds; and to collect the stamps, which they value. One account is funded entirely by tariffs, while import duties contribute to two others. The FS's Reforestation Trust Fund receives tariff collections on imported wood products, up to $30 million annually. The history of the authorizing legislation does not identify why wood import tariffs were chosen to fund this account. Tariffs on imported fishing equipment are added to excise taxes for the FWS's Federal Aid in Sport Fish Restoration, while tariffs on hunting products are transferred to the FWS's Migratory Bird Conservation Fund. In general, the federal land management agencies can accept donations from individuals and organizations for the agencies to carry out specific projects or research. The NPS and the FWS each have mandatory spending authority for donations. The BLM has two modest mandatory spending programs for such purposes, with any donations in excess of the project costs returned to the donor. In contrast, the FS has one very small special fund for research donations, but the fund requires (and has always received) appropriations from Congress annually to match the donations. In addition, contributions for specific sites or projects may be made through the three private, federally chartered foundations that support the NPS, FWS, and FS; the BLM has no comparable supporting foundation. The National Park Foundation, National Fish and Wildlife Foundation, and National Forest Foundation exist to assist the relevant agencies by matching federal appropriations directed to the foundations with nonfederal contributions to leverage various activities, thus essentially expanding agency appropriations. All were created by acts of Congress—the National Park Foundation in 1967 (P.L. 90-209), the National Fish and Wildlife Foundation in 1984 ( P.L. 98-244 ), and the National Forest Foundation in 1990 (Title IV of P.L. 101-593 ). These foundations provide an alternative means for donors to support the agency activities directly. Two mandatory spending accounts currently are funded partly from the General Treasury. Certain FS and BLM receipt-sharing accounts are funded from payments mostly for timber harvesting. These programs were supplanted, temporarily and at the discretion of the counties (the beneficiaries of the payments), with payments under the formula in the Secure Rural Schools and Community Self-Determination Act of 2000 (as amended) for FY2001 through FY2011. In § 102(b)(3), the act directs payments first from any enacted annual appropriations, second from "any revenues, fees, penalties, or miscellaneous receipts, exclusive of deposits to any relevant trust fund, special account, or permanent operating fund," and finally "to the extent of any shortfall, out of any amounts in the Treasury of the United States not otherwise appropriated." Because the payments have substantially exceeded agency receipts in recent years, payments for these two accounts have been funded largely from the General Treasury. Most of the mandatory spending authorities for natural resource trust funds and special funds were established to fund certain agency activities or to compensate state or local governments for the tax-exempt status of federal lands. Some also provide funding for specific state or local agency programs; traditionally, such funds were allocated by formula, but competitive grants are becoming more common. Several mandatory spending programs were established to fund specific activities, although the various accounts display a wide array of possible uses of the funds. Sometimes, these activities are related to the activities that generate the receipts, such as to reforest areas following timber sales or to rehabilitate recreation sites where the receipts were collected. Other commonly funded activities are to restore degraded lands, resources, or facilities, or to otherwise invest in the federal lands and resources. Some accounts authorize relatively narrowly defined purposes for which the funds can be used. The Migratory Bird Conservation Fund, for example, can be used only to acquire land for the National Wildlife Refuge System. Other accounts have a broader range of purposes. For example, the FS's Knutson-Vandenberg Fund can be used to reforest sale areas, to improve timber stands, or to mitigate damages or enhance nontimber resource values within timber sale areas, or can be transferred to other areas for similar purposes. Funding allocation among multiple purposes can be specified; for example, receipts from BLM land sales in Nevada are allocated 5% to the state's General Education Fund, 10% to the Southern Nevada Water Authority, and 85% to federal land acquisition and other federal programs. However, the agencies have discretion to allocate many funds among multiple purposes. Many mandatory spending authorities were created to compensate state or local governments for the tax-exempt status of federal lands. The accounts commonly are funded as a share of agency receipts, at least partly because some of the accounts were created before the federal income tax system provided the federal government with other receipts to use. Some programs encompass a broad land base (e.g., all national forests) while other have a much narrower base (e.g., the national forests in three counties in northern Minnesota). In addition, some programs specify the allowed uses of the funds, while others are not restricted. FS payments to states, for example, can only be used on roads and schools, while BLM sharing of grazing receipts can be used for any local governmental purpose. States, territories, and tribal governments receive certain payments from federal agencies based on formulas. The programs provide federal money to accomplish some shared purpose. The area of the state (territory, reservation, etc.) and the size of some population (whether the whole state or some group of people within it) are common parameters used in calculating payments. In the two natural resource special funds with formula allocations (Sport Fish Restoration and Wildlife Restoration), there is also a maximum and a minimum that a state, territorial, or tribal government may receive. There may be a matching requirement for some grant programs allocated by formula. In contrast to many other federal programs, including state and local compensation programs, the combination of a formula fixed in law and mandatory spending gives the states substantial predictability of federal funding. Some mandatory spending is not allocated by formula. Rather, the funds are allocated in some other manner, often with projects competing for the funds. For example, the Migratory Bird Conservation Fund is mandatory spending that can be used only for acquiring migratory bird habitat. The specific habitat purchases are determined by a federally appointed panel, and the selections must have approval from either the governor of the state or the state fish and game agency. Under the Recreation Fee program, 80% of the collected funds generally remain at the unit that collected them. However, the agencies are permitted to use the other 20% of the funds for other locations and purposes, such as for units that cannot efficiently or economically collect fees. In this sense, the habitat acquisitions, recreation projects, or other activities must compete to obtain some portion of the program's funds. This section describes the accounts with mandatory spending authority of each of the four federal land management agencies. It includes full descriptions of each fund with at least $25 million in total FY2005-FY2009 budget authority. The descriptions include the enabling legislation, the source and uses of the funds, and the FY2005-FY2009 budget authority. The accounts are listed in decreasing amount of total budget authority over the five fiscal years. Also, for each agency, there is an "other accounts" entry to identify accounts with less than $5 million in average annual budget authority over the five years. Some of these other accounts had $0 in budget authority, generally because the fund is relatively new (i.e., sufficient receipts have not yet accumulated). The BLM has 31 trust funds and special funds with mandatory spending authority. Many are small; 12 had average FY2005-FY2009 annual budget authority exceeding $5 million. Nearly all are funded from agency receipts of various sorts. Total average annual budget authority for FY2005-FY2009 for the 31 accounts was $824 million, accounting for 44% of BLM funding over the five years. Nine of the accounts ($198 million) are compensation programs; the other 22 accounts ($626 million) fund BLM activities. Several laws authorize the sale of some public lands in Nevada. The most extensive authority is the Southern Nevada Public Land Management Act (SNPLMA, P.L. 105-263 ). The BLM is authorized to sell land in the Las Vegas Valley, and 85% of receipts are retained for acquiring environmentally sensitive lands in Nevada for the BLM or other federal land management agencies, and for other federal land activities in Nevada. (The other 15% of receipts go to state and county governments, and are described below.) For all of these accounts, the funds accrue interest until expended. For FY2005-FY2009, federal budget authority from southern Nevada land sales, including earnings on previous receipts that had not been spent, totaled nearly $2 billion, as shown in Table 1 . The Helium Privatization Act of 1996 ( P.L. 104-273 ; 50 U.S.C. §§ 167a-167d) discontinued federal helium refining and provided for the sale of crude helium (and associated natural gas and liquid gas from the Crude Helium Enrichment Unit). Receipts are deposited in the Helium Fund to administer helium leasing and extraction from federal lands and crude helium sales, storage, and transmission, as well as for cleanup and disposal of unneeded helium refining facilities. The act also directed that, after the cleanup is completed, funds in excess of $2 million be returned to the General Treasury. The FY2005-FY2009 budget authority for the Helium Fund is shown in Table 2 . The Oregon and California (O&C) and Coos Bay Wagon Road (CBWR) grant lands are lands that were granted to two private firms, then returned to federal ownership for failure to fulfill the terms of the grants. The federal government makes payments to the western Oregon counties where these lands are located to compensate them for the tax-exempt status of federal lands. Under the Act of August 28, 1937 (43 U.S.C. § 1181f), the payments for the O&C lands are 50% of receipts (mostly from timber sales). Under the Act of May 24, 1939 (43 U.S.C. § 1181f-1), CBWR payments are up to 75% of receipts, but cannot exceed the taxes that would be paid by a private landowner. As described below, under FS 25% Payments, because of declining timber sales, Congress enacted the Secure Rural Schools and Community Self-Determination Act of 2000 (SRS, P.L. 106-393 ; 16 U.S.C. § 500 note) to provide payments based on historic receipts, rather than current receipts. The payments declined after FY2008, and will return to the original payment programs in FY2012, if SRS is not reauthorized. Table 3 shows annual payments for FY2005-FY2009. The SRS act provides for three uses of the funds. The majority, 80%-85% or more, are Title I funds paid directly to the counties for any governmental purpose. In counties that receive more than $100,000 in payments, 15%-20% must be spent on Title II or Title III programs. Title III allows some funds (up to 7% of the total) to be spent on certain local governmental activities, such as search-and-rescue or community wildfire protection efforts. Title II directs a process for spending ("reinvesting") funds on the federal lands. Thus, Title I and Title III funds are county compensation, while Title II funds are for agency activities. As noted above, SNPLMA and related acts allocate 15% of receipts from land sales to Nevada state and county governments. Specifically, 5% of receipts are allocated to the general education program of the State of Nevada and 10% of receipts are allocated to the Southern Nevada Water Authority for water treatment and transmission facilities in Clark County. Table 4 shows total payments to the State of Nevada and to the Southern Nevada Water Authority for FY2005-FY2009. Section 365 of the Energy Policy Act of 2005 (EPACT05, P.L. 109-58 ; 42 U.S.C. § 15924) authorizes 50% of rents from onshore mineral leases on federal land from FY2006 to FY2015 to be deposited in this fund. The BLM is authorized to use the funds to identify and implement improvements and efficiencies in processing applications for permits to drill. Table 5 shows budget authority from FY2006-FY2009. The Federal Land Transaction Facilitation Act (FLTFA, P.L. 106-248 , Title II; 43 U.S.C. §§ 2301-2306) allows the BLM to sell or exchange lands identified for disposal in land and resource management plans. The Secretaries of the Interior and of Agriculture can then use up to 96% of receipts from the sales to acquire inholdings and other nonfederal lands. (The other 4% of receipts are returned to the states, as described below under " Other BLM Accounts With Mandatory Spending Authority .") Of the retained receipts, at least 80% are to be used in the state where the receipts were generated. Furthermore, at least 80% are to be used to acquire "inholdings," defined in FLTFA as "any right, title, or interest, held by a non-Federal entity, in or to a tract of land that lies within the boundary of a federally designated area." The agencies may use up to 20% of the retained receipts for administrative costs. This authority has been extended until July 24, 2011 ( P.L. 111-212 ). Budget authority for FY2005-FY2009 under FLTFA is shown in Table 6 . The Federal Lands Recreation Enhancement Act (FLREA) authorizes recreation fees for certain areas and uses of federal lands through December 8, 2014, as described more fully under the National Park Service, below. In general, at least 80% of the receipts are used at the sites where the receipts were collected. Table 7 shows BLM budget authority from recreation fees under FLREA (and its predecessor) for FY2005-FY2009. The Lincoln County Land Act ( P.L. 106-298 ) and the Lincoln County Conservation, Recreation, and Development Act of 2004 ( P.L. 108-424 ) authorize the BLM to sell some public lands in the county, retaining 85% of the receipts for BLM activities in the state. This authority is similar to SNLPMA (discussed above), and collections include interest on retained funds as well as the sale receipts. As with SNLPMA, the funds are available for acquiring environmentally sensitive lands in Nevada, for the BLM or other federal land management agencies. The funds are also available for other management purposes, such as managing archaeological resources and developing and implementing a multi-species habitat conservation plan for the county. Table 8 shows the budget authority for FY2005-FY2009. Mineral leasing in the National Petroleum Reserve in Alaska generates substantial receipts, and 50% of those receipts are given to the State of Alaska. Since FY2007, mineral leasing receipts have been collected by the Bureau of Ocean Energy Management, Regulation and Enforcement (previously the Minerals Management Service), which makes the payments to the state. Thus, the payments are no longer appear in the BLM budget justification, although the payments are still being made. The Timber Sales Pipeline Restoration Fund (16 U.S.C. § 1611 note) was authorized by § 327 of the Omnibus Consolidated Rescissions and Appropriations Act, 1996 ( P.L. 104-134 ) for the BLM (and the FS; see below). This program was established to fund additional timber sale preparation from the federal share of receipts (i.e., the monies not granted to the states or counties) from certain canceled-but-reinstituted O&C timber sales. The account now operates as a revolving fund, with receipts from these sales used to sales prepare additional sales. Three quarters of the money is to be used to prepare timber sales (other than salvage), and the other quarter is to be used on recreation projects. When the Secretary of the Interior finds that the allowable sales level for the O&C lands has been reached, he may end payments to this fund and transfer any remaining money to the General Treasury as miscellaneous receipts. Budget authority for this account is shown in Table 10 . This fund was created by an unnumbered section of the 1993 Department of the Interior and Related Agencies Appropriations Act ( P.L. 102-381 ; 43 U.S.C. § 1736a). Funds are derived from the federal share (i.e., the monies not granted to the states or counties) of receipts from the sale of salvage timber from any BLM lands. The money can be used to plan, prepare, administer, monitor, and subsequently reforest salvage timber sales. The use of the fund was expanded by an unnumbered section of the Department of the Interior and Related Agencies Appropriations Act, 1998 ( P.L. 105-83 ) to authorize the funds also to be used to reduce the risk of catastrophic events (e.g., severe wildfires) from forest health problems, such as releasing trees from competing vegetation and controlling tree density, as well as to respond to damage events. Budget authority for the fund for FY2005-FY2009 is shown in Table 11 . Section 234 of EPACT05 (30 U.S.C. § 1004) authorizes the BLM to retain 25% of geothermal bonuses, rents, and royalties from FY2006-FY2010 to be deposited into this special fund. The BLM is authorized to use the funds to expedite development of geothermal steam as an energy source. Table 12 shows budget authority from FY2006-FY2009. The BLM has 19 other accounts with mandatory spending authority, including 12 for agency operations and 7 for local compensation. Payments for local compensation are made annually, unless otherwise noted. The funds are listed below in descending order of total FY2005-FY2009 budget authority; those with $0 budget authority over that period are listed in chronological order of establishment and then alphabetically for those created simultaneously. Table 13 shows the budget authority for these accounts. Naval Oil Shale Reserve . The National Defense Authorization Act of 1998 transferred administration of Naval Oil Shale Reserve Numbers 1 and 3 to the BLM. Subsequent amendments authorized retention of mineral leasing funds for site remediation and cleanup. The appropriated balance of $12.996 million for FY2009 was rescinded. Native Alaskan Groups' Properties . The Alaska Native Claims Settlement Act of 1971 (ANSCA, P.L. 92-203; 43 U.S.C. §§ 1601 et seq.) authorized Alaska Native Corporations to choose cash valuations for their lands. Various laws have authorized Treasury appropriations to be "warranted" into specific accounts for various Native Corporations. Expenses, Road Maintenance Deposits . Section 502(c) of the Federal Land Policy and Management Act of 1976 (FLPMA, P.L. 94-579 ; 43 U.S.C. § 1762) allows the BLM to collect money from users of roads, trails, land, and other BLM facilities for road maintenance and reconstruction. Most of the collections come from the O&C lands and are available primarily for those lands. Collections in excess of needs are refunded or transferred to miscellaneous receipts. Payments to States, Proceeds of Sales . Numerous laws, beginning with the Act of March 6, 1820, and aggregated into a single program by an unnumbered section of the 1952 Interior appropriations act (65 Stat. 252; uncodified), are the basis for this program. States are paid 5% of the net receipts (4% of the gross) from selling public land and products (e.g., timber) as compensation for the tax-exempt status of federal lands. The payments may be used for education and public roads and improvements. Payments to States, Grazing Within Grazing Districts . The Taylor Grazing Act (Act of June 28, 1934; 43 U.S.C. § 315i) created an account to pay 12½% of grazing fee receipts from public lands inside grazing districts to the states in which the grazing districts are located. When payment is not feasible on a percentage basis, states are paid specific amounts from grazing fee receipts from miscellaneous lands within grazing districts. These lands are administered under cooperative agreements specifying that the BLM distribute the receipts. Payments may be used by the state for the benefit of the counties containing the grazing lands. Resource Development Protection and Management, Taylor Grazing Act . The Taylor Grazing Act also authorizes the Secretary of the Interior to accept contributions for administering, protecting, and improving grazing lands, and deposits for cooperative work on grazing lands. Receipts may be spent on the specified rangeland activities, with refunds of deposits "in excess of their [cooperators'] share of the cost" for cooperative efforts. Payments to States, Grazing Outside Grazing Districts . The Taylor Grazing Act also created an account to pay 50% of grazing fee receipts from public lands outside of grazing districts to the states in which the grazing lands are located. Again, payments may be used by the state for the benefit of the counties containing the grazing lands. Payments to Counties, National Grasslands . This fund is more fully described below, under the Forest Service (" Payments to Counties, National Grassland Fund "). The BLM pays 25% of the net receipts from land uses on the national grasslands, such as from grazing and mineral leasing, to the counties in which the lands are located. Funds are available for schools and roads. Public Survey . Land survey laws, beginning with the Act of August 20, 1894 (43 U.S.C. § 760), authorize payments to the Secretary of the Interior for public surveys of townships, with any excess money refunded to the contributor. NPR-2 Lease Revenue . Section 331 of EPACT05 transferred Naval Petroleum Reserve Number 2 from the Department of Energy to DOI and § 332 authorized a portion of mineral lease receipts to be deposited into a special fund for the BLM to remove environmental contamination (10 U.S.C. § 7420 note). The authority to use the funds terminates when the cleanup is completed. Operations and Maintenance of Quarters . This fund is described more fully below, under the " National Park Service ." The BLM collects rents and other charges from employees who occupy agency housing. Monies are used to maintain and repair these quarters. Stewardship Contracting, Excess Receipts . The BLM (and the FS, as described below) are authorized to enter into contracts providing for timber removal and requiring land management services. Timber receipts in excess of the cost of the required land management services are retained by the BLM for additional restoration work. Payments to Oklahoma . The Act of June 12, 1926 (ch. 572; uncodified) established an account to pay Oklahoma 37½% of the oil and gas royalties from the south half of Red River in lieu of state and local taxes on certain Tribal lands (Kiowa, Comanche, and Apache). These biannual payments may be used for schools or roads. Alaska Townsites . Non-Native Alaskans who occupied town lots before 1976 may acquire those lots by depositing funds to cover the cost of surveys and deed transfers, plus $25. White Pine County Land Sales . The White Pine County Conservation, Recreation, and Development Act of 2006 provides a land-sale authority in the county similar to that in SNLPMA and for Lincoln County (both described above), again retaining 85% of receipts for BLM activities in the state. Through FY2009, no land sales have occurred, and thus no receipts have been generated. Carson City Land Sales Account and Special Account . Section 2601 of the Omnibus Public Land Management Act of 2009 ( P.L. 111-11 ) authorizes the sale of 158 acres of federal land, with 5% of receipts for the state and the remainder for the BLM (and the FS) to cover the costs of the appraisals and sales and to acquire environmentally sensitive land in the city. Owyhee Land Acquisition . Section 1505 of P.L. 111-11 authorizes the sale of public lands in Boise County, ID, previously identified for sale, within 10 years after enactment or until $8 million have been accumulated. Receipts are to be used to acquire lands or interest in lands in or adjacent to the wilderness areas designated in Subtitle F of Title I of the act. Silver Saddle Endowment . Section 2601 of P.L. 111-11 authorizes the sale of 62 acres to Carson City, NV, with proceeds used by the BLM for oversight and enforcement of a perpetual easement to protect, preserve, and enhance the conservation values of the land. Washington County Land . Section 1978 of P.L. 111-11 authorizes the sale of previously identified public lands in Washington County, UT, to acquire lands or interest in lands from willing sellers in the wilderness areas or the national conservation area designated in Subtitle O of Title I of the act. The NPS has 17 accounts with mandatory spending authority, all funded from receipts. Many are small; only seven had average annual FY2005-FY2009 budget authority exceeding $5 million, and the largest averaged $162 million. Average annual FY2005-FY2009 budget authority totaled $335 million, 12% of total NPS funding. Of these accounts, 15 support agency activities and the other 2 (both less than $0.5 million average annual budget authority) are compensation programs. The Federal Lands Recreation Enhancement Act (FLREA; 16 U.S.C. §§ 6801-6814) was enacted in Title VIII of Division J of the FY2005 Consolidated Appropriations Act ( P.L. 108-447 ). It replaced an earlier recreation fee program. FLREA authorizes the federal land management agencies (plus the DOI Bureau of Reclamation) to charge fees at recreation sites for 10 years (through December 8, 2014). It provides for different kinds of fees, criteria for charging fees, public participation in determining fees, and the establishment of a national recreation pass. The act directs that, in general, at least 80% of the fees are to be used at the sites where they were collected. The Secretary can reduce that to not less than 60% for a fiscal year, if collections are in excess of reasonable needs. The remaining funds can be used at other sites, including those where fee collection is infeasible or inefficient, and up to 15% can be used for administering the recreation fee program. The agencies have broad discretion in using the retained fees, such as to maintain and improve recreation facilities, provide visitor services, and restore wildlife habitats. NPS budget authority under FLREA is significantly larger than for the other agencies, and is shown in Table 14 . The National Park Service Concessions Management Improvement Act of 1998 (16 U.S.C. §§ 5951-5966), Title IV of the National Parks Omnibus Management Act of 1998 ( P.L. 105-391 ), directs that all franchise fees and other monetary considerations from concessions contracts be deposited into a special account. The NPS is authorized to use the funds to support contract development and concession activities and for high-priority resource management programs and operations. This account is replacing the concessions improvement accounts (discussed below) as concessions contracts are renewed. Budget authority under this program is shown in Table 15 . A provision in the FY2002 Interior appropriations act ( P.L. 107-63 ; 16 U.S.C. § 14e) made annuity benefits for retirees mandatory spending. (These annuity benefits originally required annual appropriations.) Funds cover the costs of pension benefit payments to U.S. Park Police retirees, surviving spouses, and dependents for officers hired prior to January 1, 1984. Budget authority since FY2005 is shown in Table 16 . In accordance with § 1 of the Act of June 5, 1920 (16 U.S.C. § 6), this fund is comprised of donations received by the Secretary of the Interior. Donations are tracked to assure that the funds are used for the purposes for which they were donated. Annual donations sometimes fluctuate widely, as shown in Table 17 . This program was authorized in 1964 (P.L. 88-459; 5 U.S.C. § 5911) but was not made mandatory spending until 1984, in § 320 of Title I of the Continuing Appropriations Act, 1985 ( P.L. 98-473 ). Federal agencies collect rent from employees who use government-owned housing. For the NPS, the funds are used to operate and maintain the agency's housing throughout the National Park System. The FY2005-FY2009 budget authority is shown in Table 18 . This account was created in the Concessions Policy Act of 1965 (P.L. 89-249; 16 U.S.C. § 20) to authorize the traditional NPS practice of requiring maintenance and improvement activities by concessioners in their contracts. The account contains money derived from NPS agreements that require private concessioners, who provide visitor services within the parks, to put either a portion of gross receipts or a fixed sum into a separate account. With park approval, a concessioner may spend the funds for facilities that directly support the concession's visitor services but that were not funded through the appropriations process. This account is being replaced with the Concession Franchise Fees, described above, as concession contracts are renewed or replaced. Section 501 of the National Parks Omnibus Management Act of 1998 ( P.L. 105-391 ; 16 U.S.C. § 5981) authorizes the NPS to collect fees for the use of public transportation services within the Park System. All fees collected must be used on costs associated with transportation services in the park unit where the fees were collected. Table 20 shows the FY2005-FY2009 budget authority for the 13 park units with approved public transportation services and fees. The NPS has 10 additional accounts with mandatory spending authority, primarily to fund specific agency activities. The funds are listed below in descending order of total FY2005-FY2009 budget authority. One of the accounts—Spectrum Relocation—only had funding in one year, but it was substantial enough for the account to be listed. Table 21 shows the budget authority for these accounts. Park Buildings Lease and Maintenance . Section 802 of the National Parks Omnibus Management Act of 1998 ( P.L. 105-391 ; 16 U.S.C. § 1a-2(k)) created a special fund consisting of the rent money derived from leases on NPS buildings and other property. The money may be used for maintenance, for facility repair and replacement, and for infrastructure projects in the National Park System. Spectrum Relocation . The Commercial Spectrum Enhancement Act (Title II of P.L. 108-494 ; 47 U.S.C. § 901 note)) created the Spectrum Relocation Fund with receipts from commercial auctioned licenses of portions of the federal frequency spectrum bands. From the fund, $14.7 million was made available to the NPS to replace the communications systems at the Blue Ridge and Natchez Trace Parkways. OCS Lease Revenues (LWCF) . Section 105(a)(2)(B) of the Gulf of Mexico Energy Security Act of 2006 (GOMESA; 43 U.S.C. § 1331 note) allocated 12.5% of qualified revenues from oil and gas leasing in a portion of the U.S. Outer Continental Shelf (OCS) to the state assistance program of the Land and Water Conservation Fund (LWCF). Funds are allocated to the states under a formula in the statute. LWCF is a special account for federal land acquisition and state assistance for recreation that requires annual appropriations for all expenditures other than under § 105(a)(2)(B) of GOMESA. Recreation Fees, Deed-Restricted Parks . In 1998, the LWCF Act was amended in P.L. 105-327 (16 U.S.C. § 460 l -6a(i)(1)(C)) to establish an account consisting of recreation fees collected from park units where deed restrictions prohibit the collection of entrance fees. The account applies to the Great Smoky Mountains National Park, Lincoln Home National Historic Site, and Abraham Lincoln Birthplace National Historic Site. The money may be used at the collecting site for a variety of operating purposes, including interpretation, protection of resources, and repair and maintenance. Glacier Bay National Park Resource Protection . Section 703 of Division I of the Omnibus Parks and Public Lands Management Act of 1996 ( P.L. 104-333 ; 16 U.S.C. § 1a-2(g)) established an account consisting of 60% of the fees paid by boat operators and other permit holders entering Glacier Bay National Park. The money may be used to protect park resources from harm by the permittees. Filming and Photography Special Use Fees . P.L. 106-206 authorized fees for using park lands and facilities in commercial filming and certain commercial photography (16 U.S.C. § 460 l -6d). The fees generally are retained at the sites where collected; agency use of the fees is in accordance with the allocation under FLREA (described above). Educational Expenses, Children of Employees, Yellowstone National Park . Section 1 of the Act of June 4, 1948 (16 U.S.C. § 40a) created a special account containing "a sufficient portion" of the fees collected from visitors to Yellowstone National Park. The money is used to educate dependents of Park employees living at or near the Park on federal property not subject to state and local taxes or payments in lieu of taxes. Delaware Water Gap National Recreational Area, Route 209 Operations . Chapter VII of the 1983 Supplemental Appropriations Act ( P.L. 98-63 ) restricted commercial traffic on U.S. Route 209 through the Delaware Water Gap National Recreation Area, and established a special account of fees collected from commercial vehicles allowed in the area. The fund was reauthorized in § 702 of the Omnibus Parks and Public Lands Management Act of 1996 ( P.L. 104-333 ). The funds may be used to manage, operate, and maintain Route 209 within the Recreation Area. Tax Losses on Land Acquired for Grand Teton National Park . Section 5 of the Act of September 14, 1950 (16 U.S.C. § 406d-3) established a special account with money collected from visitors to Grand Teton and Yellowstone National Parks. No more than 25% of the fees collected may be used to compensate Wyoming, in accordance with a schedule of payments, for tax losses due to federal land acquisitions. Preservation, Birthplace of Abraham Lincoln . In accordance with § 2 of the Act of July 17, 1916 (16 U.S.C. §§ 211, 212), this fund consists of an endowment given to the United States by the Lincoln Farm Association. The interest on the fund is used to preserve Kentucky's Abraham Lincoln Birthplace National Historic Site. The FWS has 10 trust funds or special funds with mandatory spending authority. Five had average annual FY2005-FY2009 budget authority exceeding $5 million. Average annual FY2005-FY2009 funding from these 10 accounts totaled $798 million, 36% of total FWS funding. The two largest accounts (together $729 million in average annual budget authority) are funded mostly from fuel and excise taxes, and largely provide grants to states allocated by formula. One account is funded from receipts, supplemented annually with appropriations, to compensate local governments. The remaining seven accounts fund land acquisition or agency activities. In 1950, Congress passed the Federal Aid in Sport Fish Restoration Act (16 U.S.C. § 777 and 26 U.S.C. § 9504(a)). In 2005, the account name was changed to the Sport Fish Restoration and Boating Fund (in Title X of P.L. 109-59 ). The fund receives deposits from (1) taxes on motorboat fuel (after $1 million is credited to the Land and Water Conservation Fund); (2) taxes on small engine fuel used for outdoor power equipment; (3) excise taxes on sport fishing equipment, such as fishing rods, reels, and lures; (4) import duties on fishing boats and tackle; and (5) interest on unspent funds in the account. Numerous programs are funded from the Wallop-Breaux special account, as shown in Table 22 . The majority is grants allocated by formula to states and territories for substantial projects to benefit sport fish habitat, research, inventories, education, stocking of sport fish into suitable habitat, and more (but not law enforcement or public relations). The allocation is based on the number of licensed anglers in the state (60%) and on the land and water area of the state (40%), although no state receives less than 1% or more than 5% of the apportionment. The states and territories can receive up to 75% of the cost of restoration projects, including acquiring and developing land and water areas. Before funds are apportioned to states, some are allocated to administer the account and then amounts are allocated to various other specified programs. In particular, 18% of the annual funds available are allocated to boating safety and transferred to the U.S. Coast Guard, and another 12.6% of the funds are allocated to the Coastal Wetlands Program administered by the U.S. Army Corps of Engineers. These funding transfers are typically excluded from FWS budget documents, and from Table 22 , because they are not mandatory spending authority for the FWS. In 1937, the Federal Aid in Wildlife Restoration Act (16 U.S.C. § 669 and 26 U.S.C. § 4161(b) and § 4181) created this special account, also known as the Pittman-Robertson Fund. It receives excise taxes on certain guns, ammunition, and bows and arrows. Numerous programs are funded from the Pittman-Robertson Fund, as shown in Table 23 . The majority is allocated to states and territories, which can receive up to 75% of the cost of FWS-approved wildlife restoration projects, including acquisition and development of land and water areas. Funding is also provided for hunter education programs and for multi-state conservation grants. The FWS is authorized to use a limited amount of the funds for administering the account. In addition, interest on balances in the account is allocated to the North American Wetlands Conservation Fund (described below). This fund was created in the North American Wetlands Conservation Act ( P.L. 101-233 ; 16 U.S.C. §4401-4414) in 1989. The program receives money from annual appropriations as well as from three mandatory spending provisions: interest on funds from excise taxes on hunting equipment under Pittman-Robertson; transfers from Dingell-Johnson/Wallop-Breaux; and fines for violations of the Migratory Bird Treaty Act. The purpose of the program is to conserve wetland ecosystems through voluntary partnerships with required cost-sharing. FY2005-FY2009 budget authority is shown in Table 24 . The major portions of the legislation authorizing this account were enacted in 1929 (16 U.S.C. § 715) and 1934 (16 U.S.C. § 718). Deposits include receipts from the sale of duck stamps and from import duties on arms and ammunition. The fund is mandatory spending for acquisition of habitat "for use as an inviolate sanctuary, or for any other management purpose" for migratory birds , as defined in 16 U.S.C. § 715j. This section of the code refers to definitions in bilateral treaties with Canada, Mexico, Russia, and Japan. States are heavily involved in selecting parcels to be acquired, but final selection is done by the Migratory Bird Conservation Commission from properties nominated by the Secretary of the Interior. The Refuge Revenue Sharing Act ( P.L. 95-469 ; 16 U.S.C. § 715s) was enacted in 1978 to compensate counties for the loss of revenue due to the tax-exempt status of NWRS lands. The Refuge Revenue-Sharing Fund, also called the National Wildlife Refuge Fund, accumulates net receipts from the sale of certain products (gravel, timber, rights of way, grazing permits, energy development, etc.). The receipts are mandatory spending, paid to counties for any governmental purpose on the basis of a complex formula—generally the highest of $0.75 per acre, three-fourths of 1% of fair market value of the land, or 25% of net receipts. The formula did not link the total amount to be paid by the federal government to the amount collected; when it became clear that receipts were not sufficient to cover the payments, Congress authorized annual appropriations to make up the difference. Over the past five years, annual appropriations have provided 38% to 51% of the authorized payments, and 53% to 68% of the actual payments. The FWS has five other special funds, all for agency operations, with mandatory spending authority. Recreation Fees Under FLREA . This program is more fully described above, under National Park Service. In general, FLREA allows managers to retain 80% or more of entrance and user fees at their refuge to improve visitor experiences, protect resources, collect the fees, enforce laws relating to public use, etc. In practice, the authority to use up to 20% of the receipts at other refuges has been delegated to the regional offices, and few have chosen to shift any funds. Contributed Funds . The FWS is authorized under various statutes to accept donations of real and personal property or services or facilities from individuals, private organizations, and other governments to further the purposes of the Fish and Wildlife Coordination Act (16 U.S.C. §§ 661-668), the Fish and Wildlife Act of 1956 (16 U.S.C. §§ 742b-742i), and the Land and Water Conservation Fund Act (P.L. 88-578; 16 U.S.C. §§ 460 l -4 to 460 l -11). Operation s and Maintenance of Quarters Fund . This program is more fully described under National Park Service. The fund essentially collects rents and charges from employees occupying FWS quarters and is used to maintain the structures. The Lahontan Valley and Pyramid Lake Fish and Wildlife Fund . This fund was established in the Truckee-Carson Pyramid Lake Water Rights Settlement Act (§ 206(f) of P.L. 101-618 , as amended). It uses the receipts associated with a water rights settlement in Nevada to support restoration and enhancement of wetlands and fisheries in the area. Proceeds from the sale of certain lands in the area are also deposited in the fund. Proceeds from Sales Fund . This fund (16 U.S.C. § 460) uses the receipts from sales of resources on Corps of Engineers land managed by FWS to cover the expenses of managing those sales and carrying out development, conservation, and maintenance of these lands. The FS has 23 trust funds and special funds with mandatory spending authority. Of these, 13 had average annual FY2005-FY2009 obligations exceeding $5 million. Agency receipts fund most of these accounts, while import tariffs fund one, license fees fund another, and the General Treasury funds a third. Average annual FY2005-FY2009 budget authority for the 23 accounts totaled $764 million, 22% of FS non-fire obligations. Three accounts ($375 million) are compensation funds, while the other 20 accounts ($390 million, plus a portion of the largest compensation account) fund agency activities. This account, also called FS receipt-sharing payments, was established in the Act of May 23, 1908 (16 U.S.C. § 500). The FS grants 25% of its receipts to the states for use on roads and schools in the counties where the national forests are located. The states can determine the portion allocated to each road and school program, but the allocation to each county is based on the area of national forest land in each county, and the states cannot retain any of the funds. The program was amended in 1976 (§ 16 of the National Forest Management Act of 1976 (NFMA), P.L. 94-588 ) to include deposits to the Knutson-Vandenberg Fund (K-V Fund, discussed below) and the value of roads built by timber purchasers as receipts subject to 25% payments. Deposits to the Salvage Sale Fund (discussed below) were initially excluded from receipt-sharing, but were included as receipts subject to 25% payments under provisions in the annual Interior appropriations acts beginning in FY1988; this was made permanent in the FY1993 Interior appropriations act. Because the 25% payments are made for total FS receipts nationally (and Secure Rural Schools payments, described below, can be made from the General Treasury) and because K-V and Salvage Sale Fund deposits can be up to 100% of sale receipts and road values are non-cash "receipts," it is possible for the total allocation from individual sales or entire national forests (or even nationally under SRS) to exceed 100% of timber sale receipts. Because of declining timber sales (due to protection of spotted owl habitat and other values), Congress enacted the Secure Rural Schools and Community Self-Determination Act of 2000 (SRS, P.L. 106-393 ; 16 U.S.C. § 500 note) and amended it in 2007 ( P.L. 110-343 ). This act provides counties with the option of payments based on historic receipts, rather than 25% of current receipts, with declining payments after FY2008. The act also amended the 25% payments to provide payments based on a seven-year rolling average of receipts, rather than current-year receipts, to reduce the annual fluctuations in the 25% payments. The SRS act provides for three uses of the funds. The majority, 80%-85% or more, are Title I funds paid directly to the states for use on roads and schools in the counties where the national forests are located. In counties that receive more than $100,000 in payments, 15%-20% must be spent on Title II or Title III programs. Title III allows some funds (up to 7% of the total) to be spent on certain local governmental activities, such as search-and-rescue or community wildfire protection efforts. Title II directs a process for spending funds ("reinvesting") on the federal lands. Thus, Title I and Title III funds are county compensation, while Title II funds are for agency activities. Table 28 shows annual payments for FY2005-FY2009 under SRS and for those counties opting for the 25% of receipts. The K-V Fund was established by the Act of June 6, 1930 (16 U.S.C. § 576). It collects money from timber purchasers. The agency determines the amount collected on each sale, which can be up to 100% of receipts from the sale. The fund was established to reforest timber sale sites and to improve the timber stands. These authorized purposes were expanded in NFMA to allow activities to mitigate and enhance non-timber resource values on sale sites. The FS determines the funding for each authorized activity. The K-V Act was further amended in § 412 of the 2006 Interior appropriations act ( P.L. 109-54 ) to allow the use of K-V funds for "watershed restoration, wildlife habitat improvement, control of insects, diseases, and noxious weeds, community protection activities, and the maintenance of forests roads within the Forest Service region in which the timber sale occurred." Thus, this expanded both the authorized activities and the geographic area for which K-V Funds could be used. This account is described above, under the National Park Service. It allows the agency to retain recreation fees at selected sites, with 80% or more of the funds generally remaining at those sites and up to 20% available for other FS sites. The money is typically used to maintain, repair, and reconstruct recreation facilities, as well as for a variety of other activities. The Salvage Sale Fund was established in 1976 by § 14(h) of NFMA (16 U.S.C. § 472a(h)). The fund receives timber sale receipts from sales (or portions of sales) designated as salvage by the agency, although the total deposited in the K-V and Salvage Funds cannot exceed 100% of the sale receipts. The Salvage Sale Fund was established with appropriations of $3 million each in FY1977 and FY1979, and was supplemented with appropriations of $37 million in FY1988. The fund was established as a self-sustaining revolving fund to recover the costs to prepare and administer salvage timber sales (including related road costs). The Forest Service Manual (§ 2435—Salvage Sales) requires an estimate of the "preparation, administration, support, and indirect general administration costs" for each salvage sale, and permits each national forest to retain 50% more than the estimated salvage sale costs. This fund was established pursuant to the Act of June 30, 1914 (16 U.S.C. § 498), and expanded substantially in the National Forest Roads and Trails Act (P.L. 88-657; 16 U.S.C. § 537). This trust fund collects deposits from cooperators for protecting and improving resources, mainly from commercial users (especially timber purchasers) to fund a "commensurate share" of road maintenance costs. (Modest amounts are also collected from cooperators for timber scaling (measurement) services, fire protection, and other purposes.) The amount of deposits are specified in each cooperator agreement (e.g., timber sale contract), and the timing and location of expenditures is at the discretion of the agency. This fund was created in § 7 of the Forest Service Omnibus Act of 1958 (P.L. 85-464; 16 U.S.C. § 579c) to collect recoveries of cash bonds, forfeitures, judgments, settlements, and such, from permittees or timber purchasers who fail to complete required work. The money is to be used to complete the work. This fund was created in § 303 of the Recreational Boating Safety and Facilities Improvement Act of 1980 ( P.L. 96-451 ; 16 U.S.C. § 1606a). Deposits to this account come from tariffs on imported solid wood products (primarily plywood from Canada), up to $30 million annually. The account was created to eliminate the backlog of reforestation and stand improvement work identified under § 3(d) of the Forest and Rangeland Renewable Resources Planning Act of 1974 (RPA; P.L. 93-378 ). Funds remaining at the end of FY1984 were to be transferred to the states for reforesting non-federal lands, but the fund's termination and funds transfer to the states were repealed, effectively extending the account indefinitely. This program was established as a pilot program in § 329 of the FY2002 Interior appropriations act ( P.L. 107-63 ), extended in subsequent Interior appropriations acts, and then established as a three-year mandatory spending program in Title V of the FY2006 Interior appropriations act ( P.L. 109-54 ), and extended again. The agency is authorized to sell unneeded facilities and administrative sites, and use the funds to assess, restore, and/or replace facilities (buildings and other structures), as appropriate. This fund was created in 1937 by the Bankhead-Jones Farm Tenant Act (7 U.S.C. § 1012). The act authorized the acquisition of lands for conservation purposes; these acquisitions are now largely the national grasslands. The payment account is akin to FS 25% receipt-sharing payments, but requires payments of 25% of net (rather than gross) receipts directly to the counties (rather than through the states) for roads and schools in the counties where the national grasslands are located. The allocation is based on the national grassland acreage in each county. This account was authorized by the Act of August 11, 1916 (16 U.S.C. § 490). It receives money from timber purchasers; on each timber sale, the FS identifies the required deposits (in addition to payments for the timber). The fund is used on timber sale sites to dispose of tree tops, limbs, and other debris from timber cutting, to reduce fire and insect hazards, assist reforestation, and related activities. Because of the decline in timber sales, the deposits to the fund are much smaller than in the 1980s. This account is described above, under the National Park Service. It allows the agency to collect rent from employees who use government-owned housing, and to use the funds to maintain and repair the structures. This account, also called the purchaser election program (PEP), was established in § 14(i) of NFMA (16 U.S.C. § 472a(i)). It collects receipts from timber sales where qualified timber purchasers elect to have the FS build the roads required in the timber sale contract. Two conditions limit this option for a purchaser: (1) the estimated road cost must exceed $50,000; and (2) the purchaser must qualify as a small business operator (have fewer than 500 employees). The FS determines the deposits to the account by estimating the cost to build the required roads. This account, also called the 10% Fund, was created by the Act of March 4, 1913 (16 U.S.C. § 501). Deposits to the Fund are 10% of the receipts from the national forests (but not including deposits to the K-V Fund and the Salvage Sale Fund or the value of purchaser-built roads). The fund was created to supplement annual appropriations for road and trail construction. From FY1982-FY1995, a provision in each annual Interior appropriations act transferred this mandatory spending to the General Treasury, to offset annual appropriations for building roads and trails. That provision was not retained in the Omnibus Consolidated Rescissions and Appropriations Act, 1996 ( P.L. 104-134 ) or thereafter, making the Fund again available to the FS for building roads and trails at its discretion. In § 332 of the FY1999 Interior appropriations act (in P.L. 105-277 ), the authorized uses of the fund were expanded to also allow the agency "to carry out and administer projects to improve forest health conditions ... [and to] emphasize reducing risks to human safety and public health and property and enhancing ecological functions, long-term forest productivity, and biological integrity." Since FY2008, funds have again been returned to the General Treasury to offset appropriations for roads and for forest health projects under provisions in the annual Interior appropriations acts. The FS has 10 other accounts with mandatory spending authority identified in its annual budget request. They are listed in descending order of average FY2005-FY2009 budget authority. Timber Sales Pipeline . This program is described above, under the BLM. The funds come from certain canceled-but-reinstituted national forest timber sales, with 75% of the money to prepare timber sales and 25% to address the backlog of recreation projects. Land Between the Lakes Management Fund . The Land Between the Lakes Protection Act of 1998 (16 U.S.C. § 460 lll -24) authorizes the FS to retain various user and resource fees for management of the new Land Between the Lakes National Recreation Area, transferred from the Tennessee Valley Authority. Stewardship Contracting . This fund is described above, under the BLM. It authorizes the FS to enter into contracts providing for timber removal and requiring land management services. Timber receipts in excess of the cost of the required land management services are retained by the FS for additional restoration work. Administration of Rights-of-Way and Other Land Uses . Numerous authorities authorize the FS to collect fees for rights-of way across the national forests, for commercial filming and photography, for organizational camps, and for many other special uses. The FY2000 Interior appropriations act, as amended, has provided mandatory spending through FY2012 of the receipts to administer and monitor the permits and to improve customer service. Payments to Minnesota . Enacted in 1948, this program pays three northern Minnesota counties 0.75% of the appraised value of the land, without restrictions on using the funds. Forest Botanical Products . The FY2000 Interior appropriations act (16 U.S.C. § 528 note) authorized the FS to retain the fees charged to persons who harvest forest botanical products (e.g., ginseng, wild mushrooms, and medicinal plants) through FY2014 to administer the harvesting. Valles Caldera Fund . The Valles Caldera Preservation Act ( P.L. 106-248 ; 16 U.S.C. § 698v-4) authorized the FS to retain fee receipts and donations "for the administration, preservation, restoration, operation, maintenance, and improvement of the Preserve and its properties." Midewin National Tallgrass Prairie, Rental Fee . This account was established in § 2915 of the National Defense Authorization Act of 1996 ( P.L. 104-106 ) to replace existing DOD agricultural leases with USDA special use authorizations and to enact new authorizations for agricultural purposes. Seventy-five percent of the resulting rental fees are available for prairie improvement work on the Midewin National Tallgrass Prairie (in Illinois) established in § 2914 of the act. (The other 25% is to be distributed under the FS Payments to States program described above.) Land Between the Lakes Trust Fund . The Land Between the Lakes Protection Act of 1998 (16 U.S.C. § 460 lll -32) directed the Tennessee Valley Authority to deposit $1 million annually for five years into this trust fund. The FS is authorized to use the interest earned for local school grants for environmental education. Licensee Programs, Smokey Bear and Woodsy Owl . This fund was created in 1952 (16 U.S.C. § 580p-2) and amended in 1974 ( P.L. 93-318 ) to collect fees for the use of Smokey Bear and Woodsy Owl by private enterprises, to be used for forest fire prevention and for promoting wise environmental use, maintenance, and improvement. Each of the four major federal land management agencies has numerous special funds and trust funds with mandatory spending authority—money available to be spent without further action by Congress. Most of these accounts are funded by receipts from the sale, lease, or use of federal lands and resources. Other funding sources include excise taxes, license fees, import duties, donations, and the U.S. Treasury. For many accounts, the amount deposited is dictated by the authorizing legislation; the excise tax rates for the Pittman-Robertson Fund, for example, are specified in law, while deposits of import duties for the Reforestation Trust Fund are limited to $30 million annually. For other accounts, the agency has some discretion in determining the deposits; for example, the FS and BLM determine whether a timber sale is salvage, with the receipts deposited in specific accounts. The mandatory spending authorities for these four agencies generally are used for one of three purposes: to fund agency activities; to compensate state and local governments for the tax-exempt status of federal lands; or to fund grants, with a formula allocation or through competition. Mandatory spending for agency activities can be contentious, especially if the fund can be used for several, possibly competing purposes and the agency has the discretion to allocate the funds among those purposes. In contrast, the grant programs typically have not been controversial, and are likely to remain uncontroversial as long as the payers and the beneficiaries are nearly identical. The compensation programs have generally not been controversial, largely because the compensation level has been established in law. The FS 25% payments and the BLM O&C payments have generated congressional interest in recent years, because declining federal timber sales have substantially reduced their compensation payments. Congress has enacted a temporary substitute in the Secure Rural Schools and Community Self-Determination Act of 2000 ( P.L. 106-393 ), as amended. Congress is likely to renew the debate over the mandatory spending for these programs before the current temporary provisions expire at the end of FY2011. The BLM has 31 trust funds or special funds with mandatory spending authority. Of these, 12 had average annual budget authority exceeding $5 million for FY2005-FY2009. All but one are funded from agency receipts for the sale or use of lands and resources; the exception is one of the largest—the O&C county payments, which is currently (and temporarily) funded in large part from the General Treasury. Average annual budget authority for the 28 accounts for FY2005-FY2009 totaled $824 million, accounting for 44% of BLM funding. Nine of the accounts ($198 million) are compensation programs and the other 22 ($626 million) fund BLM activities. The NPS has 17 trust funds or special funds with mandatory spending authority. Of these, 7 had average annual budget authority exceeding $5 million for FY2005-FY2009. All the accounts are funded from agency receipts. Average annual budget authority for the 17 accounts for FY2005-FY2009 totaled $335 million, accounting for 12% of NPS funding. Only two of the accounts (both less than $0.5 million) are compensation programs; the other 15 fund NPS activities. The FWS has the fewest trust funds or special funds with mandatory spending authority, with 10. Of these, half had average annual budget authority exceeding $5 million for FY2005-FY2009. Average annual budget authority for the 10 accounts for FY2005-FY2009 totaled $798 million, 36% of total FWS funding. Many are funded from agency receipts, but the two largest accounts (together $729 million) are funded largely from excise taxes and import duties, and the majority of the spending grants funds to the states under fixed formulas. One account, which uses receipts supplemented with annual appropriations, is a compensation account. Another is used exclusively for land acquisition. The other six accounts fund agency activities. The FS has 23 trust funds or special funds with mandatory spending authority. Of these, 13 had average annual budget authority exceeding $5 million for FY2005-FY2009. Most are funded from agency receipts for the sale or use of lands and resources. One exception is the largest account—the 25% payments to states, which is currently (and temporarily) funded in large part from the General Treasury. Another is the Reforestation Trust Fund, which is funded from tariffs on imported wood products. The third exception is licensee fees for the use of Smokey Bear and Woodsy Owl. Average annual budget authority for the 23 accounts for FY2005-FY2009 totaled $764 million, accounting for 22% of non-fire FS funding. Three of the accounts ($375 million) are compensation programs; the other 20 ($390 million, plus a portion of the largest compensation account) fund FS activities. Several of the FS accounts have existed for many years, with five predating World War II; the earliest was created in 1908.
|
The four major land management agencies have numerous special funds and trust funds that have mandatory spending authority, with the money available to be spent without further action by Congress. The four agencies have 81 accounts with mandatory spending authority, averaging $2.7 billion in annual budget authority for FY2005-FY2009, more than a quarter of annual agency funding. Most accounts are funded with receipts from the sale or lease of federal lands and resources; other sources include excise taxes, licensing fees, import duties, donations, and more. Many accounts fund agency activities; others compensate state and local governments for the tax-exempt status of federal lands; still more are grants, allocated by fixed formulas or competition. Advocates of mandatory spending desire the predictability of funding that results from avoiding the annual congressional appropriations process. However, others are concerned about limited oversight, alleged rewards for environmentally damaging behaviors, and the adequacy of compensation for the tax-exempt status of federal lands. This report reviews agency-level mandatory spending accounts for the four agencies. The Bureau of Land Management has mandatory spending authority for 31 accounts, averaging $824 million annually in FY2005-FY2009 budget authority (44% of BLM funds, excluding wildfire funding). Many are small; 12 exceeded $5 million in average annual budget authority, and the largest had average annual budget authority of nearly $400 million. Nine accounts ($198 million in total average annual FY2005-FY2009 budget authority) compensate local governments for lost tax revenues from the tax-exempt public lands. The other 22 ($626 million in total average annual FY2005-FY2009 budget authority) fund agency activities. The National Park Service has mandatory spending authority for 17 accounts, averaging $335 million annually in FY2005-FY2009 budget authority (12% of NPS funds). Like the BLM, many are small; seven exceeded $5 million in average annual budget authority, and the largest account averaged $162 million in annual FY2005-FY2009 budget authority. Two accounts (less than $1 million in average annual FY2005-FY2009 budget authority) compensate local governments for tax-exempt federal park lands. The other 15 fund agency activities. The Fish and Wildlife Service has 10 accounts with mandatory spending authority, averaging $798 million annually in FY2005-FY2009 budget authority (36% of FWS funds). Five of the accounts exceeded $5 million in average annual budget authority. The two largest (together $729 million in average annual FY2005-FY2009 budget authority) are funded mostly with fuel and excise taxes, and primarily provide grants to states allocated by formula. One, funded from receipts (44%) plus annual appropriations (56%), compensates local governments for the tax-exempt federal wildlife refuges. The others fund land acquisition and agency activities. The Forest Service has mandatory spending authority for 23 accounts, averaging $764 million annually in FY2005-FY2009 budget authority (22% of agency funds, excluding wildfire appropriations). Many accounts are relatively large, with 13 exceeding $5 million in average annual budget authority, and most are funded from agency receipts. Three (totaling $375 million in average annual FY2005-FY2009 budget authority) compensate local governments for tax-exempt national forests and grasslands. The other 20 (totaling $390 million in average annual FY2005-FY2009 budget authority) fund agency activities.
|
In the past several years, senior policymakers in both Congress and the executive branch have proposed various changes to the way in which officers in the armed forces are managed, most notably with respect to assignment and promotion. Supporters of these proposals typically deem them to be essential to building a force that can meet the challenges of emerging strategic threats, such as cyberwarfare, and to compete with the private sector for talented individuals. Some of these proposed changes would require changes to law, including provisions enacted by the Defense Officer Personnel Management Act (DOPMA) and the Goldwater-Nichols Act (GNA). This report provides an overview of selected concepts and statutory provisions that define and shape important aspects of active duty officer personnel management along with a set of questions that policymakers may wish to consider when discussing proposed changes to current law. The topics discussed below are often inter-related, such that adjusting the parameters of one can affect the operation of others. For example, reducing the number of authorized positions at a higher grade would likely result in slower promotion timing, decreased promotion opportunity, and greater number of mandatory separations under the "up or out" provisions or individuals deciding to leave military service due to perceived lack of upward mobility. Throughout this report, reference will be made to the grade or paygrade of an officer. Table 1 below provides a summary of the various grades in the Army, Navy, Air Force, and Marine Corps. As the Navy terms for its grades differ from the other services, this report will typically use paygrade or, if using grade, both terms separated by a slash. For example, the paygrade for an entry-level officer in all services is O-1, while the grade for such officers is ensign in the Navy and second lieutenant in the Army, Air Force, and Marine Corps. Thus, officers in this grade will be referred to in this report as either "O-1" or "second lieutenant/ensign." Title 10 United States Code, Sections 531-541. To join the military as an officer, an individual applies for an original appointment. For original appointments in grades of Captain or Lieutenant (Navy) and below, the appointment is made by the President alone. For original appointments made in the grades of Major/Lieutenant Commander through Colonel/Captain, the appointments are made by the President with the advice and consent of the Senate. When such an appointment is made, the individual receives a commission, a document which designates the individual as an officer of the federal government. There are four main commissioning categories: the service academies, the Reserve Officer Training Corps (ROTC), Officer Candidate School (OCS), and various direct commissioning programs. Although 10 U.S.C. 531 authorizes original appointments in grades up to Colonel/Captain, in practice original appointments are typically made in the grades of Second Lieutenant/Ensign. Original appointments to higher grades, known as lateral entry, are typically limited to professions where the military is primarily interested in the civilian skills of the individual. Some common examples include medical and dental officers, lawyers, and chaplains. In 2010, the Army announced a program to fill critical shortages by directly commissioning, as Captains, individuals with certain civilian skills. The specific areas of expertise included engineering, finance, intelligence, information operations, space operations, acquisition, civil affairs, and psychological operations. Prospective active duty officers must meet the requirements of 10 U.S.C. 532 for original appointments as "regular" commissioned officers. The requirements are: Must be a citizen of the United States; Must be able to complete 20 years of active commissioned service before age 62; Must be of good moral character; Must be physically qualified for active service; and Must have such other special qualifications as the Secretary of the military department concerned may prescribe by regulation. The statute does not define "good moral character" or "physically qualified for active service," but the Department of Defense provides more specific guidance in its internal regulations. Additionally, each of the military services has supplementary regulations concerning qualifications for appointment. Some examples of medical conditions that DOD considers disqualifying for an officer applicant are listed in Table 2 . Periodically, policymakers have looked at whether these accession requirements, particularly the physical qualifications, are too strict or too lenient. Typical areas of debate include the acceptable parameters for body fat, current use or past use of certain medications, past use of illegal drugs, and ability to perform certain physical tasks. One perspective holds that physical qualifications should be lower for those in more technical or supporting specialties (e.g., cyber, finance, human resources) than those in direct combat roles (e.g., infantry, special operations). Others argue that military officers, regardless of specialty, have inherent duties—such as leading subordinates, directing the use of weapons systems when needed, and deploying to austere locations—that require a common baseline of physical and psychological fitness. Increasing the opportunities for lateral entry into the officer corps has also been a topic of considerable discussion. For example, retired General Stanley McChrystal has advocated lateral entry for business executives as general officers, stating "I've dealt with a lot of chief executive officers who could walk in and be general officers in the military tomorrow. All we'd have to do is get them a uniform and a rank." Critics of lateral entry, particularly for direct warfighting occupations, argue that in-depth knowledge of military systems, tactics, and decision-making processes is critical for successful leadership of military units and effective employment of military capabilities. What are the inherent duties of military officers in expected operational environments; what do these imply regarding qualification standards for military officers? To what extent can lateral entry be used to address critical skill shortages without decreasing military effectiveness? Is lateral entry a viable option for direct warfighting specialties? Should physical qualification criteria vary based on the officer's specialty? If so, how much variation is acceptable, and in what areas? Could some of the physical qualifications for appointment be revised without harming military effectiveness? For example, with respect to body fat, could the permissible level immediately prior to appointment be increased, with the expectation or requirement that the officer meet a stricter standard at some point thereafter? Could they body fat standards be replaced by other measures of physical fitness? Should there be a greater acceptance of ongoing use of medication for certain chronic conditions? For example, might the regular or sporadic use of an asthma inhaler be acceptable? Generally, 10 U.S.C. 3013, 5013, 8013; for joint assignments, 10 U.S.C. 663. In general, the military services have broad authority to assign personnel as they deem appropriate. This authority derives from the broad authority of the service secretaries to "assign, detail, and prescribe the duties" of their servicemembers and civilian personnel. Typically, an officer's assignments follow a fairly structured progression, starting with initial training in a specific career field, and followed by a series of progressively more responsible duty assignments in that field. There may also be opportunities to work outside one's career field. At certain points in an officer's career, he or she is required to attend professional military education schools which further develop technical and leadership skills. However, there is a major statutory provision that controls the assignments of certain officers with joint training and experience. The Goldwater-Nichols Department of Defense Reorganization Act of 1986 (GNA) included provisions to improve integration between the military services, a concept known as "jointness." Among other things, GNA established a corps of "joint qualified officers." Joint qualified officers are those officers who are particularly trained in, and oriented toward, "joint matters." Section 663 of Title 10 requires the Secretary of Defense to ensure that joint qualified officers who graduate from certain schools within the National Defense University—the National War College, the Industrial College of the Armed Forces [the Dwight D. Eisenhower School for National Security and Resource Strategy], and the Joint Forces Staff College—be assigned to a "joint duty assignment" as their next assignment after graduation. This requirement can be waived by the Secretary of Defense on a case-by-case basis. The Secretary of Defense must also ensure that at least 50% of the other officers (non-joint qualified) who graduate from these three schools be assigned to a joint duty assignment as their first or second assignment after graduation. By law, these assignments are at least three years for officers in the ranks of Colonel/Captain and below, although the Secretary of Defense can waive this. Some argue that this requirement is essential to integrating the efforts of the military services, as it channels the most capable and ambitious officers into joint assignments, where they gain greater knowledge of other services' capabilities and the skills necessary to plan for and conduct joint operations. Others argue that this system is too rigid and that a broader array of assignments should qualify as joint. Is there evidence that current assignment policies have not adequately prepared officers to meet expectations? Will the assignments adequately prepare them for expected operational environments of the future? Does the situation require changes in statute or changes in DOD or service policy? What is the proper balance between assignments which (1) hone technical expertise, (2) provide for broadened perspectives, and (3) develop organizational leadership skills? How does this balance change over the course of an officer's career? Are military careers long enough to develop the skills needed for expected operational environments of the future? Are the substantial investments in officer education and training adequately linked to the value of subsequent assignments? On balance, does the benefit of joint duty assignments outweigh the opportunity costs of less skill development in other areas? Does current law and policy meet the needs of both the joint community and the services? Should the number of joint duty officers and the requirements for joint duty assignments be revised? Are there other areas besides joint duty that might be considered essential to the professional development of mid-grade and senior officers? For example, might duty with a reserve component be considered a required developmental assignment, either for all officers or for a segment of the officer corps? Title 10, Chapter 36 governs promotions; Title 10, Chapter 32 governs grade limitations; Title 10, Chapter 38 governs joint officer management. The officer promotion system is designed to be a competitive system that selects the best qualified for service at the next higher grade. Promotions take place within a grade-limited structure which caps the number of positions for each grade above captain/lieutenant. Officers are considered for promotion at specific times in their career and, due to fewer positions at the higher grades, there is a decreasing likelihood of promotion the further one progresses. Those officers who twice fail to be promoted to the next higher grade are normally separated, a statutory requirement known as "up or out." These concepts of the officer promotion system are explained in more detail below. While there are no direct grade limits in the number of positions for paygrades O-1 to O-3, there are such limits for all higher paygrades. That is, there are progressively fewer authorized positions in each subsequent paygrade after O-3. This results in a roughly pyramidal shape to the officer corps beyond O-3. See Table 3 for a summary of current officer strength levels by grade. This largely pyramidal structure exists in all military organizations, but the ratio of mid-grade and senior officers to the total officer corps can vary considerably between military organizations, both in comparison to other services and foreign nations, or within the same organization over time. There has been some contention over the appropriate ratio of officers to enlisted personnel for U.S. military organizations, where the proportion of officers has been gradually rising. One perspective on this trend is that it is related to the growth of joint organizations and the increased U.S. emphasis on coalition operations, which have created greater demand for officers to fill key staff roles. Another view is that the advanced technologies employed by the armed forces and the complexity of contemporary military operations require an officer corps composed of highly talented and technically knowledgeable individuals. Attracting and retaining such individuals, some argue, requires that there be more opportunity to rise to the higher levels of the officer corps; hence a higher ratio of mid-grade and senior officers to the total officer corps is necessary. On the other hand, some are wary of what they refer to as "grade creep," particularly given the additional costs associated with it. Another concern about higher ratios of officers in the force—particularly senior officers—revolves around whether it promotes a more bureaucratic approach to military decision-making. Table 4 summarizes the changing proportion of officers within the U.S. Armed Forces over the past 50 years. Chapter 32 of Title 10 provides the statutory framework for the maximum number of officers that can serve in each grade above captain/lieutenant. Within that chapter, 10 U.S.C. 523 provides a grade limitation table for officers in grades O-4 to O-6, setting limits based on the total size of a service's officer corps. For example, if the Air Force has 65,000 commissioned officers, 10 U.S.C. 523 limits the number of Air Force majors to 14,073 (21.65%), Air Force lieutenant colonels to 9,417 (14.49%), and Air Force colonels to 3,211 (4.94%). If the total size of the service's officer corps lies between two reference points in the table, the law requires "mathematical interpolation between the respective numbers" to provide the grade limit. Certain officers do not count against these limits, most notably medical and dental officers. Sections 525 and 526 of Title 10 provide grade limitations for officers in paygrades O-7 to O-10, both for service-specific positions and for "joint duty assignments." The grade limitations for these officers are numerical limits (e.g., 7 officers can be appointed to the grade of General in the Army, excluding certain joint and other designated positions). Promotion timing refers to the window of time in which an officer is considered for promotion to the next higher grade. The statutory minimums for "time in grade" before eligibility for promotion are detailed in 10 U.S.C. 619 (summarized in Table 5 ). For example, a second lieutenant/ensign must serve at least 18 months in that grade before being considered for promotion to first lieutenant/lieutenant junior grade, while a major/lieutenant commander must serve at least three years in that grade before being considered for promotion to lieutenant colonel/commander. As a practical matter, an officer's time in grade will typically be greater than the minimum specified in law, which is in keeping with the expected promotion timing guidelines described in the committee reports which accompanied the Defense Officer Personnel Management Act. These expectations are included under the heading "Expected Years of Service at Promotion" in Table 5 . Promotion opportunity refers to the percentage of officers in a given cohort who will normally be promoted to the next higher rank. For example, the expectation when DOPMA was passed was that about 80% of captains/lieutenants in a given cohort would be promoted to major/lieutenant commander. This percentage could vary in response to force structure demands. For example, it could increase if a service was expanding—say, during wartime—or decrease if it was undergoing a drawdown. Promotion opportunity is not specified in law, but guidelines were included in the House committee report which accompanied DOPMA. The expectations for promotion opportunity are included in Table 5 , along with the projected impact of death, disability, and promotion opportunity constraints on a given cohort of officers over the course of their career. Note that these cumulative promotion projections do not account for voluntary separations and retirements, so the actual proportion of an entry cohort which achieves a given rank may be lower than the figure provided. Officers are promoted from O-1 to O-2 if they are "fully qualified," which means they meet all the minimum requirements for promotion. Those who are not fully qualified are not selected for promotion. For promotion to O-3 and above, promotions are made on a best qualified basis. Under the best qualified system, one must be fully qualified to be selected for promotion, but being fully qualified is not necessarily sufficient for promotion. Instead, all the fully qualified officers are ranked by the selection board in order from most qualified to least qualified. Those who are ranked most highly are recommended for promotion until all promotion authorizations are filled. The remaining officers, though fully qualified (and sometimes well qualified) are not recommended for promotion. This is an intentional feature of DOPMA. As stated in the House Armed Services Committee report which accompanied the bill: The simple fact is that if the system is working right, it will, of necessity, result in passover for promotion of officers who are fully qualified to serve in the next-higher grade. This is because the function of the up-or-out system [discussed below] is to provide at each grade more officers who are qualified to serve in the next grade than the billets require. Thus the services will have selectivity and can pick the best from a selection of fully qualified officers. For over 70 years, military officers have been subject to a statutory "up or out" requirement. Officers in paygrade O-1 must be discharged within 18 months of being found not qualified for promotion. Officers in paygrade O-2 through O-4 who have "failed of selection for promotion to the next higher grade for the second time" are normally separated from military service. Those within two years of retirement eligibility are permitted to remain on active duty until retirement and others may be selectively continued, as described below. Officers in paygrades O-5 and above are subject to mandatory retirement if they are not promoted before reaching a specified number of years of commissioned service. The House Armed Services Committee considered this to be the "fundamental concept for the management of officer personnel" within DOPMA: As can be seen from the foregoing, the revised grade table, together with the selective continuation procedures and mandatory retirement and separation points in the bill, contemplates the continuation of the up-or-out system as the fundamental concept for the management of officer personnel. There is nothing new in this concept. It has been in effect for nearly 35 years and on the whole has served the country well. The system has given the armed forces what they never before had in peacetime—a youthful, vigorous, fully combat-ready officer corps. Selective continuation allows the services to allow certain officers to continue serving on active duty, even though they would normally be separated due to the requirements of "up or out". On a selective basis, officers in paygrades O-3 and O-4 who twice fail for promotion may be continued on active duty, if the service needs them and they are selected by a continuation board. Selectively continued O-3 officers may be allowed to stay on active duty until they complete 20 years of service, while selectively continued O-4s may be continued until they complete 24 years of service. Officers in paygrades O-5 and above may also be selectively continued rather than being subject to mandatory retirement for total years of commissioned service. Are there aspects of contemporary warfare which require revisions to the current grade structure of the armed forces? Should the grade limits be raised to allow for greater promotion opportunity and career progression for military officers, or certain categories of military officers? Or, conversely, are there more mid-grade and senior officers than are necessary? Should there be additional categories of officers exempt from the grade limits, as medical and dental officers are now? Could a guarantee of continuation be provided to officers in advance, to provide more flexibility in career progression without fear of being passed over? Do the anticipated personnel requirements of the future require military personnel, or can federal civilians or contractors fill some or most of these positions? For voluntary separation: Title 10, Chapters 367 (Army), 571 (Navy and Marine Corps), and 867 (Air Force) For involuntary separation: See Table 6 Separation refers to various actions which release the individual from active military service, and includes an officer's resignation, discharge, and retirement. Broadly speaking, separations are categorized as voluntary or mandatory, depending on whether they are initiated at the request of the officer or are imposed by the service in accordance with the statutory requirements. Officers are generally free to resign from the armed forces at any time after completion of their required service obligation, which is typically eight years, although some of this time can be served in a reserve component. Upon completion of 20 years of active service, officers are eligible for voluntary retirement. Under Title 10, there are several voluntary retirement authorities for officers, but the most commonly used are 10 U.S.C. 3911, 6323, and 8911 which specify that the President may retire an officer who has completed 20 years of active service, of which at least 10 were as a commissioned officer (the Secretary of Defense can authorize the service secretaries to reduce the years as a commissioned officer to 8 for retirements between January 7, 2011 and September 30, 2018). Although the statutory language is permissive—the President may approve such retirements, but is not required to—as a matter of practice such requests are routinely granted. Additionally, during the period of December 31, 2011 to December 31, 2018, the service secretaries may reduce the minimum length of service for voluntary retirement under these provisions from 20 to 15 years. There has been criticism of the general practice of allowing servicemembers to retire after 20 years of service on the grounds that it encourages individuals to leave the service at a time when their experience could be of great value to the services. Others note that this practice helps maintain a youthful and vigorous military, and that the structure and budget of the armed forces is not designed to sustain an abundance of relatively senior officers (typically, at twenty years of service, such officers are lieutenant colonels/commanders). There are a number of statutory mechanisms that mandate the separation of military officers under certain conditions. As discussed above, several of them stem from failure to advance to the next higher grade. Others occur upon reaching a specific age, in the event of serious disability, for substandard performance, and for force shaping purposes. These provisions are below summarized in Table 6 . Should the routine approval of voluntary retirement requests at 20 years of service be reconsidered? If so, should the voluntary retirement age be increased uniformly, or only for certain categories of officers (for example, those in less physically demanding career fields)? If longer careers are contemplated, should the grade structure and promotion system be changed to adapt to this new career pattern? Should there be greater flexibility to move from more physically demanding specialties to less demanding ones in order to facilitate continuation of service?
|
Congress and the executive branch are currently considering changes to the officer personnel management system. Some of these proposed changes would require changes to the laws, including provision enacted by the Defense Officer Personnel Management Act (DOPMA) and the Goldwater-Nichols Act (GNA). Contemporary debates over officer personnel management policy often revolve around the fundamental questions of "what type of officers do we need to win the next war?" and "what skills does the officer corps need to enable the military services to perform their missions?" These questions are implicitly oriented towards future events. Their answers are therefore somewhat speculative. Still, contemporary trends and military history can provide valuable insight. Additionally, a set of broader questions can help focus the analysis: What will be the key security interests and priorities of the United States in the future? What conflicts will likely arise in the pursuit of these interests? What opponents will we face in these conflicts? How will they fight? What military strategy will the United States employ to secure its interests? How will we fight? What knowledge, skills, and abilities must the officer corps possess to effectively carry out these roles and missions? How do we attract and retain individuals with the necessary potential for service as officers? How should the officer corps be prepared so it can effectively adapt to unforeseen crises and contingencies? Given limited resources, what are the most critical areas for improvement? Where should the nation accept risk? Policymakers often have divergent answers to these questions and thus come to different conclusions about the most appropriate officer personnel management policies. Examples of diverging views can be found in debates on the criteria for accepting or rejecting people for military service; required training and education over the course of a career; assignments to be emphasized; distribution of officers by grade; retention of experienced and talented individuals; and the criteria for selecting individuals for promotion and for separation. In the exercise of its constitutional authority over the armed forces, Congress has enacted an array of laws governing military officer personnel management and periodically changes these laws as it deems appropriate. This report provides an overview of selected concepts and statutory provisions that shape and define officer appointments, assignments, grade structure, promotions, and separations. It also provides a set of questions that policymakers may wish to consider when discussing proposed changes to current law.
|
The Patient Protection and Affordable Care Act (ACA, P.L. 111-148 ) and the Reconciliation Act of 2010 ( P.L. 111-152 ) impose a fee on certain for-profit health insurers, starting in 2014. The aggregate ACA fee, to be collected by the Internal Revenue Service (IRS) across all affected insurers operating in the United States, is set at $8.0 billion in 2014. The fee will gradually rise to $14.3 billion in 2018, and will be indexed to the annual rate of U.S. premium growth thereafter ( Table 1 ). Under final IRS regulations, entities subject to the ACA fee generally include health insurance issuers such as an insurance company, insurance service, or insurance organization (foreign or domestic) that are required to have a state license and are subject to the laws of such jurisdictions that regulate health insurance. Covered entities may include health maintenance organizations, multiple employer welfare arrangements (MEWA) that are not fully insured, and entities offering Medicare Advantage (Part C) or Medicare prescription drug plans (Part D), or Medicaid managed care plans. The parent organization for a group of subsidiaries that offer health coverage generally would calculate the net premiums written of all its affected subsidiaries for the purpose of applying the fee. Certain types of health insurers or insurance arrangements are not subject to the fee. These generally include the following: Self-insured plans, in which an employer assumes the financial risk for providing health benefits to its employees. In 2010, about 60% of enrollees with work-based coverage were in self-insured plans. Voluntary employees' beneficiary associations (VEBAs) organized by entities other than employers, such as unions. Federal, state, or other governmental entities, including Indian tribal governments. Nonprofit entities incorporated under state law that receive more than 80% of their gross revenues from government programs that target low-income, elderly, or disabled populations (such as the State Children's Health Insurance Plan [CHIP], Medicare, and Medicaid). The nonprofits may not engage in substantial lobbying, nor engage in political campaign activities. Student health insurance coverage that educational institutions purchase through a separate, unrelated insurer. The insurer would be the covered entity for the purpose of applying the fee. Health insurance is outlined in the IRS rules as "benefits consisting of medical care (provided directly through insurance or reimbursement or otherwise) under any hospital or medical service policy or certificate, hospital or medical service plan contract, or health maintenance organization contract offered by a health insurance issuer." Health insurance includes limited-scope dental and vision benefits and retiree health insurance. Certain insurance benefits that are not considered health insurance for purposes of the fee include accident or disability insurance; liability coverage; workers' compensation benefits; automobile medical coverage; credit-only insurance; coverage for certain on-site medical clinics; coverage for a specific disease or illness; long-term nursing home, home health care, and community-based care, or any combination thereof; hospital indemnity or other fixed indemnity insurance; Medigap policies; some types of travel insurance; and some reinsurance. The ACA fee will be based on net health care premiums written by covered issuers during the year prior to the year that payment is due. IRS regulations define net health care premiums written as gross premiums from insurance sales (including reinsurance premiums written), reduced by ACA medical loss ratio rebates to enrollees, reinsurance ceded, and ceding commissions. (Ceded premiums are premiums paid by an insurer to a reinsurance firm for protection against defined market risks.) Each year the IRS would apportion the fee among affected insurers based on (1) their net premiums written in the previous calendar year as a share of total net premiums written by all covered insurers, and (2) their dollar value of business. Covered insurers are not subject to the fee on their first $25 million of net premiums written. The annual ACA fee would be imposed on 50% of net premiums above $25 million and up to $50 million, and 100% of net premiums in excess of $50 million. For example, the IRS would not take into account the first $37.5 million of net premiums written for a covered insurer with total net premiums above $50 million. No tax on first $25 million. Tax levied on 50% of premiums above $25 million and up to $50 million ($12.5 million). Taxable base on first $50 million is $12.5 million ($50 million - $25 million - $12.5 million). The proposed rules provide differing treatment for certain tax-exempt insurers such as public charities, social welfare organizations, high-risk health insurance pools, or consumer-operated-and-oriented plans (COOP). After applying the fee adjustments (see above) a covered insurer that is exempt from federal taxes would have the ACA fee applied to only 50% of its net premiums that are subject to the fee, so long as the premiums are attributable to the insurer's tax-exempt activity. The IRS would calculate each insurer's actual, annual fee/share of the premium tax based on the ratio of the insurer's net premiums written (after adjusting for the above disregards) as a share of the total net premiums written by all covered entities (after adjustment for the disregards). (See " Insurer Reporting Requirements .") Insurers would be required to report annual premium data to the IRS by April 15 of the following year. While entities with less than $25 million in net premiums written are not subject to the fee, they are still required to submit premium information. The IRS will determine the amount of each firm's net premiums written based on the annual reports, along with any other source of information the IRS has available. Insurers are to report the information on Form 8963, "Report of Health Insurance Provider Information." After reviewing the available financial information the IRS would notify each covered insurer or other entity of its: 1. Preliminary fee allocation. 2. Net premiums written for health insurance, both before and after IRS regulatory adjustments. 3. Aggregate net premiums written for U.S. health insurance from all covered entities. 4. Information regarding the process for correcting any errors in the IRS findings. Insurers would be required to review their preliminary fee calculation and, if they believe there are errors, to submit a correct form to the IRS in a timely fashion. The IRS would provide each covered entity with its preliminary fee calculation by June 15 each year. If an insurer believes that the IRS preliminary fee calculation contains errors, it must provide the IRS with a corrected report by July 15. The IRS would notify each covered entity of its final fee calculation on or before August 31 each fee year. The IRS would give each covered entity a final fee determination, based on the same criteria as the preliminary fee. The final fee may differ from the preliminary fee, however, based on any error correction, additional information uncovered during the review process, or a change in the calculation of overall net written premiums for the United States. Insurers must pay the final fee will by September 30 each year. Insurer information submitted on both original and corrected Forms 8963 is not confidential and will be open for public inspection or available upon request, according to the IRS. Insurers that fail to file required reports in a timely manner would face a penalty equal to $10,000 and the lesser of (1) an amount equal to $1,000 multiplied by the number of days the firm is out of compliance, or (2) the amount of the covered entity's fee for which the report was required. The penalty will be waived in cases where insurers can demonstrate reasonable cause for not reporting the information on time. Insurers would also face penalties for filing inaccurate information that understates net premiums written. The penalty will be equal to the excess of: 1. The amount of the annual fee the insurer would have paid had the premium data had been reported accurately, over 2. The amount of the annual fee imposed on the insurer, which was based on faulty reporting that understated the amount of net premiums written. Because the ACA premium fee is considered an excise tax by the IRS, the proposed regulations state that companies cannot deduct the fee from their annual taxes. While the federal ACA premium fee is new, states for many years have imposed premium taxes on insurance products. In 2012, states collected $16.7 billion in premium taxes on a broad range of insurance (including property and casualty, life, and health products). Insurers' ability to pass on the new ACA tax, in the form of higher premiums to consumers, will vary based on factors such as the degree of market competition or a firm's specific business strategy. Government programs such as Medicare and Medicaid that contract with private insurers to deliver health benefits consider an insurer's tax payments, along with other costs, when setting annual program reimbursement levels. The Congressional Budget Office (CBO) has estimated that insurers may pass on the ACA insurer fee to consumers in the form of "slightly" higher premiums for coverage. According to CBO, prior to the ACA's passage, because self-insured plans would largely be exempt from the fee, and because large firms are more likely to self-insure than small firms, the net result would be a smaller percentage increase in average premiums for large firms than for small firms and for nongroup coverage. The Joint Committee on Taxation has estimated that legislation to repeal Section 9010 of the ACA would result in a 2% to 2.5% reduction in the premium prices of insurance plans offered by the covered entities. The Joint Committee said it expected a very large portion of the fee to be passed on to purchasers of insurance in the form of higher premiums. The analysis found that eliminating the fee could reduce annual premiums for a family of four in 2016 by $350-$400. Some insurance companies have released estimates regarding the impact of the fee. For example, Blue Shield of California has forecast the impact of the 2014 insurer fee will equal about 2.3% of premium. Kaiser Permanente has told business clients the insurer fee will amount to roughly 0.65% of premium in 2014. Some insurance companies plan to increase premiums or have asked state regulators to include the impact of ACA costs, including the premium tax, in their annual rate requests. Horizon Blue Cross Blue Shield of New Jersey, for example, estimates that the tax will increase its costs by $125 million in 2014, spurring an increase in premiums. The company had $9.4 billion in revenues in 2012, with net income of $200 million. In addition, an April 2013 study by the actuary/consulting firm Milliman estimated that the fee would result in premium increases of 1.7% to 2.4% in 2014, rising to 2.0% to 2.9% in following years. The firm said that the fee gives nonprofit insurers a competitive advantage, because many nonprofits are exempted or are subject to a lower fee than the for-profit insurers' fees. Estimating exactly how the federal premium fee will affect the insurance industry, and existing government programs such as Medicare and Medicaid, is complicated by a number of factors, including a lack of detailed data on net premiums. The National Association of Insurance Commissioners (NAIC) has developed a system for uniform financial reporting by insurance companies. Currently, the NAIC collects premium data on direct premiums earned and written, rather than on net premiums written. As noted earlier, the ACA defines net premiums written as gross premiums from insurance sales, minus ACA MLR rebates, certain commissions, and premiums ceded to reinsurers. The difference between direct and net premium written is largely reinsurance activity. Any estimate of the distribution of the ACA fee based on direct premiums earned will most likely overestimate the size of the market subject to the ACA insurer tax. The NAIC will begin collecting data on net premiums written via future insurer financial statements. In addition, companies are to provide information to the IRS as part of their annual reporting requirements under the ACA. Existing NAIC data provide some general guidance regarding the possible, proportional breakdown of the insurance fees. In general, for-profit health insurers in the United States (excluding California) wrote about $295 billion in direct premiums in 2012. Comprehensive group and health policies accounted for more than half the total, with Medicare (MA and Part D) accounting for about 24% and Medicaid accounting for up to about 19%. One outstanding question is the potential impact of the premium fee on the Medicare and Medicaid health care programs. The premium tax does not apply to direct government programs, so does not apply to Medicaid and Medicare fee-for-service plans, where the government administers and pays for services. (See " Insurers Subject to the ACA Fee .") However, the federal government contracts with private insurers to offer Medicare Advantage and Medicare Part D insurance plans. In addition, a growing share of state-federal Medicaid insurance plans, mainly managed care plans, are offered by outside issuers, as are some CHIP plans. For-profit insurers are subject to the ACA premium fee on their Medicare and Medicaid business. (Nonprofit entities are exempt from the tax if they are incorporated under state law and receive more than 80% of gross revenues from government programs that target low-income, elderly, or disabled populations.) The share of the Medicare and Medicaid market held by private insurers is significant. For-profit companies served 71% of Medicare Advantage enrollees in 2011, with not-for-profit insurers accounting for about 29%. About 74% of Medicaid beneficiaries were in some kind of managed care plan in 2011, according to the Centers for Medicare & Medicaid Services. According to the CMS data and a 2010 survey by the Kaiser Commission on Medicaid and the Uninsured, more than half of Medicaid managed care enrollees are enrolled in managed care organizations on a risk-payment basis. Because the ACA premium tax will be factored into the rates that states pay insurers to offer managed care plans, insurance companies and others have warned that it could increase state and federal costs for the program. Government regulations could limit how much of the fee is passed on to Medicare beneficiaries. For example, Medicare Advantage plans each year are subject to a cap, or maximum increase, in total beneficiary costs. The premium fee is not a cost factor that will be used to adjust maximum beneficiary costs, which will effectively limit insurers' ability to pass on the fee. How much of the overall fee will be borne by outside insurers, and how much by the federal and state governments depends in part on how many states expand their Medicaid programs. Milliman in its April 2013 study estimated that under a status quo scenario, commercial plans would be responsible for about 61% of the fee over a 10-year period, with the Medicare paying 25% and Medicaid 14%. Under a nationwide full Medicaid expansion scenario, the Medicaid portion of the fee would increase by about 12%, with corresponding reductions to the share paid by commercial plans and Medicare. There are concerns about the potential for the ACA premium tax to increase costs to insurers, businesses, and consumers. The ACA premium tax is not occurring in isolation, however, but as part of the ACA's broad series of taxes and fees, and consumer and business insurance subsidies, and other health delivery reforms designed to expand the number of Americans with insurance and slow the rate of government and private market health care spending. The ultimate impact of the premium fee will depend on how these changes play out. Federal subsidies will mitigate the impact of higher premiums for some consumers. Under the ACA health exchanges must be established in every state by January 1, 2014, either by the state itself or the Secretary of Health and Human Services (Secretary). The exchanges will not be insurers, but will provide qualified individuals and small businesses with access to health plans offered by private insurers that meet set, federal standards. Individuals and small businesses that purchase health plans through the exchanges may qualify for federal subsidies and tax credits, which could reduce their costs and soften some of the impact of the ACA insurer tax. The CBO has estimated that 22 million people will purchase coverage through the exchanges once they are fully established in 2016, and that roughly 19 million (87%) will receive exchange subsidies. In addition, certain small employers are eligible for an ACA tax credit, provided they contribute a uniform percentage of at least 50% toward their employees' health insurance. By 2014, for-profit employers will be eligible for a maximum credit equal to 50% of the employer's contribution toward employee premiums, while nonprofit organizations will be eligible for a maximum credit of up to 35% of employer contributions. The maximum small business tax credit is available for two consecutive tax years, beginning with the first year the employer offers coverage through an exchange. In addition to premium and small business tax credits, the ACA requires increased regulation and oversight of insurance costs. The federal government will provide grants to states to review insurance rates, and will require health insurance companies to provide justifications for any proposed rate increases that the federal government determines to be unreasonable. Legislation has been introduced in Congress to repeal the ACA fee on health insurance providers, and to require fuller consumer reporting regarding the fee. The bills are in addition to other legislation to repeal the ACA. Among the bills that have been introduced are: H.R. 763 , To repeal the annual fee on health insurance providers enacted by the Patient Protection and Affordable Care Act by striking Section 9010. S. 603 , To repeal the annual fee on health insurance providers enacted by the Patient Protection and Affordable Care Act. H.R. 1558 , Section 104 of the bill would repeal Section 9010 of the ACA. S. 24 , Section 104 of the bill would repeal Section 9010 of the ACA. Related: H.R. 1205 , To require health plans to disclose in their annual summary of benefits ACA-imposed taxes and fees. S. 764 , To require health plans to disclose in their annual summary of benefits ACA-imposed taxes and fees. In addition to formal legislation, there has been debate regarding other, possible changes to the ACA insurer premium fee. A number of state governors caution that the premium fee will result in higher costs to states that offer fully capitated Medicaid managed care plans under contract with insurers. Federal regulations require that premiums paid to Medicaid managed care plans be "actuarially sound." To make that determination, state licensing entities consider insurers' costs, including health benefits, marketing and administrative expenses, and taxes. Because of cost-sharing limitations in Medicaid, the fees may not be passed on to enrollees. Instead, if premium rates go up, states and the federal government, which jointly fund Medicaid, could pay more to operate the program. The federal government will collect the insurer premium fee, but states will not have new, offsetting revenues to defray any new costs. The Republican Governors Association has asked Congress to exempt Medicaid and CHIP managed care plans from the insurance tax. Some analysts say that states will be able to negotiate with insurers to control premium costs, meaning that the full impact of the fee is unlikely to be passed along. The Association of American Medical Colleges has proposed using a portion of the premium tax to help fund U.S. graduate medical education. Health policy experts are concerned about the current size, specialty mix, and geographic distribution of the healthcare workforce. Some experts forecast a shortage of physicians, a situation that will be made more acute when millions of previously uninsured consumers obtain coverage under the ACA. Another outstanding issue involves tax treatment of ACA fees "recovered" by affected insurers. Some large health care providers have indicated that they plan to recoup the cost of these excise taxes by levying fees or raising insurance premiums on those enrolled in their plans. In other words, although the excise tax is levied on health insurance providers, the economic impact of the excise tax might be borne by consumers. Under current law, increased insurer fees and premiums that are imposed to compensate, at least in part, for the imposition of the excise tax will contribute to the health insurers' calculations of their gross income for tax purposes. Therefore, these fees will be subject to corporate income tax (just like ordinary revenues earned through the sales of products and services). A coalition of insurers has submitted comments to the IRS requesting that extra fees and higher premium costs be excluded from calculations of gross income. The insurers argue that they are effectively being "double-taxed": once through the ACA's fees/excise taxes, and next based on income earned from new fees and higher premiums instituted to offset any reduction in profits due to the tax. In the insurers' view, the fees should be interpreted by the IRS as a "recovery" for past excise taxes paid. Opponents could argue that such an exclusion would amount to a tax preference for health insurers, and would also reduce the amount of revenue expected to be raised through the ACA fee. The IRS in its proposed regulation asked for comments on the issue.
|
The Patient Protection and Affordable Care Act (P.L. 111-148) and the Reconciliation Act of 2010 (P.L. 111-152) impose an annual fee on certain for-profit health insurers, starting in 2014. The aggregate amount of the ACA fee, to be collected across all covered insurers, will be $8.0 billion in 2014, $11.3 billion in 2015 and 2016, $13.9 billion in 2017, and $14.3 billion in 2018. After 2018, the aggregate fee will be indexed to the overall rate of annual premium growth, as calculated by the Internal Revenue Service. The annual fee will be apportioned among health insurers, based on (1) their market share and (2) their dollar value of business. The fee applies to net health care premiums written, which are defined in regulations as gross premiums from insurance sales minus refunds to enrollees under the medical loss ratio provisions of the ACA, certain commissions, and premiums ceded to reinsurers. Ceded premiums are premiums that an insurer transfers to a reinsurer, as payment for protection against defined market risks. The ACA fee does not apply to the first $25 million of net premiums written by a covered insurer. The fee will be imposed on 50% of net premiums written above $25 million and up to $50 million, and 100% of net premiums in excess of $50 million. The regulations shield a higher level of net premiums from the fee for insurers that are exempt from federal taxes and are considered to be public charities, social welfare organizations, high-risk health insurance pools, or consumer-operated-and-oriented health plans (COOP). The ACA fee does not apply to entities that fully self-insure, government-run insurance programs, or nonprofit insurers incorporated under state law that receive more than 80% of their gross revenues from government programs that target low-income, elderly, or disabled populations (such as the State Children's Health Insurance Plan [CHIP], Medicare, and Medicaid). Some insurance issuers have informed shareholders and state insurance regulators that they intend to pass on the cost of the fee to businesses and enrollees in the form of higher premiums. Private insurers that contract with government organizations to provide Medicare and Medicaid health benefits will be subject to the fee, which could have implications for enrollee premiums and government payments to those plans. It is difficult to estimate the precise impact of the fee on the insurance industry, government programs, and consumers for several reasons, including a lack of public data on net premiums written. In addition, insurers' ability to pass on the fee will vary depending on competition in local markets, and their individual financial strategies.
|
On October 29, House and Senate appropriators announced a conference agreement, H.Rept.108-337 , on H.R. 3289 , a bill providing supplemental appropriations for militaryoperations and for reconstruction assistance in Iraq and Afghanistan. The House approved the billby a vote of 298-121 on October 31, and the Senate approved it by voice vote on November 3. ThePresident signed the bill into law, P.L. 108-106 , on November 6. The conference agreement rejecteda Senate proposal to provide about half of the Iraq reconstruction assistance as loans. For a review of conference action on key issues, see the section entitled "Key Issues in Conference," below. In a nationwide address on September 7, 2003, the President announced that he would requestan additional $87 billion for reconstruction assistance to Iraq and Afghanistan and for ongoingmilitary operations there and elsewhere. (1) OnSeptember 17, the White House submitted a formalrequest for the funds to Congress. On September 21, the Defense Department provided backupmaterial to congressional committees. (2) OnSeptember 23, the Coalition Provisional Authority thatis administering Iraq provided information on the details of its request for reconstruction aid. Congressional consideration of the request was completed on November 3, when the Senate approved a conference agreement on H.R. 3289 providing supplemental appropriationsof $87.5 billion for FY2004. Earlier, congressional committees held a number of hearings on issuesraised by the Administration request. Readers in congressional offices may click on the highlightedhearings listed below (in the .html version of this report) to link to hearing transcripts. During congressional debate, a wide range of legislative proposals addressing costs, burdensharing, and other issues were considered, including measures to require the Administration to provide reports on Iraq policy, giving details of plans to establish security and restore basic services; roll back reductions in the top income tax rate from 2005 through 2010 enoughto offset costs; encourage greater allied contributions of troops and reconstruction aid; transfer control of Iraq reconstruction from the Defense Department to the StateDepartment; and require fair and open competition on contracts in Iraq. The major issue in Congress was whether to provide Iraq reconstruction funds as grants, as the Administration proposed, or as loans. The following discussion (1) briefly reviews the basic elements of the request; (2) discusses the debate about long-term costs; (3) discusses congressional action on key legislative proposals; (4)provides an overview of funding for ongoing military operations in Iraq, Afghanistan, and elsewhere;and (5) provides an overview of funding for reconstruction and security in Iraq, for reconstructionin Afghanistan, and for other foreign policy initiatives. Of the $87 billion that the Administration requested, $65.6 billion was for defense, and $21.4billion for foreign policy programs. Of the $65.6 billion for defense, $51.5 billion was for ongoingmilitary operations in Iraq, $10.5 billion for U.S. forces in Afghanistan, and the remaining $3.6billion for homeland defense and support to allies. (3) Of the $21.4 billion for foreign policy programs,$20.3 billion was for security and reconstruction in Iraq, about $800 million for Afghanistan, andabout $200 million for other Global War on Terrorism foreign policy initiatives. Table 1 providesan overview of the request. Table 1. Basic Elements of the Administration Request for Additional Funding for Iraq, Afghanistan, and Other Activities (amounts inbillions of dollars) Sources: Congressional Briefing material provided by the Office of Management and Budget,theDepartment of Defense, the Department of State, and the Office of the Coalition ProvisionalAuthority, September 8, 2003; Office of Management and Budget, Supplemental AppropriationsRequest, September 17, 2003; Department of Defense, FY2004 Supplemental Request, September21, 2003. Note: a. Includes $61 million for U.S. diplomatic facilities and security and $50 million for multinationaldivision peacekeeping costs. Administration officials said that the request was designed to cover only pressing requirements through the next year to fifteen months -- the defense money through FY2004, which ends onSeptember 30, 2004, and the Iraq reconstruction money through December 2004. The request formilitary operations assumed that current troop levels and the current pace of operations in Iraq,Afghanistan, and elsewhere would continue unchanged through the fiscal year. The request did notaddress ongoing military costs after FY2004. Presumably, if the number of troops deployed in Iraqwere to change, costs would change as well. The $20 billion requested for reconstruction and security in Iraq finances only a part of what Administration officials estimate will be needed in the long run. Current estimates, from a varietyof sources, including the U.S. government, put the figure in the $50-75 billion range. A needsassessment released by the World Bank and the U.N. Development Program (UNDP) puts the costof reconstruction in 14 key sectors at $36 billion over four years, not including $19.4 billionestimated by the U.S.-led Coalition Provisional Authority (CPA) for security, oil, and other criticalsectors not covered by the Bank assessments. (4) TotalBank/CPA projected reconstruction coststhrough 2007 amount to $55 billion, $17.5 billion in 2004 alone. The White House says that theIraqi oil revenues and "recovered assets," along with additional international support, are expectedto contribute to meet remaining needs. Officials have also said, however, that Iraqi oil revenues areexpected to total about $12 billion in the next year, and that government operations will cost aboutas much, (5) leaving no Iraq oil money forreconstruction efforts in the near term. The request for $87 billion for defense and reconstruction assistance comes on top of more than$110 billion provided for those purposes since the September 11, 2001, terrorist attacks. Congresshas provided $100 billion in defense funding, over and above regular defense appropriations, formilitary operations in Afghanistan, for other global counter-terrorism military and intelligenceoperations, for homeland defense, and, most recently -- in last April's Emergency WartimeSupplemental appropriations bill -- for the war in Iraq. Table 2 provides a summary of defensefunding by appropriations bill. Table 2. Defense Funding for Iraq, Afghanistan, and Other Global War on Terrorism Activities: FY2001-FY2003 (amounts in billionsof dollars) *Notes: Total may not add due to rounding. The FY2004 Defense Appropriations Act rescinded$3.5 billion of funds provided in the FY2003 Emergency Wartime Supplemental. Since September 11, Congress has appropriated about $12 billion for Iraqi and Afghan reconstruction and for foreign aid to the "front-line" states in the global war on terrorism. Of that,Congress has provided $1.4 billion in reconstruction assistance to Afghanistan, with another $600million pending in regular FY2004 appropriations bills. For Iraq, the April FY2003 EmergencyWartime Supplemental provided $2.5 billion in foreign operations funding for relief andreconstruction. Additional funding for Iraq reconstruction totals $1.6 billion, of which $1.1 billionis from Department of Defense funds (part of the $62.6 billion shown above in Table 2 from theFY2003 Emergency Wartime Supplemental), and the remainder from the regular U.S. Agency forInternational Development (USAID) budget (see below for a further discussion). A large part of the debate in Congress about the Administration's $87 billion request focused on cost issues, including the impact of the new funding on the overall federal budget; whether the Administration was adequately forthcoming in its previousstatements about costs; how accurate and complete the current cost projections are; and how great costs will be in future years. The following sections review each of these issues in turn. The Office of Management and Budget (OMB) mid-session review of the budget, released in July, estimated that the federal budget deficit would total $455 billion in FY2003 and $475 billionin FY2004, assuming congressional enactment of the Administration program for FY2004. (6) WhiteHouse officials said that the requested additional appropriations of $87 billion for FY2004 wouldpush the deficit to about $525 billion for that year. (7) The Congressional Budget Office (CBO)updated budget baseline projected deficits of $401 billion in FY2003 and $480 billion in FY2004. (8) It is important to note that the CBO baseline for FY2003 included outlays from the April 2003wartime supplemental, and CBO projections for future years assumed growth with inflation inoverall discretionary spending. So, in effect, the CBO estimate of the FY2004 deficit alreadyassumed additional supplemental appropriations for military activities in Iraq and elsewhere roughlyequal to the amount provided in FY2003. (Reconstruction assistance for Iraq and Afghanistan,however, was more than three times as high in the FY2004 request as in FY2003.) (9) Administration officials argued that the economy can readily absorb additional federal borrowing entailed by the requested supplemental, particularly since the economy is still recoveringfrom recession. Using OMB economic projections, a deficit of $525 billion in FY2004 would totalequal 4.4% of gross domestic product -- less than the 5%-6% of GDP that the government borrowedin the mid-1980s. Congressional critics argued that funding for domestic programs, though not taxcuts, has been constrained; that borrowing 20%-25% of the overall federal budget is fiscallyirresponsible; and that continuing deficits will endanger the economy in the long term. Others, including some Members of Congress, contended that, given Iraq's future oil revenue potential, reconstruction costs should be financed as loans rather than grants. In this way, they say,future loan repayments would be a source of revenue for the United States. In the months leading up to the war with Iraq, Administration officials were generally unwilling to provide long-term estimates either of the costs of a war or of subsequent post-war needs, sayingthat no final decision had been made to go to war and that costs could not be projected withsufficient accuracy. What little officials did say, however, became a matter of contention inCongress. In a September 9 Senate Armed Services Committee hearing, Senator Levin recalled thatformer White House economic advisor Larry Lindsey had said a year earlier that a conflict with Iraqcould cost $100-200 billion. (10) OtherAdministration officials, however, notably then-Budget DirectorMitch Daniels, immediately dismissed Lindsey's figures as ill-founded, and the press widely reportedAdministration estimates that costs would be in the range of $50 billion. (11) That figure provedreasonable for the war itself and for subsequent stability operations for the remainder of FY2003,but did not take account of later post-war costs. By March of this year, shortly before the White House submitted its FY2003 supplemental request, some legislators were complaining that the Administration was withholding cost projectionsso as not to weaken support for pending tax cut legislation. At one point, during the tax debate, theSenate approved an amendment to set aside $100 billion of the of the tax cut as a hedge againstunplanned war costs. Before the war began, several independent estimates of war costs and ofpost-war expenses were prepared, including assessments by the Congressional Budget Office, theHouse Budget Committee Democratic Staff, Yale economist William Nordhaus, the Center forStrategic and International Studies, and the Council on Foreign Relations. Several of theseindependent estimates projected considerably higher costs than the Administration was providing,mainly because the independent projections took account of post-war peacekeeping andreconstruction costs and, in some cases, costs of borrowing funds because the war added to thedeficit. For a list of major cost studies, see "For Additional Reading," below. Estimates of reconstruction costs became a particular focus of attention in view of the Administration's request for $20 billion for Iraq. In a widely quoted statement last March, whenasked about long-term reconstruction costs in Iraq, Deputy Secretary of Defense Paul Wolfowitz saidthat the oil revenues of that country could bring between 50 and 100 billion dollars over the course of the next two or three years. Now, there are a lot of claimson that money, but ... we're not dealing with Afghanistan that's a permanent ward of theinternational community. We are dealing with a country that can really finance its ownreconstruction and relatively soon. (12) More recently, Secretary of Defense Rumsfeld acknowledged that the U.S. government underestimated Iraq reconstruction costs, saying, The infrastructure of that country was not terribly damaged by the war at all. It was damaged by 30 years of Saddam Hussein, with a Stalinist-likeeconomy, denying the people of that country the money and the funds and the resources and theinvestments that they could have had.... Now ... did we underestimate something? Yes. I don't thinkpeople really fully understood how devastating that regime was to the infrastructure of the country;how fragile the electric system is, how poorly the water's being managed, and how -- the extent towhich the people are being denied. (13) Leaving aside the politically contentious issue of past cost estimates, many questions remain about the accuracy of the most recent military and reconstruction cost projections. On the militaryside, officials have said that they do not believe there will be any need for more U.S. troops in Iraq,first, because the security situation in the country is generally good except in areas, like the "Sunnitriangle," where diehard opposition is concentrated; second, because rapid progress is being madein organizing Iraqi security forces which, the Administration expects, will take up most of theburden; (14) and, third, because of expectedcontributions of forces from other nations. Cost projectionsjustifying the supplemental request assume that current force levels and the current pace ofoperations will be maintained for the next year. Whether that is sufficient, however, depends firstof all on whether the security situation is improving, as Administration officials insist, or gettingworse, as others argue. There have also been some questions about specific elements of the Defense Department's supplemental funding request. In a hearing of the Senate Appropriations Committee on September24, Senator Harkin questioned whether several requested projects were war-related emergencies thatrequire immediate funding, including $293 million for various military construction projects, $329million for R&D projects, and $345 million for base camp housing. Others have raised the oppositequestion: whether the DOD request understates costs by leaving for the future projects which willlater need funding. One particular issue is that the request includes relatively little money for"reconstituting" or -- in the new DOD vernacular "resetting" -- Army forces. The Army estimatesthat several billion dollars will be required to refill stocks of prepositioned materiel and repairequipment to pre-war standards, but the request does not finance these measures. In addition, as a recent Congressional Budget Office assessment concluded, it is questionable whether the current force level can be maintained without further extending reserve tours and,perhaps, mobilizing even more reserves, either of which might undermine reserve personnelretention. (15) Several Members of Congress haveproposed increasing the size of the Army to easepressures on the force, though CBO cautions that this would take up to five years to implement andwould subsequently cost $9-10 billion per year. On the reconstruction side, officials acknowledge that they originally underestimated significantly the weakness of Iraq's infrastructure and overestimated potential short-term Iraqi oilrevenues. Even now, however, different officials project somewhat different upper estimates oflikely reconstruction costs. Moreover, how much multilateral donors will contribute to cover thecurrent reconstruction financing gap ($50 to 75 billion, minus the $20 billion supplemental andperhaps $5 to $6 billion per year from Iraqi oil revenues beginning in 2005) is highly unclear. Undersecretary of State Larson told the Senate Banking Committee on September 16 that, while theAdministration believed that bilateral donors and international financial institutions should "makea maximum effort to pay their share," he was not in a position to provide a specific figure until betterestimates of reconstruction costs are available. With the Madrid donor conference scheduled forOctober 23-24, U.N. officials estimate that about $2 billion for Iraq will be pledged for 2004. (16) Ontop of this amount, the World Bank plans to recommend to its governing board $1 billion inconcessional and market rate loans to Iraq through June 30, 2005. (17) Of all the uncertainties about costs of U.S. operations in Iraq (and Afghanistan), perhaps the greatest is how long the United States will have to maintain a substantial military presence. Secretary of Defense Rumsfeld has said that he does not anticipate that large numbers of U.S.military forces will be required in the long term. Some legislators, however, including somesupporters of Iraqi regime change, have said that the United States should expect to be involved forfive years or more. Recently Lt. Gen. Carlos Sanchez, who commands U.S. and allied forces in Iraq,said "it's going to be a few years" before the United States can withdraw from Iraq. (18) How long U.S.forces will stay is the main factor affecting long-term estimates of costs. Most recently, the HouseBudget Committee Democratic Staff has prepared an updated report that projects "that the long-termcost of the war in Iraq and the post-war reconstruction effort will be more than $178 billion andunder plausible assumptions could exceed $400 billion." (19) By comparison, the Vietnam war, from1964 through 1973, cost about $584 billion in FY2003 prices. A number of issues were a focus of legislative attention, including both issues directly relatedto the supplemental request and some not directly related. Legislative measures that were proposedor acted on include proposals to assert congressional oversight; measures on taxes and domestic priorities; proposals to provide additional funding for variousprograms; a measure to provide health insurance for militaryreservists; competitive contracting and limitations on profits of corporations withcontracts in Iraq; and proposals to provide loans rather than grants for Iraq reconstruction. From the beginning of the congressional debate, a key issue was how Congress should exercise oversight over U.S. policy, particularly in Iraq. On September 9, just a day-and-a-half after thePresident's speech, Senator Feinstein and ten other Democratic Senators introduced a freestandingbill, S. 1594 , designed to be attached to the supplemental, that would require anextensive report on the economic and security situation in Iraq. The report would be required toinclude information on attacks on U.S. and coalition military and civilian personnel, a detailed planto establish security and restore basic services, current and projected costs, efforts to secure increasedinternational participation, a timetable for restoring self-government, and projected U.S. andinternational military personnel requirements. The reporting requirements in the Feinstein proposal were echoed in several other proposals that were under consideration in Congress. In floor action, the Senate has adopted a number ofamendments to impose various reporting requirements on the Administration. And in its markupof its version of the supplemental appropriations bill, the House Appropriations Committee approvedan amendment by Representative Hoyer to establish extensive reporting requirements. (See belowunder "Congressional Action" for more details.) Taxes and the budget were another key focus of congressional debate. In a speech at the National Press Club on September 9, Senator Biden announced that he would offer a measure tooffset costs of the supplemental by delaying implementation of tax cuts for the top 1% of taxpayersfor one year, which, he said, would free up about $85 billion. The Administration vigorouslyopposed any offsetting reduction in tax cuts. (20) On October 1, Senator Biden, along with SenatorsKerry, Chafee, Corzine, Feinstein, and Lautenberg, proposed an amendment to limit the plannedreduction in the top marginal income tax rate from 2005 through 2010 sufficiently to increaserevenues by $87 billion. The Senate rejected the amendment on October 2. In the House, duringAppropriations Committee markup on October 9, Representative Obey proposed a substitute billthat, among other things, offset costs by reversing tax cuts. (See below under "CongressionalAction" for more details.) Funding for domestic programs was also an issue. Many legislators criticized the Administration for opposing some domestic spending while asking for larger amounts for similarprograms in Iraq, including border security, schools, and prison construction. In the House,Representatives Emanuel, DeFazio and others introduced an amendment requiring parity betweenmoney for domestic needs and the amount devoted to Iraq reconstruction. On October 14, the Senaterejected an amendment by Senator Stabenow to reduce Iraq reconstruction funding by $5 billion andtransfer the money to domestic priorities. (See below under "Congressional Action" for moredetails.) Several measures to provide funds for various domestic and international programs were matters of continuing debate in Congress, and some were offered as amendments to thesupplemental. Some Members advocated additional funding for homeland security, while SenatorMikulski discussed adding $100 million for AmeriCorps. An amendment by Senator Durbin, tabledby the Senate on a vote of 56-43, would have added $880 million for international HIV/AIDS,bringing the total U.S. commitment in FY2004, as included in other pending bills, to $3 billion. TheHouse measure added $345 million for Liberia peacekeeping and reconstruction and for Sudan, inline with an earlier Dear Colleague letter from Representative Payne and others. The Senate-passedmeasure included $200 million for Liberia, while the enacted bill provides $200 million, plus $245million for a contribution to U.N. peacekeeping operations in Liberia. A key issue was whether toadd $1.4 billion to the bill for veterans health benefits. The Senate approved an amendment to the FY2004 defense authorization bill that would offer health insurance to non-active duty reservists (of which there are about 800,000) and their familiesthrough the DOD TRICARE program. Non-active duty reservists would be allowed access toTRICARE by paying premiums substantially below the average cost of private health insurance. CBO estimated that the provision would cost about $500 million in FY2004 and over $2 billion ayear by FY2008 as more reservists signed on. The Administration threatened to veto theauthorization if it included this provision. Supporters said that they might offer the measure as anamendment to the supplemental if it were not enacted in the authorization. On October 2, the Senateapproved an amendment to its version of the supplemental bill providing health insurance tonon-activated reservists, though only to those who are unemployed or ineligible for employerprovided insurance. (See below under "Congressional Action" for a discussion of Senate action onthis issue. Also see the discussion of "Military Personnel Benefits" below.) A particularly sensitive political issue was whether companies like Halliburton, which have been awarded non-competitive contracts for support of U.S. forces and for reconstruction activitiesin Iraq, may be earning excessive profits. Some legislators mentioned measures to address the issue- Representative Maloney, for example, introduced the Clean Contracting in Iraq Act of 2003( H.R. 3275 ). In its markup, the Senate Appropriations Committee approved anamendment by Senator Leahy to stiffen penalties for fraud and profiteering on contracts for Iraq. The House version of the bill included a measure to limit non-competitive procedures forreconstruction contracts, and during House floor debate, Members adopted amendments byRepresentatives Kirk and Slaughter tightening reports and information regarding non-competitivecontracts. A third amendment by Representative Sherman required oil infrastructure procurementto follow normal competitive bidding procedures. A combination of these proposals was includedin the enacted legislation (see "Congressional Action" below). Several Members drafted amendments to require portions of the $20.3 billion Iraq reconstruction request to be guaranteed by Iraqi oil or extended as loans rather than grants. TheAdministration's proposal called for all assistance to be provided on a grant basis. Although most of these efforts failed or were not offered, a Senate-passed amendment by Senators Bayh, Ben Nelson, and others drew strong objections from the White House. On October16, the Senate adopted (51-47) language that would convert $10 billion of Iraq reconstructionfunding to loans. The U.S. would treat these loans as grants, however, if foreign creditors cancel90% of Iraq's debt. This was one of the key issues during congressional conference deliberations,although it was dropped from the enacted bill. Other unsuccessful attempts to shift grants to loans included amendments by Senator Dorgan, tabled during both Committee markup (15-14) and floor consideration (57-39), creating an IraqReconstruction Finance Authority that would obtain financing for infrastructure rehabilitation bycollateralizing the revenue from future sales of Iraq oil. The full Senate also tabled a similaramendment by Senator Landrieu during floor debate (52-47). Representative Wamp offered, butwithdrew under White House pressure, a proposal during House Committee markup that would havemade half of the reconstruction available only after an elected government was in place and only ona loan basis. A similar amendment by Representative Pence was ruled out of order during Housefloor consideration. Senator Hutchison and others introduced, but did not offer, an amendment ( S.Amdt. 1798 ) directing $10 billion of the proposed $20.3 billion supplemental to anIraq Reconstruction Trust Fund, to be created within the World Bank, that would issue loans andloan guarantees to implement economic development projects in Iraq. Any U.S. contribution to theFund would require a matching pledge from other bilateral donors. After six months, if the TrustFund had not been established, the $10 billion would transfer to the CPA and be used forreconstruction loans to the Iraq Governing Council. There were, however, legal questions as to who could assume responsibility in the near term for accepting sovereign loans and concerns raised by the Administration, of increasing Iraq's alreadylarge and currently unserviceable debt. (For more discussion, see below under sections onCongressional Action and Iraq Reconstruction Issues.) The Senate Appropriations Committee marked up its version of a bill, S. 1689 , onSeptember 30, and the Senate began floor debate on October 1. On October 9, the HouseAppropriations Committee marked up its version of a supplemental appropriations bill, H.R. 3289 , providing funds for ongoing military operations and for reconstructionassistance in Iraq and Afghanistan. Floor action began on October 15. Both the House and theSenate approved their versions of the bill on October 17. On October 29, House and Senateappropriators announced a conference agreement, on H.R. 3289 . The House approvedthe conference agreement by a vote of 298-121 on October 31, and the Senate approved the measureby voice vote on November 3. The President signed the bill into law, P.L. 108-106 , on November6. As proposed by Committee Chairman Ted Stevens and as agreed to by the committee, the reported bill provided the amounts requested both for defense and for foreign operations, thoughwith some shifts of funds among various activities. For defense, the bill provided $65.560 billion, equal to the amount requested. The committee bill made some minor changes in requested equipment funding and, most notably, rejected anAdministration proposal to revise military personnel benefits. In action on some key issues, theSenate committee bill Extended through FY2004 an increase in Imminent Danger Pay and in Family Separation Allowances that Congress provided in the April 2003 Wartime Emergency Supplemental. The Administration proposed eliminating these increased benefits after December 31, 2003, andinstead using an increase in amounts of Hazardous Duty Pay to provide the same amounts to troopsdeployed in conflict areas (see below for a further discussion). Provided an additional $962 million for Army operations and maintenance and procurement funding for materiel and activities such as body armor for soldiers in Iraq andAfghanistan, battlefield ordinance cleanup, transportation of damaged combat equipment to depots,communications equipment, and replenishment of Army prepositioned stocks used in combat. Theseincreases were offset by reductions in Air Force, Navy, and Defense-Wideaccounts. Provided the Defense Department with the authority to transfer up to $2.5 billion among defense accounts without advance congressional approval rather than $5 billion asrequested by the Administration. The bill also, however, provided authority for DOD to transfer anadditional $5 billion subject to approval by the House and Senate Appropriations Committees. Senator Byrd proposed measures to limit the funding flexibility the billprovided. Allowed DOD to transfer $150 million into unplanned military construction projects rather than the $500 million requested. Provided $200 million to provide training and equipment to the new Iraqi Army and the Afghan National Army. The Administration had requested the funds for forces in Iraq,Afghanistan, and "other nearby regional nations." Provided $1.0 billion for "coalition support" to reimburse Pakistan, Jordan, and other cooperating nations for logistical and other support to U.S. operations. This is $400 millionless than the Administration requested. Although there was some debate about the defense request, most of the debate during the Senate markup concerned reconstruction funds. The committee rejected an amendment by Senator Byrdto eliminate most of the reconstruction funds -- except for amounts for security -- leavingreconstruction to be considered later in a separate measure. The committee also rejected anamendment by Senator Byrd to limit the transfer authority for defense programs that the billprovides. For Iraq and Afghanistan reconstruction and other global war on terrorism, S. 1689 , as reported, provided $21.445 billion, as requested, supported the full request for Afghanistan,and made small changes in other areas. Regarding Iraq reconstruction, the Senate Appropriations Committee supported the total funding request of $20.3 billion and provided the President with the flexibility to allocate resourcesto any federal account. This would allow the Coalition Provisional Authority, headed byAmbassador Bremer who reports to the Secretary of Defense, to continue its coordination role andcontrol over reconstruction funding. The Senate-reported measure, however, deleted the $60.5million requested for U.S. diplomatic facilities in Iraq, noting that these funds were previouslyprovided in the FY2003 emergency supplemental measure ( P.L. 108-11 ). The Administration,however, had planned to use these supplemental resources for what it considered as more urgentneeds for an interim USAID mission in Kabul and training for the Afghan transitional government. Instead, S. 1689 provided a separate $60.5 million appropriation for USAID's CapitalInvestment Fund to meet the requirements in Afghanistan, making the FY2003 supplemental fundsavailable for U.S. facilities in Baghdad. Other additions and changes made by the Senate panel were to earmark $100 million of the $20.3 billion total for democracy-building activities in Iraq; require full and open competitive contracting procedures(waivable); apply current and future USAID standards related to meeting the needs ofdisabled persons to activities in Iraq and Afghanistan; ensure that a new Iraqi constitution preserves full rights to religiousfreedom; prohibit any funds from being used to repay debts incurred by the formergovernment of Saddam Hussein; and impose fines and criminal charges against persons engaged in war profiteeringand fraud relating to military action, relief, and reconstruction in Iraq. Also during Senate Committee markup, the panel tabled (15-14) two amendments by Senator Dorgan related to reducing U.S. costs of rebuilding Iraq. The first would have created an Iraq ReconstructionFinance Authority that would use future Iraq oil revenues to secure financing for reconstructionprojects. Senator Dorgan argued that the Iraq Governing Council had sufficient authority to createsuch a facility and to raise money that could reduce the size of proposed U.S. expenditures. SenatorDorgan subsequently reintroduced the amendment for Senate floor debate, at which time the Senatetabled the proposal 57-39. The second Dorgan amendment considered during Committee markupwould have converted the reconstruction package from grants to loans. Opponents of the Dorganamendments maintained that adding to Iraq's already sizable debt obligations would enormouslycomplicate the difficult task of stabilizing the economy. Also tabled during markup (15-14) was aproposal by Senator Harkin that would have reduced reconstruction funds to $10 billion and delayedsubmission of additional requests until the President had reported on contributions made by otherdonors and submitted a detailed reconstruction plan. For other matters concerning the global war on terrorism, S. 1689 , as reported, approved the President's request for a $100 million emergency fund for complex foreign crises. TheSenate Appropriations Committee expressed support for using the contingency fund for peace andhumanitarian efforts, such as those required in Liberia. The bill further authorized the use of $200million for Pakistan debt relief pending in the regular FY2004 Foreign Operations bill and extendsthrough FY2004 the waiver of foreign aid restrictions that applied to Pakistan prior to September11, 2001. Beyond agreeing to $50 million proposed for Emergencies in the Diplomatic and ConsularServices for rewards for Osama bin Laden and Saddam Hussein, S. 1689 adds $41million for two other specific purposes: reimbursement to New York City for additional costs of protecting foreign missions and officials since September 11 ($32 million); and costs of the 2003 Free Trade Area of the Americas Ministerial meeting ($8.5million). The Senate measure further included $40 million, as requested, for USAID operating expenses inAfghanistan and Iraq, plus an additional $60.5 million for construction and upgrades of more secureoverseas USAID facilities. The Senate began floor consideration of S. 1689 on October 1 and continued on October 2, 3, and, after recess, on October 14, 15, 16, and 17. Amendments Considered. The major debates onthe Senate floor were over an amendment by Senator Byrd to eliminate $15.2 billion of the $20.3 billion requested for Iraq reconstruction in order to review the proposal more closely and consider it at alater point (rejected by a vote of 38-59 on October 1); an amendment by Senator Biden that would have suspended a portion of tax reductions in order to pay the costs of Iraq security and reconstruction (tabled by a vote of 57-42 onOctober 2); an amendment by Senators Daschle and Graham of South Carolina ( S.Amdt. 1816 ) to offer health insurance under the Defense Department-run TRICAREprogram to reservists and their families who are either unemployed or who are not eligible foremployer-sponsored health insurance (adopted October 2); various amendments to provide some or all of the Iraq reconstruction funds as loans (the Senate adopted the Senators Bayh-Ben Nelson-Ensign-Collins-Clinton-Dorgan-Snowe-Graham amendment to provide $10 billion as loans by a voteof 51-47 on October 16); a Reed-Hagel proposal to add 10,000 active duty personnel to the Army (rejected a motion to table the amendment by 45 to 52 on October 15 and adopted the amendmentwithout objection on October 16); an amendment by Senators Dorgan and Wyden to cut $1.655 billion from specific Iraq construction projects, as in the House committee version of the bill, and to cut anadditional $200 million for Iraqi oil imports (agreed to on October 17); a Durbin amendment ( S.Amdt. 1879 ) to reduce Iraq reconstruction funds by $879 million and provide the same amount for HIV/AIDS prevention, treatment, andresearch (tabled by 56-43, October 17); and an amendment by Senators Chafee and Leahy to add $100 million to funds available to assist Liberia (agreed to on October 17). Reconstruction Transfers as Loans. Perhaps the most extensive discussion during Senate deliberation came on the issue of whether Iraq reconstructionfunding should be financed strictly on a grant basis, as proposed by the President, or whether someof the money should be loaned to Iraq. On October 17, over strong White House objections, theSenate adopted (51-47) an amendment ( S.Amdt. 1871 ) by Senators Bayh, Ben Nelson,and others to provide $10 billion as loans. Should international creditors subsequently agree tocancel 90% of Iraq's debt, the President could convert the loans into grants. Other proposals, however, were either defeated or not offered. Earlier in the debate, there was substantial discussion of an amendment introduced by Senator Hutchison and others( S.Amdt. 1798 ) requiring that the Secretary of the Treasury negotiate with the WorldBank and member nations of the Bank to create within World Bank an Iraq Reconstruction TrustFund. Under the terms of the Hutchison amendment, the Fund would be governed by a Board ofTrustees made up of a U.S. official and five others representing the top country contributors to theTrust Fund. The Board would use Trust Fund contributions to extend loans and loan guarantees forprojects advancing economic development in Iraq. Of the $20.3 billion appropriated Iraqreconstruction, the amendment would have directed $10 billion to the Trust Fund, although the U.S.contribution could not exceed the total amount pledged by other nations. After 6 months, if the TrustFund had not been established, the $10 billion would be transferred to the Coalition ProvisionalAuthority, which would loan to, or guarantee loans made by, the Iraq Governing Council. SenatorHutchison, however, did not bring up her amendment for a vote. Another proposal by Senators Bayh and Nelson ( S.Amdt. 1815 ) would have required that prior to the obligation of non-security reconstruction funds, each country that is oweddebt incurred during the Saddam Hussein regime forgives such debt. Otherwise, after 6 months,reconstruction appropriations would be transferred to an account for use as a loan to the IraqGoverning Council. This amendment was not debated, although, as noted above, the Senate adoptedan alternative Bayh/Nelson amendment on October 16 addressing the same theme. Amendments Adopted. Overall, during the seven days of debate through October 16, the Senate acted on more almost 50 amendments, adopting 47and rejecting 16. Those adopted included amendments by Senators Collins and Wyden ( S.Amdt. 1820 ) to require all contracts over $1 million military purposes and reconstruction in Iraq to use full and opencompetition procedures unless the executive agency responsible for the contract justifies the reasonsfor using a non-competitive process (October 2); by Senators Murray and Durbin ( S.Amdt. 1822 ) requiring that a number of women's issues be given priority in reconstruction programs in Iraq and Afghanistan(October 2); by Senators Voinovich and Lott ( S.Amdt. 1808 ) requiring a report within 6 months on efforts made by the United States to increase contributions by other nations andorganizations for Iraq reconstruction, the status of pre-war Iraqi debt, and the prospect for repaymentof infrastructure costs by Iraq (October 2); by Senators Daschle and Graham of South Carolina ( S.Amdt. 1816 ) to offer health insurance under the Defense Department-run TRICARE program to reservistsand their families who are either unemployed or who are not eligible for employer-sponsored healthinsurance (October 2) (see below, under "Military Personnel Benefits," for a description of thespecific proposal); and by Senators Reed and Kennedy ( S.Amdt. 1812 ), to increase by $191.1 million the amount provided up-armored High Mobility Multipurpose Wheeled Vehiclesoffset by a cut in funds in the Iraq Freedom Fund (October 2) by Senator Ensign ( S.Amdt. 1839 ) to prevent reconstruction funds from being used to repay foreign debts (October 15); by Senator Reid ( S.Amdt. 1836 ) and by Senator Hollings ( S.Amdt. 1870 ) to permit citizens held as POWs or as "human shields" in the 1991 GulfWar to pursue damages in court (October 15 and 16); by Senator McConnell ( S.Amdt. 1863 ) to permit the export of lethal military equipment to reconstituted Iraqi military forces (October 16); by Senator Nickles ( S.Amdt. 1876 ) to express the sense of the Senate that foreign countries should forgive Iraqi debt (October 16); by Senator Nelson of Florida ( S.Amdt. 1858 ) to provide $10 million for a National Guard family assistance program (October 16); by Senator Warner ( S.Amdt. 1880 and S.Amdt. 1867 ) to provide funds for defense facilities damaged by Hurricane Isabel (October 16); by Senator Feingold ( S.Amdt. 1852 ) to all military personnel to take leave to attend to deployment related business (October 16); by Senator Durbin ( S.Amdt. 1837 ) to require the federal government to make up any difference between what federal employees who are members of themilitary reserves activated for service will earn when activated and what they would normally earnin basic pay (approved 96-3, October 17); by Senator Boxer ( S.Amdt. 1843 ) to make retroactive the relief of hospitalized members of the uniformed services from the obligation to pay for food andsubsistence while hospitalized (99-0, October 17); by Senators Dorgan and Wyden ( S.Amdt. 1887 ) to cut $1.655 billion from specific Iraq construction projects, as in the House committee version of the bill, andto cut an additional $200 million for Iraqi oil imports (October 17); by Senators Chafee and Leahy ( S.Amdt. 1807 ) to add $100 million to the $100 million available in the committee bill for assistance to Liberia (October17); by Senator Harkin ( S.Amdt. 1860 ) to provide up to $13 million for conflict resolution, rule of law, and democracy activities (October 17); by Senator Boxer ( S.Amdt. 1845 ) to prioritize the equipping of aircraft enrolled in the Civil Reserve Air Fleet when counter-measures against the threat ofshoulder-fired missiles are deployed for homeland defense (October 17); by Senators Bond and Mikulski ( S.Amdt. 1825 ) to provide an additional $1.3 billion for in medical care funds for the Department of Veterans Affairs (October 17);and at least 15 amendments to require various reports on Iraq reconstruction and security and on other issues. Amendments Rejected. The Senate also rejected amendments by Senators Leahy and Daschle ( S.Amdt. 1803 ) to place the Coalition Provisional Authority under the direct authority and foreign policy guidance of theSecretary of State (tabled 56-42, October 2); by Senator Dodd ( S.Amdt. 1817 ) to provide an additional $322 million for safety equipment for United States forces in Iraq offset by reducing the amount providedfor reconstruction (tabled by 49-37, October 2); by Senator Bingaman ( S.Amdt. 1830 ) to authorize the award of the Iraqi Liberation Medal as a campaign medal for members of the Armed Forces who serve inSouthwest Asia in connection with Operation Iraqi Freedom (rejected 47-48, October14); by Senator Stabenow ( S.Amdt. 1823 ) to reduce Iraq reconstruction funds by $5.03 billion and to provide an equal amount of additional spending for domestic education,veterans, health, and transportation programs (tabled by 59-35, October 14); by Senator Dorgan ( S.Amdt. 1826 ) to require that Iraqi oil revenues be used to pay for reconstruction in Iraq (tabled by 57-39, October14); by Senators Byrd, Leahy, and Kennedy ( S.Amdt. 1818 ) to allow only $5 billion of non-security Iraq reconstruction funds to be used prior to April 1, 2004; after April1, the remaining funds would become available if the President issues certain certifications andCongress approves a subsequent appropriations law approving the additional funds (tabled by 57-42,October 16); by Senator Leahy ( S.Amdt. 1868 ) to prohibit contracts with corporations that owe deferred compensation to specific U.S. government officials (tabled by 65-34,October 16); by Senator Daschle ( S.Amdt. 1854 ) to require that any future funding for Iraq be matched by foreign contributions (tabled by 55-44, October17); by Senator Landrieu ( S.Amdt. 1859 ) to establish an Iraq Reconstruction Finance Authority (tabled by 52-47, October 17); by Senator Durbin ( S.Amdt. 1879 ) to reduce Iraq reconstruction funds by $879 million and provide the same amount for prevention, treatment, and control of, andfor research on HIV/AIDS (tabled by 56-43 nays, October 17); by Senator Corzine ( S.Amdt. 1882 ) to establish a National Commission on the Development and Use of Intelligence Related to Iraq. (tabled by 67-32, October17); by Senators Byrd and Durbin ( S.Amdt. 1819 ) to shift $600 million from the Iraq reconstruction to the Army to secure and destroy weapons in Iraq (tabled by 51-47,October 17); by Senator Byrd ( S.Amdt. 1886 ) to prohibit involuntary deployment overseas in support of Operation Iraqi Freedom of members of the National Guard andReserves who have been involuntarily deployed for more than six months during the preceding sixyears (tabled by 82-15, October 17); by Senator Byrd ( S.Amdt. 1888 ) to eliminate the flexibility given to the President to reallocate Iraq reconstruction funds without approval by Congress (tabled by49-46, October 17); by Senator Brownback ( S.Amdt. 1885 ) to reduce the amount appropriated for reconstruction in Iraq by $600 million and to increase the amount available to theIraqi Civil Defense Corps by $50 million, the amount available for Afghanistan by $400 million, and the amount available for Liberia (tabled by 55-43, October 17); and by Senator Byrd ( S.Amdt. 1884 , to S.Amdt. 1819 ), to shift $1.655 billion from Iraq reconstruction funds to reconstruction assistance to Afghanistan,destruction of conventional weapons in Iraq, disaster relief in Liberia, and repair or Hurricane Isabeldamage to military and Coast Guard facilities (fell when Byrd-Durbin S.Amdt. 1819 wastabled, October 17). Also Senators Reid and Lincoln withdrew an amendment ( S.Amdt. 1835 ) to permit concurrent receipt of military retired pay and veterans administration disability benefits after acompromise on the issue in the conference on the FY2004 defense authorization bill was announced. In addition, an amendment by Senator Schumer regarding appointment of a special counsel was ruledout of order and not reconsidered. The House marked up its version of a supplemental appropriations bill ( H.R. 3289 ) on October 9. As approved by the House Appropriations Committee, the bill provided $86.9 billion in total, $184 million below the request; provided $18.65 billion for Iraq reconstruction, $1.65 billion below therequest; provided $1.2 billion for Afghanistan reconstruction, $400 million above therequest; moved $858 million from the defense part of the bill to the foreign operationspart to cover operating expenses of the Coalition Provisional Authority in Iraq;and added $544 million to the defense part of the bill to cover Hurricane Isabeldamage at military facilities. In the defense part of the bill, the committee bill also added funds for force protection and unexploded ordnance clearing, offset by cuts elsewhere; allowed the Army to contract out for security guards at military facilities in the United States to replace 7,000 to 10,000 reserve personnel mobilized for thoseduties; as in the Senate version of the bill, extended through FY2004 increases in Imminent Danger Pay and Family Separation Allowances provided in the April 2003 WartimeEmergency Supplemental and rejects the Administration proposal to instead use Hardship Duty Payto increase pay to deployed personnel; provided the Defense Department with the authority to transfer up to $3.0 billion among defense accounts without advance congressional approval rather than $5 billion asrequested by the Administration (the Senate bill provides $2.5 billion for transfer without advancecongressional approval plus $5 billion subject to prior approval by the defense appropriationssubcommittees); allowed DOD, as requested, to transfer up to $500 million into unplanned military construction projects, rather than the $150 million allowed in the Senatebill; provided $100 million to provide training and equipment to the new Iraqi Army and the Afghan National Army, rather than the $200 million provided in the Senate bill -- theAdministration had requested $200 million for forces in Iraq, Afghanistan, and "other nearbyregional nations;" and provided $1.3 billion for "coalition support" to reimburse Pakistan, Jordan, and other cooperating nations for logistical and other support to U.S. operations, rather than the $1.4billion requested or the $1.0 billion in the Senate bill. In the Iraq/Afghanistan reconstruction part of the bill, the committee bill provided all Iraq reconstruction in the form of a grant, as requested; cut Iraq reconstruction by reducing by $300 million funds for proposed prison modernization and construction, $153 million for recommended solid waster management programs(including trash trucks), $335 million for transportation and communication projects (including zipcodes), $100 million for 7 new housing communities, $150 million for a new children's hospital inBasra, and $200 million for an American-Iraqi Enterprise Fund (see Table 5 , below, for moredetailson sector and project adjustments); provided full or near-full funding for security and law enforcement ($3.2 billion), electrical generation and distribution infrastructure ($5.56 billion), and oil infrastructure($2.1 billion), and adds $100 million for modernizing medical facilities ($493 million total) and $90million for education programs; increased funding for Afghan reconstruction from $799 million proposed to $1.2 billion, adding resources for road construction, private sector development, power generation,education, and improved governance; limited the use of non-competitive contracts for Iraq, but with a presidential waiver; continued the organizational structure for Iraq reconstruction of Ambassador Bremer reporting to the President through the Secretary of Defense; and prohibited the use of funds to pay Iraq's foreign debts. The Committee bill further added several items unrelated to Iraq and Afghan reconstruction issues concerning Pakistan, Liberia, and victims of September 11: The Administration had requested authority (but not money) to use $200 million in Economic Support Funds (ESF) pending in the regular FY2004 Foreign OperationsAppropriation ( H.R. 2800 and S. 1469 ) for Pakistan debt reduction. TheHouse Committee granted this authority, plus provides $200 million in ESF to fund debtrestructuring; Responding to international calls for additional humanitarian relief aid and finances for a U.N. peacekeeping force in Liberia, the House measure added $100 million fordisaster and famine support and $245 million for a U.S. contribution to a U.N. peacekeepingoperation. The disaster relief money can also be used in Sudan; and The House Committee included $15 million for the Department of Justice September 11 Victims Compensation Program. During the markup, the committee agreed to a manager's amendment by committee Chairman Bill Young that -- added $150 million for Hurricane Isabel storm damage at military and Coast Guard facilities to the $413 million in the chairman's mark, for a total of $544 million;and prohibited the use of any funds in the bill for defense or reconstruction activities "coordinated by any officer of the United States Government" not subject to confirmationby the Senate. The latter provision was a response to the White House decision, announced on October 6, to give White House National Security Advisor Condoleezza Rice responsibility for coordinating Iraqreconstruction activities. The issue for Congress was that officials not subject to Senate confirmationare not readily available to provide congressional testimony. (See below for a further discussion ofissues regarding management of reconstruction funds.) The committee also accepted a number of other amendments, including proposals by Representative Hoyer to require the President to submit a quarterly report on reconstruction in Afghanistan and Iraq, the security situation, troop requirements, and othermatters; by Representative Wolf requiring the General Accounting Office to reviewmost reconstruction contracts; by Representative Lowey to shift $90 million of Iraq reconstruction funds toeducation; by Representative Cunningham to ensure that impact aid to local schooldistricts is not reduced if both parents of a student are deployed abroad; by Representative Kolbe to strengthen requirements in the bill regardingcompetitive bidding on reconstruction contracts; by Representative Hinchey to prohibit funding for foreign military units thatare credibly suspected of violating human rights; by Representative Nethercutt to allocate 10% of reconstruction fundsadministered by the U.S. Agency for International Development to small and minority-ownedbusinesses; by Representative Nethercutt to require the Secretary of Defense to submit toCongress within 30 days an analysis of alternatives for replacing the existing Air Force fleet ofKC-135 tanker aircraft; and by Representative Bonnilla, regarding repatriation of illegal immigrants (twoamendments). The Nethercutt amendment regarding tanker aircraft had to do with an Air Force proposal to lease 100 Boeing 767 aircraft as tankers that is currently being held up. The Senate removed an identicalprovision from its version of the bill in floor action on October 2. Some regarded this measure as aplace holder allowing the appropriations committees to provide funds for the lease in a conferencereport on the bill. The committee rejected (by a recorded vote of 25-36) a substitute amendment by Representative Obey that would transfer $4.6 billion from Iraq reconstruction to defense to among other things, increase the size of the Army by 20,000, increase funding for force protection measures, expandhealth care for military personnel, and increase family support services; require that half the remaining $14 billion in reconstruction aid (i.e., $7 billion)be provided as loans through the World Bank; require that other donors make a matching contribution of 50%;and reduce tax cuts to offset costs. Representative Wamp brought up but then withdrew a widely discussed amendment to provide half of the reconstruction money for Iraq as loans. Representative Culberson brought up but alsowithdrew an alternative measure that would require the President to ensure that the United States isultimately reimbursed for the reconstruction funds. Other measures that the committee rejected included amendments by Representative Goode to eliminate all Iraq reconstruction funds; by Representative Jackson to add $100 million for assistance to Liberia; by Representative Hinchey to require information on non-competitive contractsfor activities in Iraq entered into after September 30, 2002; and by Representative Obey to add $14 billion to buy, rather than lease, Boeing 767tanker aircraft. The House began general debate on its bill on the floor on October 15 and then took up amendments on October 16 and 17. The Rules Committee approved an open rule, allowingunlimited amendments, but did not protect any amendments against points of order. As a result, anumber of amendments, including a substitute amendment by Representative Obey like the one heoffered in committee and a loans versus grants amendment by Representative Pence, were ruled outof order as constituting legislation on an appropriations bill. In debate on October 16, the onlyamendment on loans made in order was a proposal by Representative Obey to provide that allreconstruction grants should be converted to loans. In floor action on October 16 and 17, the House adopted amendments by Appropriations Committee Chairman C.W. "Bill" Young of Florida to exempt servicemembers with combat-related injuries from a requirement to for meals whilehospitalized; by Representative Maloney to make available $20 million for women and girls in Afghanistan; by Representative Kirk to tighten the congressional reporting requirements related to non-competitive contracts (405-20) by Representative Slaughter to require more information from the executive branch related to contracts awarded through a non-competitive process; by Representative DeFazio that prohibits the funds provided by the bill to be used for Iraq to participate in the Organization of Petroleum Exporting Countries; by Representative Millender-McDonald to transfer $50 million funds from the Operation and Maintenance Defense-Wide to the Family Advocacy Program; by Representative Ramstad to shift $98 million within the bill to provide funds for domestic travel for Army personnel receiving rest and recuperation leave; by Representative Hoeffel to add reporting requirements on international military and economic cooperation and on guard and reserve deploymentplans; by Representative Velazquez to prohibit funds from being used for any contract in contravention of Section 8 (d)(6) of the Small Business Act; and by Representative Sherman to require that normal competitive bidding procedures are followed in procurement under the funds appropriated for Iraq's oil infrastructure (bya recorded vote of 248-179). The House rejected amendments by Representative Obey that would have converted reconstruction grants to loans (200-226); by Representative Obey to shift funds from Iraq reconstruction to various military programs (209-216); by Representative Goode to delete funding for Liberia; by Representative Blumenauer to shift reconstruction funds from Iraq to Afghanistan; by Representative Waxman to reduce reconstruction aid for Iraq; by Representative Markey to limit the Defense Department's authority to transfer funds (146-279); by Representative Holt to bar funds for petroleum imports into Iraq (169-256); by Representative Tauscher to transfer $300 million from funding weapons inspections to Army force protection measures; by Representative Deutsch to prohibit any of the funds for reconstruction in Iraq from being provided until September 30, 2004; by Representative Kind to reduce funding for the Iraq Relief and Reconstruction Fund by 50% (by a recorded vote of 156-267 with one voting"present"); by Representative Stupak to increase the basic rate of pay to all military services to provide a $1,500 bonus to each person serving in operations in Iraq or Afghanistan (bya recorded vote of 213-213); by Representative Reyes to increase funding for programs and scholarships to increase language proficiency and workforce diversity in the intelligence community (by a recordedvote of 206-221); by Representative Jackson-Lee of Texas to shift $70 million to Afghan women's programs and $300 million from Iraq oil industry reconstruction to human rights,education, refugees, and democracy and governance (by a recorded vote of 156-271); and by Representative Weiner to prohibit funds in the bill to be used for assistance or reparations to Cuba, Libya, North Korea, Iran, Saudi Arabia, or Syria (by a recorded vote of193-233). House Motion to Instruct Conferees. On October 21, the House approved (by a vote of 277-139) a motion offered by Representative Obey to instructHouse conferees to accept four Senate provisions: providing medical screening for military reservists before mobilization (Section 317); extending transitional health care and benefits to military personnel for 180days from separation from the armed forces (Sec. 321); providing that $10,000,000,000 of the amounts provided for the reconstructionof Iraq be in the form of loans, subject to certain conditions (Sec. 2319); and providing of $1,300,000,000 to the Veterans Health Administration for medicalcare for veterans (Title IV). Earlier in the day, Office of Management and Budget Director Joshua Bolten sent a letter to the House and Senate Appropriations Committees warning that the President's advisors wouldrecommend a veto if the conference agreement on the bill included a requirement that Iraqreconstruction funds be provided as loans. The letter also opposed the $1.3 billion in the Senate billfor veterans health and the Senate provision that provides health insurance for some non-deployedmilitary reservists and their dependents through the DOD TRICARE program. The major issue in House-Senate conference consideration of the bill was whether to provide some of the Iraq reconstruction funds as loans. The Senate bill included an amendment to provide$10 billion of the Iraq reconstruction funds as loans. In a vote on October 29, the conferencerejected by a vote of 13-16 a proposal to provide half the $18 billion for Iraq reconstructionassistance as loans. On other key issues, the conference agreement provides $500 million for the Federal Emergency Management Agency (FEMA) for disaster relief for Hurricane Isabel and the California wildfires, which was not in eitherchamber's bill; eliminates a House provision requiring that Iraq reconstruction aid be coordinated by an official subject to Senate confirmation - the conference also rejected by a vote of14-15 an alternative proposal by Senator Byrd to require Senate confirmation of the director of theIraq Coalition Provisional Authority; cuts the Administration request for the Iraq Relief and Reconstruction account by $1.655 billion as in the House bill rather than by $1.855 million as in the Senate bill. Theconference, however, further directs that $210 million of Iraq funding be transferred for aid toJordan, Liberia, and Sudan, leaving resources for Iraq $1.865 billion less thanrequested; agrees, as in the House bill, to provide about $1.2 billion for Afghan reconstruction, $400 million more than the Administration requested and the Senateprovided; provides $245 million for assessed costs of U.N. peacekeeping in Liberia, as in the House bill, and earmarks a total of $200 million for Liberian relief aid and $10 million forSudan humanitarian assistance rather than $200 million in the Senate bill and $100 million in theHouse measure; provides $200 million in economic aid to Pakistan, as in the House bill; includes a modified version of a Senate measure to provide health insurance through the DOD TRICARE program to non-active duty reservists who do not have access toemployer-provided health insurance; the conference report presents this and other reserve health caremeasures as a one-year trial through FY2004 and requires that DOD report on its cost andimplementation; rejects a Senate provision to increase Army end-strength by 10,000 active duty personnel for assignment to peacekeeping types of duties; provides $313 million in defense operation and maintenance and in procurement funds to repair Hurricane Isabel damage at military facilities, $100 million less than inthe House bill, and provides another $130 million in military constructions funds for disaster repair,as in the House bill; provides $100 million in a general provision that was not in either chamber's bill for munitions security and destruction in Iraq; moves $858 million from the defense part of the bill to the foreign operations part to cover operating expenses of the Coalition Provisional Authority in Iraq, as in the House bill; provides $3 billion in general transfer authority to the Secretary of Defense with a requirement that Congress be notified promptly but not that Congress provide advanceapproval as in the House bill and rejects the Senate provision that would provide $5 billion in suchtransfer authority and an additional $2.5 billion subject to congressional approval;and rejects a Senate provision to provide $1.3 billion for veterans health benefits, as in the Senate bill; Senator Stevens said that the funding would be addressed in the pendingVA-HUD-independent agencies appropriations bill. The conference also adopted compromise language to impose a variety of reporting requirements; and require competition on contracts in Iraq or to report on non-competitivecontracts. The Administration proposal devotes $66 billion of the $87 billion total to military andintelligence operations in Iraq, Afghanistan and elsewhere. On September 21, the Administrationprovided Congress with backup material justifying the request. The Senate AppropriationsCommittee provided the full funding requested for defense, though it added funds for Armyoperation and maintenance and weapons procurement and made offsetting reductions in Air Force,Navy, and Defense-Wide operation and maintenance. The House Appropriations Committee cutabout $289 million from the defense total. It added funds mainly for Army weapons procurementand made offsetting cuts similar to those in the Senate bill. Table 3 provides a breakdown byappropriations account of the request and congressional committee action. Table 3. Congressional Action on FY2004 Supplemental Appropriations for the Department ofDefense (thousands of dollars) Sources: H.Rept. 108-312 ; S.Rept. 108-160 . Several aspects of the request are worth noting, including basis of the cost projections, funding flexibility, authority to train and equip foreign military forces, and military personnel benefits. According to DOD officials, the request is based, first, on the assumption that current force levels and the current pace of operations will be maintained throughoutFY2004, although it assumes some change in the mix of active and reserve forcesdeployed. DOD and OMB backup material on the request notes that the number ofArmy combat divisions in Iraq will be reduced, but this will not substantially affectthe total number of personnel deployed in Southwest Asia and nearby areas insupport of Operation Iraqi Freedom and Operation Enduring Freedom (inAfghanistan). The requested is based, second, on the use of a model for estimating costs of military operations know as the "Contingency Operations Support Tool" (COST). The COST model was developed by the Institute for Defense Analyses (IDA) in thelate 1990s under a contract from the Department of Defense Comptroller followingproblems the Defense Department had in accurately projecting costs of operations inthe mid-1990s. Using inputs of data about the duration of an operation, the numberand original location of units to be deployed, means of transportation both to deployand to sustain forces, and unique expenses, and relying on historical cost factorsbased on earlier operations, the model can provide quite detailed breakdowns ofprojected costs in advance of an operation. Although these projections are not technically considered "budget quality" data for purposes of making congressional requests, the estimates resulting from themodel appear to be the most reliable available advance projections of costs of anoperation, though actual expenses may differ as operations unfold. One question forCongress may be why the Defense Department is using COST model data now, butdid not choose to provide COST model figures to Congress last spring in advance ofthe war. An answer may be the Defense Department did not feel in a position toprovide an estimate of war costs until a final decision was made to go to war, and thesize and composition of the force remained in flux until very shortly before the warbegan. DOD's new cost estimates appear to be substantially higher, on a per troopbasis, than recent estimates by the Congressional Budget Office. An ongoing issue between the Administration and Congress -- particularly the appropriations committees -- has been how much flexibility the Defense Departmentneeds to reallocate funds after they are appropriated. In the FY2003 EmergencyWartime Supplemental, the Administration proposed that $59.9 billion of the $62.6billion it requested for the Department of Defense be provided in a flexible transferaccount called the Iraq Freedom Fund. Congress agreed to provide $15.7 billion inthe fund, some of which was subject to additional ceilings on expenditures. In thenew request, the Defense Department asked for $2.0 billion to be appropriated intothe Iraq Freedom Fund, while the rest is requested in regular appropriations accounts. The Iraq Freedom Fund amount is, in effect, a contingency fund, that DOD says itwill use either to support a multinational division or, if allied forces are not available,to deploy two Army National Guard Enhanced Separate Brigades and one MarineExpeditionary Force. (21) The Defense Department also requested authority to transfer $5 billion between appropriations accounts provided that "the Secretary shall notify the Congresspromptly of each transfer made pursuant to this authority." According to DOD,"promptly" means that the Secretary will inform Congress within five days after suchtransfers. This money, therefore, would not be subject to normal limitations on"transfers" -- or, in DOD parlance "reprogramming" of funds -- in which transfersabove certain thresholds require advance approval of congressional defensecommittees. In addition, in another proposed general provision, the DefenseDepartment has requested that $500 million of the amounts appropriated be availablefor a contingency construction account for military construction projects that are nototherwise authorized by law. (22) (See above fora discussion of Senate and HouseAppropriations Committee action on these proposals.) Though not a budget item, per se , one element of the request reintroduces an issue that has been controversial in Congress in the past. The request includes aproposal to provide the Defense Department with general authority to use up to $200million of available funds for "training and equipping" military forces in Iraq,Afghanistan and "other friendly nearby regional nations" to carry outcounter-terrorism operations and support U.S. military operations in Iraq andAfghanistan. In earlier funding bills, Congress has agreed to Administration requeststo provide money, termed "coalition support," to reimburse nations, such as Pakistanand Jordan, that have provided material support for U.S. military operations, and to"lift and sustain" foreign troops, such as the Polish forces now in Iraq, that aredirectly participating in operations. The new request includes $1.4 billion forcoalition support, and additional amounts to lift and sustain multinational forces. Congress has, however, rejected repeated Administration requests for funds for the Defense Department to train and equip foreign militaries, which would be, ineffect, a DOD-run military assistance program not approved through the usualcongressional budget procedures and not subject to human rights and otherprovisions of standing law governing U.S. foreign aid. Most recently, theAdministration requested $200 million for that purpose in the regular FY2004appropriations, but neither the House nor the Senate approved the request in anyversion of the regular FY2004 defense authorization or appropriations bills. The newrequest differs in that it is limited to support for nations in the region of Iraq andAfghanistan. The Senate Appropriations Committee agreed to provide $200 millionto train and equip the new Iraqi Army and the Afghan National Army, and the HouseAppropriations Committee provided $100 million (see above). Both committees alsorequired 15 days' advance notification to Congress before obligating funds. In the April 2003 Emergency Wartime Supplemental ( P.L. 108-11 ), Congress increased Imminent Danger Pay (from $150 to $225 per month) and the FamilySeparation Allowance (from $100 to $250 per month). These increases expired atthe end of FY2003 on September 30. The first continuing resolution for FY2004, H.J.Res. 69 , P.L. 108-84 , extends the benefits through October 31, 2003. The House and Senate have taken somewhat different approaches to extending thesebenefits permanently in their versions of the FY2004 defense authorization bill( H.R. 1588 ). In its supplemental proposal, the Defense Departmentrequested that the increased Imminent Danger Pay and Family Separation Allowancepayments continue through December 31, 2003. After that, DOD requested that itbe permitted instead to provide $225 per month in additional Hardship Duty Pay topersonnel serving "in a combat zone" in Operation Iraqi Freedom and OperationEnduring Freedom. DOD argues that this would equalize pay between troopsdeployed in combat zones; troops with dependents now receive more because of theFamily Separation Allowance. It may also mean, however, that troops not actuallydeployed "in a combat zone" would receive less, so there may be some oppositionfrom military advocacy groups and in the Congress. Both the House and the SenateAppropriations Committees, however, rejected the Administration request andinstead extended increased Imminent Danger Pay and Family Separation Allowancesthrough FY2004. Another significant issue in Senate action on the supplemental was whether to provide health insurance for non-deployed military reservists. The Senate approvedan amendment to the FY2004 defense authorization bill that would allownon-activated reservists to sign up for health insurance for themselves and theirdependents through the DOD-run TRICARE program. The Administration hasthreatened to veto the authorization if it includes this provision. In floor action onthe supplemental, the Senate approved an amendment by Senators Daschle andGraham of South Carolina to offer health insurance to reservists through TRICARE,though with somewhat different provisions from those in the Senate version of theFY2004 authorization. Specifically, the Daschle-Graham amendment is availableonly to reservists who are receiving unemployment compensation or who are noteligible for an employer-sponsored health insurance plan. The measure also requiresa co-payment of 28% of the value of the plan, on the model of the federalgovernment's FEHBP insurance plan for civilian employees. So theDaschle-Graham amendment is much more limited and more targeted than the Senateprovision in the FY2004 defense authorization bill. The Administration sought a total of $21.44 billion in its FY2004 supplementalfor reconstruction activities in Iraq and Afghanistan and for other foreign policyprograms related to the global war on terrorism. As shown in Table 4 $20.4 billionwould be allocated for Iraq. To put the amount of resources in some perspective,Congress appropriated about $9.6 billion in FY2003 for similar activities, includingIraq reconstruction and aid to the "front-line" states in the global war on terrorism,and has been considering funding requests totaling roughly $4.9 billion in thepending FY2004 Foreign Operations appropriation bill ( H.R. 2800 / S. 1426 ). Table 4. Iraq, Afghanistan, Other Foreign Policy Funding (billions of dollars) a. Excludes $210 million transferred for aid to Jordan, Liberia, and Sudan, as noted below. b. The Administration and Senate bill included CPA operating expense fundingunder title I (Defense), in the account for Operations and Maintenance, Army. c. The Administration proposed to use funds previously appropriated for Baghdadfacilities in P.L. 108-11 for urgent USAID needs in Afghanistan and requestedin this supplemental additional resources for Iraq facilities to replace thosediverted to Afghanistan. The Senate bill appropriated funds for USAID inAfghanistan separately, thereby making funds provided in P.L. 108-11 availablefor U.S. diplomatic facilities in Baghdad, without the need for newappropriations in this supplemental. The House bill and the conferenceagreement provided $35.8 million for a new U.S. mission in Iraq in the D&CSaccount below, and rescinded $35.8 million provided in P.L. 108-11 . d. The House bill and the conference agreement specified that peacekeeping fundsare available for both Iraq and Afghanistan. e. In addition to the amounts shown in this total for Afghanistan, the Administrationis reprogramming $390 million from other defense, State Department, andforeign aid accounts for Afghan reconstruction. f. The Administration had requested $40 million for USAID operating expenses inboth Iraq and Afghanistan. The Senate bill and the conference agreementprovided $40 million for USAID operating expenses in Afghanistan only. g. Instead of funding the Emergency account, the House bill provided $100 millionin disaster and famine relief aid for Liberia and Sudan, below. The Senate billprovided $200 million in the Emergency Crises Fund account, but designatedall of it for Liberia and required that $100 million be drawn by transfer from anyother account in the bill. The conference agreement provided $210 million forLiberia and Sudan, funds drawn from the Iraq Relief and Reconstructionaccount and from a new account for International Disaster and FamineAssistance, as shown below. h. Under the account for Diplomatic and Consular Services (D&CS), theAdministration proposed $11 million for additional security operations inAfghanistan and $29.5 million to cover a projected shortfall in MachineReadable Visa (MRV) fees that had been expected to fund border securityinitiatives. The Senate bill provided $35.8 million as a rescission andreappropriation for security operations in Afghanistan and Iraq, and addedfunding under the separate account of Emergencies in the Diplomatic andConsular Services to cover the MRV shortfall. The Administration requestedfunds under this latter account only for rewards related to Osama bin Laden andSaddam Hussein. The House bill provided $156.3 million in the D&CSaccount, of which $109.5 million was for MRV fees and consular services, $11million for security measures in Afghanistan, and $35.8 million for a diplomaticmission in Iraq. The conference agreement provided $115.5 million forEmergencies in the Diplomatic and Consular Services, $50 million of whichwas for rewards and $65.5 million was for costs of protecting foreign missionsand officials in New York City, and security and protection for the 203 FreeTrade in the Americas Ministerial and the 2004 Summit of the IndustrializedNations. i. The Administration requested authority to use $200 million in Economic SupportFunds pending in the regular FY2004 Foreign Operations Appropriation (H.R.2800 and S. 1469) for debt reduction for Pakistan. TheSenate bill included this authority, while the House bill included both theauthority for debt reduction and the $200 million appropriation. The conferenceagreement is the same as the House bill. Supplemental Request. The $20.3 billion Administration request for reconstruction and security in Iraq represented asignificant increase from amounts previously appropriated for reconstruction. Up tothen, the United States had committed $4.1 billion to reconstruction, including the$2.5 billion appropriated to an Iraq Relief and Reconstruction Fund established bythe April 2003 Emergency Wartime Supplemental ( P.L. 108-11 .) (23) These earlier funds had been used to support a broad range of humanitarian and reconstruction efforts. The new request was intended to fund the most pressing,immediate needs in Iraq, with the aim of having a noticeable impact on the twogreatest reconstruction concerns that have been raised since the occupation of Iraqbegan security and infrastructure. More than $5 billion would be targeted atimproving the security capabilities of the Iraqi people and government, includingtraining and equipment for border, customs, police, and fire personnel, and todevelop a new Iraqi army and a Civil Defense Corps. Enhanced efforts to reform thejudicial system would also be included. Most of the remaining $15 billion supplemental request would go toward rapid improvements in infrastructure, including electricity, oil infrastructure, water andsewerage, transportation, telecommunications, housing, roads, bridges, and hospitalsand health clinics (see Table 5 for a breakdown). According to Administrationofficials who briefed Members of Congress and staff, these investments representedthe most urgent needs over the next 12 months, but by no means addressed totalreconstruction requirements in the coming year. (24) Other concerns in such areas ofgovernment reform, agriculture, economic development, and education, were notincluded in the Administration request. A relatively small amount of funds, $300million, was requested for programs designed to encourage the growth of the privatesector and jobs training. Table 5. Iraq Supplemental: Sector Allocation (billions of dollars) Source: Office of the Coalition Provisional Authority Representative, September 8, 2003, OMB, FY2004 Supplemental Appropriation request, September 17, 2003, andHouse and Senate Appropriation Committees. a. The House bill excluded $50 million requested for Iraq traffic police and $400 million for two prisons; reduced funding for the National SecurityCommunications Network. The conference agreement also excluded $50million for Iraq traffic police, reduced by $300 million funding for two prisons,and further reduced several other requested under Justice, Public SafetyInfrastructure, and Civil Society. b. Excluded $25 million for consultants to plan for continued development andbuilding rehabilitation and reduced amounts for electric generation. c. The conference agreement reduced funds for emergency supplies of refined oilpetroleum products by $210 million. d. House and Senate bills combined the categories of Water and sewerage servicesand Water resources. The House amount excluded $153 million for solid wastemanagement, including 40 trash trucks and $100 million for environmentalrestoration (marsh) projects. e. The conference agreement excluded $153 million for solid waste management,including 40 trash trucks and $100 million for environmental restoration(marsh) projects. f. Excluded $4 million for a nationwide telephone numbering system, $9 million forpostal information architecture and zip codes, and $10 million for television andradio industry modernization. g. Excluded $100 million for seven housing communities. h. Excluded $150 million for a new children's hospital in Basra and $7 million forAmerican and Iraqi health care organization partnerships, but included anadditional $100 million for clinics and hospital modernization. i. Excluded $200 million for an American-Iraqi Enterprise Fund, but added $45million for micro-small-medium enterprises. j. Excluded $90 million for Public Information Centers in Iraq municipalities, butadded $90 million for education. Background. Among the key policy objectives laid out by the Bush Administration in conjunction with the war inIraq were the restoration of basic human services and the economic and politicalreconstruction of the country. The Coalition Provisional Authority (CPA) under theadministration of Ambassador L. Paul Bremer is responsible for the formulation andimplementation of this effort. The CPA has initiated a process intended to lead to Iraqi self-rule. It has appointed a 25-member Iraqi Governing Council and provided it with specificpowers and duties, including the choosing of a cabinet to serve as ministers under thesupervision of CPA advisors and the responsibility to set in motion formulation ofa national constitution. It has encouraged establishment of councils in villages andcities throughout the country to run local affairs and identify community needs. WithCPA funding and encouragement, institutions of civil and economic society havebeen reconstituted. Schools, including universities, hospitals and health clinics, arefunctioning. The oil-for-food program continues to provide basic foodstuffs. Newpolice and security forces are being trained. Programs to renovate and repair electricpower, water, oil production, roads and bridges, airports, and the seaport have beenlaunched. Jobs programs have been instituted to help stimulate the economy andlessen unemployment. Although much has been accomplished since the U.S. occupation began in April, the occupation authority in the view of many has failed to successfullyreestablish order and security, restore infrastructure, and introduce political andeconomic reform, including Iraqi self-governance, in a timely manner. Theseproblems are interlinked; the successful conduct of much reconstruction work iscontingent on an environment of order and stability, and the lack of visible progressin restoring basic infrastructure and institutions of security opens the door to politicaldiscontent and opposition. The $20.3 billion supplemental request apparently soughtto address those infrastructure and security needs on which other U.S. objectives inIraq hinge. Until recently, the Administration had suggested that the cost of reconstruction through the end of 2003 could largely be met by Iraqi and already previouslyappropriated U.S. resources. A national budget for Iraq covering the rest of the year,announced by the CPA on July 7, estimated expenditures of $6.1 billion and thecreation of a Central bank currency reserve of $2.1 billion, for a total budget of $8.2billion. New oil revenue, taxes, and profits from state owned enterprises would makeup $3.9 billion of these costs, according to the CPA's analysis. The remaining deficitof $4.3 billion would be covered by recently frozen and seized assets ($2.5 billion),the Development Fund for Iraq ($1.2 billion), and $3 billion in already appropriatedU.S. assistance. Iraq was projected to have $1.1 billion remaining for reconstructionby end of December 2003. (25) The Administration request suggested that a re-assessment of Iraq's immediate reconstruction needs demanded greater outlays of revenue than projected in July. Italso suggested that presumed sources of additional revenue in the coming year -- chiefly, oil export production and international donor contributions -- might not beas large as originally anticipated. In any case, the result was a supplementalreconstruction request nearly 20% larger than the size of the entire national budgetfor Iraq projected on an annualized basis in early July. (26) Issues. Total Iraq Reconstruction Needs. The supplemental request was intended to meet only the most important, immediate needsin Iraq in the 2004 fiscal year. Up to that point, the cost of Iraq reconstruction wasbased on speculation and educated guesswork. However, as part of the lead-in to aninternational donors conference held in Madrid on October 24, the World Bank andthe U.N. Development Program released a needs assessment they conducted of 14Iraqi economic and social sectors. (27) The resultingBank/UNDP estimates haveestablished targets by which the adequacy of available resources will be judged. TheBank/UNDP assessments put the cost of reconstruction for the 14 sectors at $36billion over four years, a figure that does not include $19.4 billion estimated by theCPA for security, oil, and other critical sectors not covered by the Bankassessments. (28) Total Bank/CPA projectedreconstruction costs through 2007 amountto $55 billion, $17.5 billion in 2004 alone. If Iraqi oil revenues are not sufficient tomeet the projected needs -- which appears likely in the near term by most accounts -- and other international donors do not pledge significant contributions, the UnitedStates may face increased financial demands, if it seeks to meet projected Iraqi needs. The new needs assessment points out another possible concern. The Bank/UNDP report suggests that Iraq cannot absorb more than $6 billion ininfrastructure program commitments (excluding oil) in 2004, in view of the unstablesecurity situation and the time it takes to plan and implement contracts. (29) TheAdministration request for infrastructure (excluding oil) was $12.4 billion. Inresponse to this point, OMB has reportedly confirmed that the reconstruction requestis intended to cover 18 months. (30) That theAdministration request in categories suchas electric power and water composes half or more of requirements projected by theWorld Bank assessment over a four-year period, however, suggests that the requestmay meet needs beyond even 18 months. Iraqi Oil Revenues and Financing Reconstruction. Until recently, the Administration hadexpected most costs of reconstruction to be borne by Iraq through receipts from itsoil exports. While the decrepit state of oil production infrastructure and recurrentsabotage to pipelines and facilities have forced experts to downgrade expectationsof potential exports and receipts, any sustained increase in production will assist thereconstruction effort. Current rates of production are nearing 2 million barrels a day,but Iraqis do not expect to reach the prewar level of 2.8 million barrels until spring. After subtracting 0.5 million barrels/day for domestic consumption, a level of 2.3million might generate between $18.5 billion and $23 billion annually, depending onthe price of oil. Production levels of 6 million/day, possible within a decade, wouldrequire significant investment outlays. (31) In thenear term, Administration officialssaid that their budget calculations assume an average production of 2 million barrelsper day over the next 12 months, generating about $12 billion in revenues that willroughly cover government operating expenses, but not the type of urgentreconstruction needs identified in the supplemental request. (32) Roughly $503 million has already been allocated from the 2003 Emergency Wartime Supplemental for repair of oil facilities and restoration of production anddistribution systems. The Administration request for these purposes under theFY2004 supplemental was $2.1 billion. Additional sums for Iraqi security forceswere in part intended to create an Iraqi force to defend against pipeline and other oilfacility sabotage. Loans vs. Grants for Reconstruction. Closely related to the issue of Iraqi oil revenues as a means of financingreconstruction projects was the question of whether assistance could be extended ona loan rather than grant basis. Some argued that, given the substantial amount of oilrevenues that Iraq will generate at some point in the future, Baghdad will have themeans to service debt incurred for the purpose of rebuilding its infrastructure. Loans,either extended bilaterally or through some sort of trust fund, possibly managed bythe World Bank, would be repaid at some point, thereby reducing reconstructioncosts to the United States, they said. The Administration, which proposed that the entire $20.3 billion supplemental be offered as grants, argued repeatedly during congressional hearings against addingto Iraq's already substantial debt obligations. Witnesses asserted that Iraq owesroughly $200 billion in pre-war debts, reparations, and other claims. G7 leadersagreed informally at the June 2003 summit to suspend through 2004 the requirementfor Iraq to service any existing debt, giving time to construct some sort of multilateraldebt restructuring arrangement. (33) Further, U.N.Security Council Resolution 1483states that Iraqi oil exports or proceeds could not be attached by creditors through2007 unless authorized by the Council. Beyond the matter of whether Iraq should incur more debt obligations in the near term is the question over who could legally assume responsibility for newsovereign debt. Although it is possible that the World Bank could manage an Iraqreconstruction trust fund that would receive contributions from international donors,if the Bank were to use these resources for project lending, it would almost certainlyrequire, as it has in the past, that some sort of sovereign Iraq authority assume thedebt obligation. Until such time that legal authority is transferred to Iraqi hands, theCoalition Provisional Authority is the temporary government of Iraq and would bethe one signing for the loans. Most legal scholars take the position that an occupyingpower has no authority to incur new debts on behalf of the displaced sovereign. (34) Some contend, however, that there is an exception in which a new government wouldbe responsible for the debt if it can be shown that the loans were required for thewelfare of the occupied territory and the terms were fair and reasonable. (35) Also, while loan reconstruction assistance would likely require smaller appropriations than grant aid, some congressional appropriation would be necessary. Under the 1990 Credit Reform Act, Congress must provide a subsidy appropriationin advance of the U.S. government extending direct loans or loan guarantees. Thesize of the subsidy appropriation is based on several factors, including any subsidyvalue of the loan terms and the likelihood that the loan will be repaid fully and ontime. Given the current state of the Iraqi economy and the high degree of uncertaintyover when the debt service payments could begin, the necessary subsidyappropriation likely would be quite large. As discussed in more detail above under "Congressional Action," this issue was closely examined by lawmakers. The Senate adopted (51-47) an amendment bySenators Bayh, Ben Nelson, and others on October 16 converting $10 billion ofreconstruction grants to loans, which could be later restored as grants if foreigncreditors cancel 90% of Iraq's debt. Conferees, however, rejected the Senateproposal on a 13-16 vote. Earlier, Senator Dorgan had offered amendments in committee markup and on the Senate floor (tabled in both venues) that would have created an authority to useIraqi oil to secure reconstruction financing and convert U.S. grants to loans. Asimilar amendment by Senator Landrieu was also rejected. Senator Hutchison andothers submitted an amendment that did not come up for floor debate directing $10billion of the total reconstruction supplemental to a Trust Fund, to be establishedwithin the World Bank, out of which loans and loan guarantees would be made. On the House side, Representative Wamp proposed but later withdrew an amendment during Committee markup that would have withheld one-half of Iraqfunds until after the election of a new Iraqi leader, at which time the remainingmoney would be available in the form of a loan. Representative Obey offered anamendment (defeated 25-36) that, among other things, would have transferred about$7 billion of reconstruction funds to a World Bank-administered loan facility. Afurther amendment by Representative Obey regarding a shift of grants to loans wasdefeated in the House 200-226. The Supplemental's Impact on Other Donors. Many, including Administration officials, believedthat congressional action on the supplemental could influence the contributions ofinternational donors at the late-October donors' conference. Some argued that a largepledge of U.S. aid prior to the conference might stimulate other donors to contributemore; diminution of the Administration plan, they argued, might have the oppositeeffect. Opponents of making U.S. aid for reconstruction in the form of loans alsocontended that other donors might follow the American lead and offer loans ratherthan grants, adding further to Iraq's debt problems. In addition, the supplementaltargeted sectors -- infrastructure and security -- that other donors would be lesslikely to support themselves. In similar "nation-building" exercises elsewhere,donors have tended to funnel contributions to the social sectors, such as educationand health, and grassroots democratization and economic development, all areasrelatively untouched by the supplemental. Perhaps a more important factor in other donor calculations was the extent to which they would have a say in the use of funds. Up to then, donors had beenreluctant to provide assistance because they were wary of being perceived assupporting a unilateral U.S. policy. In response to this concern, donors discussed ata September 6 meeting in Brussels, the concept of creating Iraq reconstruction trustfunds, managed by the U.N. or World Bank, which would accept and distributecontributions. Control over how the money was spent, according to Undersecretaryof State Alan Larson who represented the U.S. at the September 6 meetings, wouldbe handled by some sort of a multilateral management board that might includeofficials from international organizations, major donors, and Iraqis representinginterim ministries. (36) The Madrid donors'conference created two trust funds, onemanaged by the World Bank and the other by UNDP. Management of Iraq Reconstruction Funds by U.S. Agencies. Administrative control over Iraq reconstructionfunds became a significant issue during congressional debate on the $2.475 billionappropriation in P.L. 108-11 . At that time, most had expected that transfers forreconstruction and post-conflict aid would be made to USAID, the State Department,and other traditional foreign assistance management agencies. But with plans for theDefense Department to oversee the governing of Iraq immediately after the end ofhostilities, the White House wanted to maintain maximum flexibility over thedistribution of resources so the President could transfer some or all of the funding toDOD. The proposal stimulated immediate controversy with a number of critics,including Members of Congress, arguing that aid programs should remain under thepolicy direction of the State Department and under the authorities of a broad andlongstanding body of foreign aid laws. Although initial House and Senate decisionswould have blocked Administration efforts to place control of reconstruction fundswith the Pentagon, ultimately Congress agreed to allow the White House to allocatethe resources among five agencies, including DOD. Funds for the Iraq Relief andReconstruction Fund appropriated in P.L. 108-11 have been managed by L. PaulBremer, head of the Coalition Provisional Authority (CPA), and the U.S. civilianadministrator in Iraq, who reports to the Secretary of Defense. The Administration proposed that the entire $20.3 billion be placed in the Iraq Relief and Reconstruction Fund, as was the case with the previous supplemental, andto continue Ambassador Bremer and the CPA's role as administrators of the Fundunder DOD guidance. Since submission of the supplemental, however, the WhiteHouse announced the establishment of a new "Iraq Stabilization Group,"headed byNational Security Advisor Condoleezza Rice. The Group is intended to help speedup reconstruction efforts by identifying and resolving problems that had in somecases been the source of decision-making disputes in Washington. Some analystsbelieve that the move is also intended to allow the State Department a greater voicein reconstruction policy. At the same time, the State Department staff serving underthe CPA in Iraq is expected to grow from 55 to about 110. Nevertheless,Ambassador Bremer will continue to report to the Secretary of Defense. (37) As noted above, the Senate tabled (56-42) an amendment by Senators Leahy and Daschle ( S.Amdt. 1803 ) that would have placed the CPA under thedirect authority and foreign policy guidance of the Secretary of State. The House bill,however, added a provision barring the coordination of defense or reconstructionactivities in Iraq or Afghanistan by a U.S. government officer who is not subject toconfirmation by the Senate. The House Committee wanted to ensure that whoeveris in charge of coordination be available to testify at congressional oversighthearings. This proposal appeared to block the initiative of placing National SecurityCouncil Advisor Rice, who is not subject to confirmation and who does not testifybefore Congress, in charge of coordinating reconstruction. The White House,however, contended that the new Iraq Stabilization Group does not affect control of reconstruction efforts and that the job remains under control of the DefenseDepartment. (38) Conferees, however, decided todelete this House-added provisionfrom the enacted legislation. Reconstruction Priorities and Costs. The Administration said that the request included only the most pressing, immediateneeds for Iraq in FY2004. However, the relative importance of certain items detailedin the request -- 're-engineering of postal service business practices' andconstruction of seven residential communities, for example -- was closelyquestioned in Congress. Further, the costs associated with reconstruction requestshave been subject to skepticism, with some congressional staff reportedly suggestingthat the price tag was intentionally inflated so that the Administration would not haveto return to Congress to ask for more funds in 2004. (39) As mentioned above in the Congressional Action section, the House bill proposed a $1.655 billion cut in Iraq reconstruction funding, reducing or eliminatingresources for a wide range of activities that the House found to be un-executable, lowpriority, or likely to receive funding from other international donors. The Senateadopted an amendment by Senators Dorgan and Wyden reducing Iraq reconstructionby $1.855 billion. The Senate cuts were identical to those approved by the House,with an additional reduction of $200 million for oil infrastructure rehabilitation. Theconference agreement closely follows the reductions proposed in both House andSenate bills, including the Senate's cut of $200 million for emergency supplies ofrefined oil petroleum products. While the enacted legislation provides $18.649billion for the Iraq Relief and Reconstruction Fund - $1.655 billion less thanrequested - the bill further transfers $210 million from the Fund to assistance forJordan, Liberia, and Sudan. Consequently, the President's $20.3 billion proposal forIraq was reduced by Congress to $18.439 billion, a cut of $1.885 billion. See Table5 above for details of sector and project reductions directed by Congress. Afghanistan Supplemental. The Administration's $1.2 billion supplemental aid request was made up of $799 millionfrom new appropriations and $390 million from previously appropriated DOD, StateDepartment, and USAID funds, which together would more than double current U.S.assistance to Afghanistan for FY2003. The proposal came at a time of growingcriticism over delays in aid delivery, deteriorating security conditions, and concernthat U.S. and international attention had shifted to Iraq. (40) Key features of the $799million in new appropriations included targeting projects intended to have the mostimmediate impact on the lives of the Afghan population, such as $402 million for security, with funding included to train and support police, border patrol, the military and counter-narcotics forces, disarmamentand de-mobilization programs, and courthouse construction inKabul; $129 million to reinforce the authority of the government of Afghanistan with budget support for high priority projects, technical experts placedin Afghan ministries, and voter registration and electionsupport; $105 million for completion of the Kabul-Kandahar-Herat major highway, a program jointly financed by the United States, Japan, and SaudiArabia; and $163 million for social programs and critical infrastructure, including education, health, and local projects. An additional $390 million would be made available from reallocated, prior-year funds, but the Administration did not specify how they would be used. The WhiteHouse further asked that the $300 million limit on military drawdowns from DODstocks enacted in the Afghanistan Freedom Support Act of 2002 ( P.L. 107-327 ) beincreased to $600 million. Table 6. Afghanistan Supplemental: Sector Allocation ($ in millions) a. House bill and conference agreement included funding for Experts and Policy within the category for Elections and Improved Governance. b. Total does not include $61 million provided by the Senate for a USAID interim facility in Kabul, $44 million provided in the House bill for an annex to the U.S.embassy in Kabul, or $56.6 million provided in the conference agreement for USAIDoperating expenses in Afghanistan, a USAID interim facility in Kabul, and theUSAID Inspector General. As demonstrated in Table 6, the enacted legislation increased the overall reconstruction funding from new appropriations by $365 million with significantchanges over the Administration's request in allocations for infrastructure(particularly power generation and road construction), governance, and socialservices. Of note, the conference agreement includes an earmark of $60 million fromthe ESF for women's programs, including technical and vocational education,programs for women and girls against sexual abuse and trafficking, shelters forwomen and girls, humanitarian assistance for widows, support of women-led NGOs,and programs for and training on women's rights. The conference agreement also amends the authorization levels in the Afghanistan Freedom Support Act of 2002 ( P.L. 107-327 ) to be consistent with thelevels of funding provided in the FY04 Supplemental and H.R. 2800 . Background. Since the beginning of post-conflict aid in late 2001, U.S. assistance has focused on three broad areas:security, governance, and reconstruction. Security. Much of the U.S. program for Afghanistan is intended to establish security institutions to bolster the authorityof the central government and prevent the regrouping of the Taliban or Al Qaeda. The pillars of this effort are (1) the presence of an International Security AssistanceForce (ISAF);(2) the establishment and training of an Afghan National Army; (3) thedemobilization of private militias; and (4) the formation of "ProvincialReconstruction Teams" (PRTs). Despite their defeat, Taliban groups reportedly continue to operate in Afghanistan, mostly in the southeast, targeting U.S. and Afghan forces and creatinga perception of continuing insecurity. Factional in-fighting and increased criminalactivity have also undermined humanitarian operations. In some cases, whereinternational operations have been directly targeted, this has led to the temporarysuspension of U.N. missions or withdrawal of aid agencies from certain areas. In mid-December 2002, the Defense Department said it would work to create secure conditions for aid workers by forming eight "Provincial ReconstructionTeams" (PRTs) composed of about 60 U.S. forces plus Defense Department civilaffairs officers, representatives of U.S. aid and other agencies, and allied and someAfghan personnel. The objective of the PRTs is to provide safe havens forinternational aid workers, to help with reconstruction, and to extend the writ of theKabul government throughout Afghanistan. PRTs, each with about 60 U.S. militarypersonnel, have begun operations at Gardez, Bamiyan, Konduz, and Mazar-e-Sharif. The PRT in Mazar-e-Sharif is led by Britain and the one in Bamiyon is led by NewZealand. Reportedly, the United States might be considering increasing the PRTprogram to 16 such enclaves in which Germany and others may take a leadershiprole. Some report the Provincial Reconstruction Teams (PRTs) are helping thesecurity situation in their deployed areas, but other reports dispute their effectiveness. Governance and Institution Building. A conference in Bonn in December 2001, held as the Taliban regime was falling inthe U.S.-led war, the pro-U.S. Pashtun leader Hamid Karzai was selected chairmanof the interim administration and the loya jirga, held during June 11 - 19, 2002, selected him to continue to lead Afghanistan until national elections are heldsometime in 2004. The loya jirga adjourned without establishing a new parliament. The scope and powers of such a body might be dependent on the outcome of a "constitutional loyajirga," which is expected to fashion a permanent governing structure in a newconstitution. This assembly was to be held in October 2003, but it has now been putoff until December 2003. However, the draft constitution was made public onNovember 3, 2003. Observers say that preparations for the 2004 elections have alsofallen behind and that the elections might be delayed beyond the planned June 2004time frame, although the United Nations and the Afghan government have begun aprogram to register voters. Concerns remain about the power of regional leaders and their relative independence from central government authority, although Karzai has moved sinceMay 2003 to bolster his authority in Kabul by shuffling or firing some local leaders.In the runup to the planned 2004 Afghan national elections, the United States plansto try to bolster the efficiency and effectiveness of the Kabul government by placingabout 120 U.S. officials as advisers to various Afghan ministries. Reconstruction. The international recovery and reconstruction effort in Afghanistan is immense and complicated,involving the Afghan government, numerous U.N. agencies, bilateral donors, manyinternational organizations, and countless non-governmental organizations (NGOs).Intended outcomes of the reconstruction process identified by the internationalcommunity and the Afghan government include political stability and security, accessto basic services, an adequate standard of living for the Afghan people, economicgrowth, and, in the long term, independence from foreign aid. According to many observers, successful reconstruction will stopdisillusionment with the new system in Afghanistan and will keep Afghanistan fromagain becoming a haven for terrorists. Programs intended to yield benefits within ashort time frame (four to six months) initiated the transition from the humanitarianrelief phase to programs targeted toward reconstruction. These so-called "quickimpact" programs were followed by more long-term programs in education, health,poppy eradication, and other areas. Numerous small-scale and some largelonger-term projects, mostly for road reconstruction, are currently underway. Table 7. U.S. Assistance to Afghanistan ($s - billions) Issues. Reconstruction Priorities and Progress. According to some observers, Afghans have become frustrated with what theyperceive to be a lack of progress on reconstruction. (41) Many factors may be slowingthe reconstruction effort: lack of security, lack of human and physical capacity toimplement substantial reconstruction, funding shortages, and funding predominatelygoing towards the continuing humanitarian crisis and towards the administrativecosts of the international donor community. Analysts agree that both enhancedsecurity and progress on reconstruction are necessary in order to sustain internationaldonor involvement in Afghan reconstruction, encourage private investment inAfghanistan, and maintain Afghans' hope for improvement in their country and theirown lives. Effective reconstruction assistance, according to USAID, could reduce the war and drug economies and provide incentives for beneficial economic growth, such asgovernment capacity building, employment generation, and agriculturalrehabilitation. Other reconstruction initiatives include road construction, urbanreconstruction, infrastructure repair, energy development, and programs for women,education, health, and the media. The strength and influence of the centralgovernment is viewed as a key factor in the success of the intervention and assistanceon the part of the international community. Impact of Efforts to Accelerate Reconstruction. The international community and theAfghan government are now seeking to increase the pace of reconstruction. Ifprogress on security, road construction, and reconstruction efforts are made inadvance of the 2004 elections, it could increase the chances of the success ofmoderates in those elections. Supporters argue that additional funding could alsohave an impact on decisions by the international donor community, possibly resultingin larger contributions. It could also help efforts now being discussed to expand theInternational Security Assistance Force (ISAF), which is currently limited to Kabul. Increased funding may also have negative effects. There are concerns that more money could add to the already high levels of corruption. Some experts areconcerned about absorption capacity and whether additional funds can be allocatedquickly and effectively. If progress is not achieved, the increase may be seen aslargely symbolic and ineffective. Others have raised the possibility that the UnitedStates will be perceived as giving too much support to the Karzai government inadvance of the elections next spring. Other Donors. So far, the international community has continued to provide significant amounts of aid and resources for thereconstruction effort, although Afghanistan officials have reportedly complainedabout the slow pace at which pledged funds were being paid. Among examples ofother reconstruction efforts by other countries, Italy is providing advice on judicialreform and Germany is helping establish a national police force. The United States,Japan, and Saudi Arabia are financing the building of the Kabul-Kandahar-Herathighway. Some experts consider a long-term commitment will be necessary to ensure a stable, democratic Afghanistan emerges. The outcome of the international donorsconference in January 2002 and of other donor conferences since then indicate awillingness on the part of the international community to assist in the restoration ofAfghanistan. However, in a preliminary needs assessment presented in January 2002by UNDP, the World Bank, and the Asian Development Bank, reconstruction costswere estimated to be more than $15 billion over the next decade. (42) United Nationsand Afghan government officials have since reportedly said $15 billion will beneeded over 5 years. (43) Amounts pledged andcommitted to date fall well below theseestimates. With the estimates on the significant cost of Iraq reconstruction nowemerging, some are concerned that international donors might shift their focus to Iraqreconstruction, and lose interest or run too low on resources to continue to participatein Afghan reconstruction. The supplemental proposal also included $201 million for four other foreign policy initiatives labeled by the Administration as "Other Global War onTerrorism"programs: $50 million for terrorist rewards for information leading to the capture or killing of Saddam Hussein and Osama bin Laden, $11 million for additional diplomaticsecurity, $40 million for USAID facilities, operations, and security inIraq and Afghanistan, and $100 million for an Emergency Fund for Complex ForeignCrises Congress has considered a request to create a foreign policy contingency fund twice this year as part of the regular FY2004 Foreign Operations appropriations and theFY2003 Iraq war supplemental. For many years, Administrations have askedCongress for various types of contingency resources that can be drawn uponimmediately to address unanticipated foreign policy emergencies. Except in the caseof humanitarian situations, however, Congress has been reluctant to support suchrequests, stating that the President has other mechanisms and special authorities fortemporarily "borrowing" funds from other aid accounts over which Congress canmaintain closer scrutiny and consult in advance about the purposes of the transfers. Congress deferred the proposal in the FY2003 supplemental ( P.L. 108-11 ), choosinginstead to allocate the resources for specific needs in Iraq and for coalition partners. Thus far, House and Senate-passed FY2004 Foreign Operations appropriation bills( H.R. 2800 ), do not provide money for a Complex Foreign Crises Fund,as requested by the Administration. As enacted, the supplemental legislation includes relief aid for Liberia and Sudan in lieu of appropriating money for the more general Emergency Fund forComplex Crises. Congress provided $200 million specifically for Liberia, and $10million for Sudan. The supplemental proposal further included two provisions concerning Pakistan. The first would extend through FY2004 an existing waiver on aid restrictions toPakistan. Since September 11, 2001, Congress has authorized temporary waivers offoreign aid restrictions regarding nuclear proliferation and military coups that wouldprohibit Pakistan from receiving U.S. assistance. The current waiver expires onSeptember 30, 2003. The supplemental also requested that up to $200 million inFY2004 economic aid to Pakistan be made available to cover the costs of cancelingdebt owed by Pakistan to the United States. As enacted, the supplemental includesthe aid waiver for Pakistan, plus $200 million in economic aid for Islamabad whichmay be used for debt reduction in lieu direct grant assistance. This will presumablyremove the need for Congress to consider the debt reduction request, and a $200million aid proposal for Pakistan when it concludes deliberation on the regularFY2004 Foreign Operations spending measure. The enacted supplemental furtherprovides $100 million in additional economic aid for Jordan that had not beenrequested. This too could reduce the amount necessary for Congress to include forJordan in the regular pending Foreign Operations bill for FY2004. S. 1689 (Stevens) An original bill making emergency supplemental appropriations for Iraq andAfghanistan security and reconstruction for the fiscal year ending September 30,2004, and for other purposes. Senate Appropriations Committee consideration andmarkup held, September 30, 2003. Report filed by the Senate AppropriationsCommittee, October 2, 2003, S.Rept. 108-160 . Considered on the Senate floor,October 1, 2, 3, 14, 15, 16, and 17, 2003. Passed by the Senate with amendments(87-12), October 17, 2003. Incorporated into H.R. 3289 as anamendment and passage of S. 1689 vitiated, October 17, 2003. H.R. 3289 (Young) Making emergency supplemental appropriations for defense and for thereconstruction of Iraq and Afghanistan for the fiscal year ending September 30, 2004,and for other purposes. House Appropriations Committee markup held and orderedto be reported, October 9, 2003. Reported by the House Appropriations Committee( H.Rept. 108-312 ), October 14, 2003. Considered on the House floor, October 15,16, and 17, 2003. Passed by the House, with amendments, October 17, 2003(305-125). Considered by the Senate, Senate struck all after the enacting clause andsubstituted the language of S. 1689 , passed by the Senate by unanimousconsent, and Senate requested a conference, October 17, 2003. House agreed to amotion to instruct conferees (277-139) and appointed conferees, October 21, 2003. Conference held and conference report agreed to, October 29, 2003. Conferencereport filed ( H.Rept. 108-337 ) October 30, 2003. Conference report agreed to in theHouse (298-121) October 31, 2003. Conference report agreed to in the Senate, byvoice vote, November 3, 2003. Signed into law by the President ( P.L. 108-106 ),November 6, 2003. CRS Report RL31187(pdf) . Combating Terrorism: 2001 Congressional Debate on Emergency Supplemental Allocations , by [author name scrubbed] and [author name scrubbed]. CRS Report RS21644. Defense Funding by Mission For Iraq, Afghanistan, and Homeland Security: Issues and Implications , by [author name scrubbed]. CRS Report RL31999 . Disaster Relief and Response: FY2003 Supplemental Appropriations , by [author name scrubbed]. CRS Report RL31829 . Supplemental Appropriations FY2003: Iraq Conflict, Afghanistan, Global War on Terrorism, and Homeland Security , by AmyBelasco and [author name scrubbed]. CRS Report RL31406 . Supplemental Appropriations for FY2002: Combating Terrorism and Other Issues , by [author name scrubbed] and [author name scrubbed]. CRS Report RL31715 , Iraq War: Current Situation and Issues for Congress , by [author name scrubbed] (Coordinator). CRS products on Afghanistan http://www.congress.gov/erp/hotmap/afghanistan.html CRS products on Iraq http://www.congress.gov/erp/hotmap/iraq.html CRS products on defense policy and budgets http://www.crs.gov/products/browse/all-legislative-categories.shtml#Defense CRS products on foreign affairs http://www.crs.gov/products/browse/all-legislative-categories.shtml#Foreign_Affairs-Global President George W. Bush, "President Addresses the Nation," The Cabinet Room, September 7, 2003, available online at http://www.whitehouse.gov/news/releases/2003/09/20030907-1.html . Office of Management and Budget, "FY2004 Supplemental: Iraq and Afghanistan Ongoing Operations/Reconstruction," September 17, 2003, available online at http://www.whitehouse.gov/omb/budget/amendments/supplemental_9_17_03.pdf . Department of Defense, "FY2004 Supplemental Request for Operation Iraqi Freedom (OIF), Operation Enduring Freedom (OEF), and Operation NobleEagle (ONE)," September 21, 2003. Available electronically at http://www.dod.mil/comptroller/defbudget/FY_2004_Supplemental.pdf . Office of the Coalition Provisional Authority, "Coalition Provisional Authority Request to Rehabilitate and Reconstruct Iraq," September 23, 2003. Congressional Budget Office, "Testimony on the Ability of the U.S. Military to Sustain an Occupation in Iraq," before the House Armed Services Committee,November 5, 2003. Available electronically at ftp://ftp.cbo.gov/47xx/doc4706/11-05-IraqTestimony.pdf . Congressional Budget Office, "Letter to the Honorable John M. Spratt, Jr. Regarding the Estimated Costs for the Occupation of Iraq," October 28, 2003. Availableelectronically at ftp://ftp.cbo.gov/46xx/doc4683/10-28-Spratt.pdf . Congressional Budget Office, "An Analysis of the U.S. Military's Ability to Sustain an Occupation of Iraq," Letter to the Honorable Robert Byrd, September 3,2003. Available electronically at http://www.cbo.gov/showdoc.cfm?index=4515&sequence=0 . Congressional Budget Office, "Letter to the Honorable Kent Conrad and John M. Spratt Jr. Regarding Estimated Costs of a Potential Conflict with Iraq,"September 2002 . Available electronically at http://www.cbo.gov/showdoc.cfm?index=3822&sequence=0 . Congressional Budget Office, "Letter to the Honorable Pete V. Domenici Regarding the Cost of Activities Related to the Military Operations Taking Place in andAround Afghanistan," April 2002. Available electronically at http://www.cbo.gov/showdoc.cfm?index=3362&sequence=0 . Council on Foreign Relations, "Iraq: The Day After -- Report of an Independent Task Force on Post-Conflict Iraq," Thomas R. Pickering and James R.Schlesinger, Co-Chairs, Eric P. Schwartz, Project Director, March 12, 2003. Available electronically at http://www.cfr.org/publication.php?id=5681 . House Budget Committee Democratic Staff, "Assessing the Cost of Military Action Against Iraq: Using Desert Shield/Desert Storm as a Basis for Estimates,"September 23, 2002. Available electronically at http://www.house.gov/budget_democrats/analyses/spending/iraqi_cost_report.pdf . House Budget Committee Democratic Staff, "The Cost of War and Reconstruction in Iraq: An Update," September 23, 2003. Available electronically at http://www.house.gov/budget_democrats/analyses/iraq_cost_update.pdf . Kosiak, Steven, "Potential Cost of a War with Iraq and Its Post-War Occupation," Center for Strategic and Budgetary Assessments, February 25, 2003. Availableelectronically at http://www.csbaonline.org/4Publications/Archive/B.20030225.Potential_Costs_of/B.20030225.Potential_Costs_of.pdf . Nordhaus, William D., "The Economic Consequences of a War with Iraq," in War with Iraq: Costs, Consequences, and Alternatives , American Academy of Artsand Sciences, December 2002. Available electronically at http://www.amacad.org/publications/monographs/War_with_Iraq.pdf . Kay, David, "Statement by David Kay on the Interim Progress Report on the Activities of the Iraq Survey Group (ISG) Before the House Permanent SelectCommittee on Intelligence, the House Committee on Appropriations,Subcommittee on Defense, and the Senate Select Committee on Intelligence,"October 2, 2003. Available electronically at http://www.cia.gov/cia/public_affairs/speeches/2003/david_kay_10022003.html . U.S. Central Command, Operation Iraqi Freedom Web Site. Available electronically at http://www.centcom.mil/Operations/Iraqi_Freedom/iraqifreedom.asp . Table A1. Costs of MajorU.S. Wars (amounts in millions andbillions of dollars) Sources and Notes: American Revolution through Korean War costs from the Statistical Abstract of the United States , 1994;deflators and all other data from the Office of the UnderSecretary of Defense (Comptroller). FY2003 $ figures forAmerican Revolution through the Korean War were updatedfrom FY1967 constant dollar figures cited in the StatisticalAbstract . * World War I figures include the amount of war loans to allies, which totaled between $9.4 and $9.5 billion in current yeardollars, or 28%-29% of the total cost. ** Most Persian Gulf War costs were offset by allied contributions or were absorbed by DOD. Net costs to U.S.taxpayers totaled $4.7 billion in current year dollars, or7.7% of the total cost. Source: Department of DefenseAnnual Report to Congress , Jan. 1993. Table A2. Costs of MajorReconstruction Efforts (amounts inbillions of dollars) Sources and Notes: U.S. Agency for International Development, Department of State, and House and SenateAppropriations Committees. Deflators are from Office ofManagement and Budget, February 2003. * Although the United States continues to provide economic assistance to Bosnia and Kosovo, figures shown here reflectamounts of humanitarian and reconstruction aid transferredduring the post-conflict, "reconstruction" phase ofeconomic and social stabilization efforts.
|
In a nationwide address on September 7, 2003, the President announced that he would request an additional $87 billion for ongoing military operations and for reconstruction assistance in Iraq,Afghanistan, and elsewhere. On September 17, the White House submitted a formal request forFY2004 supplemental appropriations of that amount to Congress. Administration officials said theywould like to see congressional action completed some time before October 24, when aninternational donors conference was scheduled to meet in Madrid to seek pledges of economicassistance for Iraq. On October 29, House and Senate appropriators announced a conference agreement, on H.R. 3289 , a bill providing supplemental appropriations for military operations and forreconstruction assistance in Iraq and Afghanistan. The House approved the conference agreementby a vote of 298-121 on October 31, and the Senate approved the measure by voice vote onNovember 3. The President signed the bill into law, P.L. 108-106 , on November 6. The key issue in Congress was whether to provide reconstruction assistance to Iraq entirely as grants or partly as loans. The conference committee rejected a Senate proposal to provide about halfof the Iraq reconstruction assistance as loans. On other issues, conferees eliminated a Senateprovision adding 10,000 troops to the Army for peacekeeping duties; agreed to a modified versionof a Senate provision to provide health insurance through the DOD TRICARE program fornon-activated military reservists not eligible for employer-provided health insurance; cut theAdministration request for reconstruction assistance to Iraq by $1.655 billion as in the House billrather than by $1.855 million as in the Senate bill; agreed to provide $400 million more forAfghanistan than the Administration requested, as in the House bill; agreed to provided $245 millionfor assessed costs of U.N. peacekeeping in Liberia, as in the House bill; agreed to provide anadditional $100 million for Liberia and $10 million for Sudan for humanitarian assistance;eliminated a House provision to require that Iraq reconstruction be coordinated by aSenate-confirmed official; and did not include $1.3 billion for veterans health benefits that was inthe Senate bill (which may be provided instead in the pending VA-HUD-independent agenciesappropriations bill). The conference agreement also provides $500 million for the FederalEmergency Management Agency (FEMA) for disaster relief for Hurricane Isabel and the Californiawildfires. In earlier floor action, Congress rejected proposals to roll back tax cuts to pay for the bill; to shift funds from Iraq reconstruction to domestic programs; to make release of funds conditional onspecific requirements; and to transfer control of Iraq reconstruction from the Defense Departmentto the State Department.
|
The Central States, Southeast and Southwest Areas Pension Plan (Central States) is a multiemployer defined benefit (DB) pension plan and is projected to become insolvent by 2026 and then will be unable to pay benefits. On September 26, 2015, Central States submitted an application to the U.S. Department of the Treasury to reduce benefits to two-thirds of the plan participants. Multiemployer pension plans are sponsored by two or more employers in the same industry and are maintained under collective bargaining agreements. Participants continue to accrue benefits while working for any participating employer. Multiemployer pension plans pool risk to minimize financial strain if one or more employers withdraw from the plan. However, in recent years, an increasing number of employers have left multiemployer pension plans, either voluntarily or through employer bankruptcy. As a result of withdrawals and declines in the value of plan assets (such as those that occurred during the 2008 financial market decline), there are insufficient funds in the plan from which to pay benefits to some participants who worked for employers that have withdrawn from the plan. Central States is one of the largest multiemployer DB pension plans and is the largest (by number of participants) among plans that may be eligible to reduce benefits as a result of the Multiemployer Pension Reform Act (MPRA), enacted as Division O in the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ). Table 1 contains information about the Central States plan from its most recent Form 5500 annual disclosure, which is a required disclosure that pension plans must file with the U.S. Department of Labor. A multiemployer DB pension plan is considered insolvent when it no longer has sufficient resources from which to pay any benefits to participants. Central States has indicated that it is likely to become insolvent by 2026. MPRA allows certain multiemployer plans that are expected to become insolvent to apply to Treasury for authorization to reduce benefits to participants in the plan, if the benefit reductions can restore the plan to solvency. The reductions may include both active participants (e.g., those still working) and those in pay status (e.g., those who are retired and receiving benefits from the plan). Prior to the passage of MPRA, under the anti-cutback provision in the Employee Retirement Income Security Act (ERISA, P.L. 93-406 ), pension plans generally did not have the authority to reduce participants' benefits. By reducing benefits to participants in the immediate term, the plan expects to avoid insolvency and therefore ensure that future retirees will be able to receive plan benefits. The Pension Benefit Guaranty Corporation (PBGC) was established by ERISA to insure participants in single-employer and multiemployer private-sector DB pension plans. PBGC indicated that in FY2015 it covered about 10.3 million participants in about 1,400 multiemployer DB pension plans. When a multiemployer DB pension plan becomes insolvent, PBGC provides financial assistance to the plan to pay participants' benefits. When a multiemployer plan receives financial assistance from PBGC, the plan must reduce participants' benefits to a maximum per participant benefit. The maximum benefit is $12,870 per year for an individual with 30 years of service in the plan. The benefit is lower for individuals with fewer than 30 years of service in the plan. However, if Central States (or another large multiemployer plan) were to become insolvent, PBGC would likely be unable to provide sufficient financial assistance to pay participants' maximum insured benefit. PBGC's multiemployer program receives funds from premiums paid by participating employers ($212 million in FY2015) and from the income from the investment of unused premium income ($68 million in FY2015). Premium revenue is held in a revolving fund, which is invested in Treasury securities. PBGC's multiemployer program does not receive any federal funding. If the amount of financial assistance exceeds premium revenue, PBGC would pay benefits from the revolving fund. If PBGC were to exhaust the funds in the revolving fund, PBGC would be able to provide financial assistance equal only to the amount of premium revenue. If a large plan such as Central States were to become insolvent, PBGC would only be able to pay financial assistance equal to the amount of its premium revenue. Participants in multiemployer plans that receive financial assistance from PBGC would not receive 100% of their promised benefits. In the event of PBGC's insolvency, financial assistance from Treasury is not assured. ERISA states that "the United States is not liable for any obligation or liability incurred by the corporation." As shown in Table 1 , Central States paid $2.8 billion in benefits in 2014. If PBGC were required to provide financial assistance to the Central States plan, it is likely that PBGC would quickly become insolvent. Participants in plans that receive financial assistance from PBGC would likely see their benefits greatly reduced. The coalition of multiemployer pension plan stakeholders that formulated the proposal to reduce participants' benefits assumed that Congress would not authorize financial assistance for PBGC. Table 2 summarizes the financial position of PBGC's multiemployer program. The value of PBGC's expected future assistance to Central States is included as a liability for PBGC. Under MPRA, only plans in critical and declining status may cut benefits. One criterion for a plan to be in critical status is that the plan's funding ratio must be less than 65%. A plan is in declining status if the plan actuary projects the plan will become insolvent within the current year or, depending on certain circumstances as specified in MPRA, within either the next 14 or 19 years. MPRA requires that plans demonstrate that benefit reductions are distributed equitably. It lists a number of factors that plans may, but are not required to, consider. These factors include the age and life expectancy of the participant; the length of time an individual has been receiving benefits; the type of benefit (such as early retirement, normal retirement, or survivor benefit); years to retirement for active employees; and the extent to which participants are reasonably likely to withdraw support for the plan, which could cause employers to withdraw from the plan. MPRA requires that benefit reductions be made only to the extent that the plan will be restored to solvency. It also requires that an individual's benefit be reduced to no less than 110% of the PBGC maximum guarantee. For example, with the maximum guarantee for an individual with 30 years of service in a plan being $12,870 per year, a participant whose benefit is suspended would have to receive a benefit of at least $14,157. The PBGC maximum guarantee is less than $12,870 for individuals with fewer than 30 years of service in a plan. In addition, disabled individuals and retirees aged 80 or older may not have their benefits reduced. The benefits of individuals between the ages of 75 and 80 may be reduced, but to a lesser extent than those younger than 75. A provision in MPRA requires plans that meet specific conditions to reduce benefits in a specified manner. This provision only applies to the Central States plan. The Central States application for benefit reductions lists three tiers of benefits. Tier 1 includes benefits for participants who worked for an employer that withdrew and failed to pay, in full, the required payments to exit the plan (known as withdrawal liability). Tier 2 includes all other benefits not attributable to either Tier 1 or Tier 3. Tier 3 includes benefits for individuals who worked for an employer that (1) withdrew from the plan, (2) fully paid its withdrawal liability, and (3) established a separate plan to provide benefits in an amount equal to benefits reduced as a result of the financial condition of the original plan. Tier 3 includes only benefits for participants who worked for United Parcel Service (UPS), are receiving benefits from the Central States plan, and for which the UPS plan would be required to offset any benefit reductions. Central States indicated that there are 100,377 Tier 1 participants, 322,560 Tier 2 participants, and 48,249 Tier 3 participants. The total amount of proposed benefit reductions will be $1.9 billion in Tier I; $7.1 billion in Tier 2; and $2.0 billion in Tier 3. Central States has also indicated that its proposed benefit reductions are equitable and in accordance with the provisions of MPRA. Table 3 summarizes the distribution of the proposed benefit reductions in Central States. About two-thirds of the participants in the plan are facing benefit reductions. Central States submitted its proposal to reduce participants' benefits on September 25, 2015. Treasury held a comment period on Central States' application from October 23, 2015, to December 7, 2015. On December 10, 2015, Treasury extended the deadline for comments until February 1, 2016. In addition, Treasury has been holding conference calls and hosting regional public meetings with affected participants. Treasury is currently evaluating Central States' application. Under MPRA, Treasury must approve or deny the application within 225 days of receipt, which is May 7, 2016. In general, the Secretary of the Treasury must approve the application for benefit suspensions if Central States' financial condition (such as the plan being in critical and declining status) and proposed benefit suspensions meet the criteria specified in MPRA (such as the benefit suspensions being equitably distributed and no benefit suspensions for participants aged 80 and older). MPRA requires the Treasury to accept the plan sponsor's determinations with respect to the criteria for the benefit suspensions and may reject the application [only] if the plan sponsor's determinations were "clearly erroneous." In general, Treasury is required to administer a vote of plan participants not later than 30 days after it approves an application for benefit reductions. Unless a majority of all plan participants and beneficiaries reject the proposal, benefit reductions would go into effect. If a majority of plan participants reject the proposal to reduce benefits, the plan sponsor may submit a new proposal to the Treasury to suspend benefits. Under MPRA, if Treasury determines that a plan is systematically important then Treasury may permit (1) the benefit suspensions to occur regardless of the participant vote or (2) the implementation of a modified plan of benefit suspensions to take effect, provided the modified plan would enable the pension plan to avoid insolvency. A systemically important plan is a plan that PBGC projects would require more than $1.0 billion in future financial assistance in the event of the plan's insolvency. At the end of FY2013, PBGC indicated the present value of future financial assistance to Central States to be $20.2 billion. Treasury would most likely determine that Central States is a systematically important plan. In the 114 th Congress, a number of bills have been introduced that would affect potentially insolvent multiemployer DB pension plans. H.R. 2844 / S. 1631 . Representative Marcy Kaptur and Senator Bernie Sanders introduced companion legislation, the Keep Our Pension Promises Act, on June 19, 2015, that would, among other provisions, repeal the benefit suspensions enacted in MPRA. H.R. 4029 / S. 2147 . Representative David Joyce on November 17, 2015, and Senator Rob Portman on October 7, 2015, introduced companion legislation, the Pension Accountability Act, that would (1) change the participant vote to approve a plan to reduce benefits from a majority of plan participants to a majority of participants who vote and (2) eliminate the ability of systematically important plans to implement benefit suspensions regardless of the outcome of the participant vote.
|
Under the Multiemployer Pension Reform Act (MPRA), enacted as Division O in the Consolidated and Further Continuing Appropriations Act, 2015 (P.L. 113-235) on December 16, 2014, certain multiemployer defined benefit (DB) pension plans that are projected to become insolvent and therefore have insufficient funds from which to pay benefits may apply to the U.S. Department of the Treasury to reduce participants' benefits. The benefit reductions can apply to both retirees who are currently receiving benefits from a plan and current workers who have earned the right to future benefits. On September 25, 2015, the Central States, Southeast and Southwest Areas Pension Plan (Central States) applied to the Treasury to reduce benefits to plan participants in order to avoid becoming insolvent. At the end of 2014, Central States had almost 400,000 participants, of whom about 200,000 received $2.8 billion in benefits that year. The plan reported $18.7 billion in assets that was sufficient to pay 53% of promised benefits. In its application to reduce benefits, Central States projects that it will become insolvent in 2026. If Central States does not reduce participants' benefits and the plan becomes insolvent, then the Pension Benefit Guaranty Corporation (PBGC) would provide financial assistance to the plan. PBGC is an independent U.S. government agency that insures participants' benefits in private-sector DB pension plans. Multiemployer plans that receive financial assistance from PBGC are required to reduce participants' benefits to a maximum of $12,870 per year in 2016. However, the insolvency of Central States would likely result in the insolvency of PBGC, as PBGC would likely have insufficient resources from which to provide financial assistance to Central States to pay 100% of its guaranteed benefits. Treasury is not obligated to provide financial assistance if PBGC were to become insolvent. Under MPRA, participants' benefits in the Central States plan could be reduced to 110% of the PBGC maximum guarantee level. However, participants aged 80 and older, receiving a disability pension, or who are receiving a benefit that is already less than the PBGC maximum benefit would not receive any reduction in benefits. Central States' application for benefit reductions indicates that about two-thirds of participants would receive reductions in benefits. About 185,000 (almost 40%) participants would receive at least 30% or higher reductions in their benefits. Treasury is currently reviewing Central States' application and must approve or deny the application by May 7, 2016. If Central States' financial condition and proposed benefit suspensions meet the criteria specified in MPRA, then Treasury must approve the application for benefit reductions. The plan has proposed to begin implementing the benefit reductions beginning in July 2016. If Treasury approves a plan's application to reduce benefits, it must also obtain the approval of the plan's participants via a vote of plan participants. However, MPRA requires Treasury to designate certain plans as systematically important if a plan is projected to require $1 billion or more in financial assistance from PBGC. Plans that are labelled systematically important may implement benefit suspensions regardless of the outcome of the participant vote. Central States is likely a systematically important plan. Legislation has been introduced in the 114th Congress that would affect potentially insolvent multiemployer DB pension plans. H.R. 2844 and S. 1631, the Keep Our Pension Promises Act, would, among other provisions, repeal the benefit reductions enacted in MPRA. H.R. 4029 and S. 2147, the Pension Accountability Act, would change the criteria of the participant vote and would eliminate the ability of systematically important plans to implement benefit suspensions regardless of the participant vote.
|
Medicare is a federal program that covers medical services for qualified beneficiaries. Established in 1965 as Title XVIII of the Social Security Act to provide health insurance to individuals aged 65 and older, Medicare has been expanded to include qualified disabled individuals under the age of 65, persons with End Stage Renal Disease (ESRD) and persons with Amyotrophic lateral sclerosis (ALS, or Lou Gehrig's Disease). Medicare now consists of four parts (A-D) that cover hospitalizations, physician services, prescription drugs, skilled nursing facility care, home health visits, hospice care, and other treatments. When Medicare was created in 1965, it was the primary payer for all beneficiaries except those receiving coverage through workers' compensation programs. When Medicare acts as the primary payer, it assumes responsibility for a beneficiary's medical bills, up to designated Medicare program limits. If an enrollee has other insurance, the beneficiary, physician, or other supplier can bill that insurance only after Medicare is billed to fill in possible gaps in Medicare coverage. Medicare is always primary to Medicaid, the joint federal-state health insurance program for qualifying low-income and certain disabled beneficiaries. Medicaid pays only after Medicare and group health plans have paid. Beginning with the Omnibus Budget Reconciliation Act of 1980 ( P.L. 96-499 ; OBRA), Congress created the Medicare Secondary Payer (MSP) program, which spells out specific conditions under which other insurers are required to pay first and Medicare is responsible for qualified, secondary payments. MSP is designed to ensure that certain insurers make contractually required payments, reduce Medicare expenditures, and extend the life of the Medicare Trust Fund. The 1980 OBRA made Medicare a secondary payer for medical claims involving non-group health insurance such as liability and no-fault insurance. In 1981, Congress expanded MSP to cover certain Medicare beneficiaries in employer-sponsored group health plans. MSP was further refined in the Tax Equity and Fiscal Responsibility Act ( P.L. 97-248 ; TEFRA) of 1982 and other statutes. (See Appendix A .) In general, Medicare is now the secondary payer for an item or service when payment has been made, or can reasonably be expected to be made, by responsible third-party payers. (See Table 1 .) Medicare also does not cover services paid for by another government entity, such as the Department of Veterans Affairs (VA). MSP sometimes is confused with Medicare supplement, or Medigap, insurance policies, but the two are different. MSP spells out instances where private insurance is primary and Medicare coverage is secondary. Medigap policies, by contrast, are private policies that provide supplemental coverage for individuals who rely on Medicare as their primary payer. In certain cases where Medicare is the secondary payer but primary payment is delayed, Medicare may step in to pay claims, thereby ensuring that beneficiaries do not have a break in coverage. Examples of such so-called conditional payments include cases where medical liability claims are contested in court or where employer plans are slow to make payment. For example, in a case where a Medicare beneficiary is hit by a car, the driver's insurance may be responsible for covering medical bills related to the accident, but payment could be delayed by legal proceedings. In such a case, Medicare can pay outstanding claims until a legal settlement is reached. Medicare is entitled to recover its conditional payments once a beneficiary has received a settlement, judgment, or other award. MSP laws and regulations have reduced Medicare spending by an average of about $8 billion a year in recent years, including about $50 billion in savings from FY2006 through FY2012. (See Table 5 .) As Congress has expanded the scope of MSP, however, businesses and insurers have told lawmakers that the resulting paperwork requirements are onerous and that HHS has been slow to provide a final accounting of conditional payments that must be reimbursed, leading to delays in settling some liability cases. The American Bar Association has urged Congress to pass legislation to simplify the process for dealing with MSP claims for future medical bills in workers' compensation cases. HHS has responded by increasing the number of workers processing claims and settlements, reorganizing operations, and creating standardized procedures for resolving smaller claims and some workers' compensation cases. In June 2012, HHS issued a proposed rulemaking to further expedite processing of certain MSP settlements. On December 19, 2012, the House approved H.R. 1845 , the Medicare IVIG Access Act. Title II of the legislation (The SMART Act) creates a new process for resolving MSP conditional payment claims to speed up resolution of liability, no-fault and similar cases. The Senate passed H.R. 1845 by unanimous consent on December 28, 2012, and President Obama signed the measure into law on January 10, 2013 ( P.L. 112-242 ). The law requires HHS to create a password-protected website that beneficiaries and their representatives can access to view information on conditional payments relating to a potential settlement, judgment, or award. The law makes additional changes to the MSP statute and current HHS procedures, including data reporting requirements, appeal rights, use of Social Security numbers, and statutes of limitations. (See Appendix B .) Medicare is the primary payer for Medicare beneficiaries who are retired, even if they have retiree health insurance coverage through a former employer. Medicare is the secondary payer for certain beneficiaries who are still working (often referred to as the working aged ) and who are eligible for group health insurance through an employer. Table 2 outlines the main instances when Medicare is the primary or secondary payer for those covered by group insurance policies. Under MSP rules, employer-sponsored health insurance is the primary payer (with some exceptions) for Medicare-eligible individuals who have group coverage due to their own or a spouse's current employment. When a group health plan is primary but does not cover a bill in full, Medicare may make a secondary payment, as prescribed by law. Medicare is the secondary payer for a beneficiary with group health insurance aged 65 or older who is working, or whose spouse is working, for a company with 20 or more employees (or for a group of employers where at least one has more than 20 workers). Under federal law, an employer with 20 or more employees must offer workers age 65 and older the same group health insurance coverage offered to other employees. Federal statutes prohibit a group health plan from taking into account the fact that an individual, or his/her spouse who is covered by the plan, is entitled to Medicare benefits. Any individual age 65 or older (and his/her spouse age 65 or older) who has current employment status and is in a group plan with more than 20 workers is entitled to the same benefits, under the same conditions, as any such individual (or his/her spouse) under age 65. Such employees must be in current employment status —that is, they must be individuals who are (1) actively working as an employee, (2) the employer, or (3) associated with the employer in a business relationship (such as a supplier included on the employer's group health plan). All working-aged employees have the option of accepting or rejecting employer group health coverage. If a working-aged individual accepts coverage that meets certain federal secondary payer guidelines such as group size, the employer plan is the primary payer and Medicare is secondary. For Medicare-enrolled employees who reject employer-sponsored coverage, Medicare is primary. However, federal statutes prohibit employers from paying for supplemental benefits for Medicare-covered services, such as Medigap policies, so as not to provide financial incentives for employees to reject employer-sponsored coverage. The MSP requirements also apply to multiple-employer plans (plans sponsored by more than one employer) and to multi-employer plans (plans jointly sponsored by the employers and unions under the Taft-Hartley law, P.L. 80-101). When each of the employers in the group has less than 20 employees, Medicare is primary. When at least one employer has 20 or more employees, Medicare is secondary. An employer in a group with less than 20 employees may request an exemption for its working-aged employees. In that case, Medicare would be primary for the exempted employees, and the employer could offer those individuals coverage that supplements Medicare. There are exceptions to MSP policy for the working aged. Medicare is not the secondary payer for the working aged who Are enrolled only in Medicare Part B, or who are enrolled in Part A based on monthly premiums (rather than qualifying through work history). Are covered by an individual, rather than a group, health plan. Are former spouses who have Federal Employee Health Benefit coverage under the Civil Service Retirement Spouse Equity Act of 1984. Are on a temporary leave of absence from their place of employment. Medicare is the primary payer for aged workers in employer-sponsored group health plans with less than 20 employees (unless such plans choose to offer primary coverage). Only employers offering group health plans with more than 20 employees are required to offer the same coverage to employees over age 65 as to younger workers. Health benefits experts suggest that aging workers in group health plans with less than 20 workers should enroll in Medicare when eligible to prevent possible gaps in coverage and higher out-of-pocket costs, and to prevent possible penalties for late Medicare enrollment. Medicare is the secondary payer for disabled Medicare beneficiaries (other than those with ESRD) who are under age 65 and have employer-sponsored health insurance based on their own current employment, a spouse's current employment, or as a dependent of an employed worker. One major difference between the MSP requirements for the working aged and the working disabled is the size of the employee group needed to trigger secondary payer status. The MSP rules apply to disabled beneficiaries enrolled in large group health plans—that is, plans offered by employers that had 100 or more employees on at least 50% or more of their business days during the preceding calendar year. The requirement applies to smaller plans that are part of a multiple or multi-employer plan if at least one of the employers in the plan has 100 or more employees. Another difference from the MSP rules for the working aged is that a multiple or multi-employer plan may not seek an exemption from MSP requirements for a disabled worker who is enrolled via an employer with fewer than 100 employees. The MSP provisions do not apply to Disabled individuals enrolled in Medicare Part A on the basis of monthly premiums or individuals enrolled in Part B only. Disabled individuals covered by a health plan other than a large group plan, such as an individual plan bought outside of a place of employment. Individuals who are under the age of 65 can qualify for Medicare based on a diagnosis of ESRD, a medical condition in which the kidneys are failing and a person cannot live without dialysis or a kidney transplant. For individuals with enrollment based solely on ESRD, MSP rules apply for those covered by an employer-sponsored group health plan, regardless of the employer size or current employment status. For individuals whose Medicare eligibility is based solely on ESRD, any group health plan coverage they receive through their employer or their spouse's employer is the primary payer for the first 30 months of ESRD benefit eligibility, which is referred to as the 30-month coordination period. After 30 months, Medicare becomes the primary insurer. (Medicare remains the secondary payer for the full 30 months for a person initially covered due to ESRD even if that person becomes eligible for Medicare during that time due to age or other disability.) During this 30-month period, the group health plan is the primary insurer for all ESRD-related costs. Similarly, for working individuals (or spouses) who qualify for and remain eligible for Medicare based on both ESRD and age or disability, any group health plan coverage they had been receiving through their employer or a spouse's employer remains the primary payer during the 30-month coordination period. After 30 months, Medicare becomes primary, even if the individual has employer-sponsored health insurance based on current employment status. There is an exception to the MSP rules for beneficiaries with ESRD. Medicare would immediately become the primary payer if both following conditions were met: (1) an individual was first entitled to Medicare on the basis of age or disability and then also became eligible on the basis of ESRD, and (2) the MSP provisions for age or disability did not apply because the plan coverage was not "by virtue of current employment status," or the employer did not meet the test of size for either the aged or disabled. For retirees, rather than current workers, who first qualify for Medicare based on ESRD and then turn 65 during the 30-month coordination period, their retiree health insurance remains primary for the entire 30-month period. For retirees with group health insurance who simultaneously become eligible for Medicare based on age and ESRD, their health insurance is primary for 30 months. Medicare coverage for those who qualify based solely on a diagnosis of ESRD ends 12 months after the month in which a beneficiary stops dialysis treatment, or 36 months after the month a beneficiary has a successful kidney transplant. However, if Medicare coverage ends, and then begins again based on ESRD, the 30-month coordination period also starts again. Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA; P.L. 99-272 ) requires that certain group health plans allow beneficiaries to continue existing employer-sponsored coverage if they are laid off, work fewer hours, or lose insurance due to a change in family circumstance, such as a divorce or the death of a spouse enrolled in a plan. Group health plans offered by employers that have 20 or more employees are subject to COBRA. COBRA benefits typically last for 18 months, but can run for 36 months, depending on the nature of the triggering event. Enrollees must pay as much as 102% of the group health plan premium for COBRA coverage. In general, COBRA is secondary to Medicare when an individual's insurance coverage is based on COBRA eligibility, rather than on current employment status. (See Table 3 .) Employers may terminate COBRA benefits if a person who has first elected COBRA coverage subsequently becomes entitled to Medicare (with some exceptions). In cases where a person loses retiree coverage due to Medicare entitlement, however, his or her spouse and children still may be eligible for COBRA benefits. If an individual is entitled to Medicare due to ESRD, rather than age or disability, COBRA continuation depends on when he or she becomes eligible for COBRA. If an individual becomes entitled to Medicare because of ESRD prior to becoming eligible for COBRA benefits, COBRA will remain primary to the extent it overlaps the 30-month coordination period. If a person still has COBRA coverage remaining when the 30-month coordination period ends, Medicare will pay first and COBRA coverage will end. Individuals who become eligible for Medicare, based on age, while receiving COBRA benefits may face a financial penalty and a delay in coverage if they do not sign up for Medicare during the initial program enrollment period. Federal law allows workers to postpone signing up for Medicare, without penalty, if they are covered by insurance from a company where they or a spouse are currently working. But COBRA recipients who are not currently employed are not entitled to the special enrollment period for Medicare Part B. If those individuals do not enroll during the initial eight-month period, they may be subject to a late enrollment penalty and may have to wait until the next open enrollment period, which runs from January to March each year, for coverage beginning that July. Medicare is the secondary payer when payment has been made, or can reasonably be expected to be made, under automobile medical insurance, and other forms of no-fault and liability insurance. Medicare may make conditional payments for services when payment from these primary payers has been delayed, subject to later reimbursement. If a beneficiary is also covered by a group health plan, the group health plan, as well as the liability plan, is to be billed first before Medicare conditional payment is requested. In cases where Medicare has made a conditional payment in a medical liability case, HHS has a priority right of recovery from the primary payer, as well as from any other parties that have received part of a settlement including a provider, beneficiary, supplier, or insurer. In addition, Medicare has other recovery rights. (See " Subrogation .") The MSP provisions governing automobile, medical, no-fault, and other liability insurance initially were included in OBRA 1980, effective December 5, 1980. Medicare is the secondary payer for items or services covered under a workers' compensation law or plan of the United States or a state. In the case of a contested claim, a workers' compensation board must notify a beneficiary, and pending a decision, Medicare may be billed. A Medicare conditional primary payment may be made if the compensation carrier will not pay promptly, but follow-up action must be taken to recover the payment. If a beneficiary exhausts all appeals under workers' compensation, Medicare would be the primary payer. Beneficiaries who receive workers' compensation settlements or other payments designed to cover future or lifetime medical costs must protect the Medicare program from unnecessary expenses. Medicare does not pay for workers' compensation-related medical and prescription drug benefits when an individual receives a payment or settlement designed to cover future medical expenses. In such cases, the CMS recommends that individuals set up a Workers' Compensation Medicare Set-aside Arrangement (WCMSA), which allocates a portion of any workers' compensation settlement for future medical expenses. The amount of the set-aside is determined on a case-by-case basis and is reviewed by CMS, when appropriate. (See " Medicare Set-Aside Accounts .") Items and services furnished by federal providers, a federal agency, or under a federal law or contract are excluded from Medicare coverage. (See Table 4 .) This includes U.S. military hospitals, the Department of Veterans Affairs (with some exceptions), and research grants, among others. This exclusion from Medicare coverage does not include health benefits offered to employees of federal entities, rural health clinic services, federally qualified health centers, and other exemptions that may be specified by the Secretary of HHS. The federal-state Medicaid program, which covers services for low-income and some disabled elderly beneficiaries, is always secondary to Medicare. Medicare coordinates benefits with the Federal Black Lung Program. Medicare does not pay for services covered under the Federal Black Lung Program for Medicare beneficiaries who are entitled to Black Lung medical benefits, in accordance with the Federal Coal Mine Act (P.L. 91-173). Medicare may be billed for Medicare-covered services not covered by the Federal Black Lung Program. If the services are solely for a non-Black Lung condition, Medicare would be billed as primary. Medicare coverage has been coordinated with Department of Veterans Affairs (VA) health benefits since 1965, when the Medicare program was created. In general, Medicare does not pay for the same services covered under VA benefits, in a case where a Medicare beneficiary is also entitled to VA benefits. The VA, at its expense, may authorize private physicians and other suppliers to provide services to certain veterans with service-connected disabilities, and, in specific cases, with non-service-connected disabilities. Medicare may reimburse veterans for VA co-payment amounts charged for VA-authorized services furnished by non-VA sources. (Medicare may also provide credit toward the Medicare deductible or coinsurance amounts for such services.) If a physician accepts a veteran as a patient and bills the VA, the physician must accept the VA reimbursement as payment in full. But Medicare may supplement VA payments when a VA claim is for physician services and is filed by the veteran, not the physician. When the Medicare claim is submitted, it must indicate which services were billed to the VA and whether or not the beneficiary submitted a claim to the VA for payment. In another case, if the VA authorizes hospital services in a non-VA hospital, Medicare may pay for covered services that fall outside of the VA authorization. For example, if the VA authorizes a five-day hospital stay in a non-VA hospital, but a patient remains in the hospital two more days, Medicare may cover the two additional days, subject to its payment rules. TRICARE provides health care coverage for active duty military, National Guard and reserve members, retirees and their families, survivors, and certain former spouses. The rules for primary and secondary coverage of this group are not included in the Medicare statutes, but rather are included under Title 10 of the U.S. Code §1095. In general, Medicare pays for Medicare services and TRICARE pays for services from a military hospital or federal provider. TRICARE for Life (TFL) is a form of Medigap program under which TRICARE offers secondary coverage to beneficiaries age 65 and older enrolled in both Medicare Part A and Part B. For TFL beneficiaries, Medicare is the primary payer for services covered by both programs and TRICARE is secondary. For services covered under Medicare but not by TRICARE, TFL beneficiaries must pay Medicare cost-sharing amounts and the deductible. For health care services covered under TRICARE, but not by Medicare, beneficiaries must pay the TRICARE cost-sharing amounts or deductibles. For TFL beneficiaries serving overseas, TRICARE is primary and they must pay TRICARE's annual deductible and cost sharing. A TRICARE beneficiary entitled to Medicare on the basis of age, disability, or ESRD must enroll and pay the monthly Medicare Part B premium to remain TFL-eligible. There are some exceptions for active duty military. CMS works through outside contractors to coordinate payment of Medicare benefits with other types of insurance. The process is designed to identify insurers and other entities that are primary to Medicare; to collect necessary information to prevent mistaken or unnecessary payment of Medicare benefits; and to recoup Medicare payments, including conditional payments, in cases where other insurance is found to be primary. Prior to 2014, CMS used a Coordination of Benefits Contractor (COBC) and a Medicare Secondary Payer Recovery Contractor (MSPRC) to oversee MSP payments. Lawmakers, HHS officials, and business executives raised concerns about the efficiency of the system, with several studies, including reviews by the HHS ombudsman, the Government Accountability Office (GAO), and the Senate Homeland Security & Governmental Affairs Subcommittee on Contracting Oversight, identifying issues in the administration of the MSP program. In February 2014, CMS merged the COBC and MSPRC into a new entity known as the Benefits Coordination & Recovery Center (BCRC). The BCRC is responsible for activities that support the collection, management, and reporting of insurance coverage for Medicare beneficiaries and for ensuring that Medicare makes proper payments by identifying primary and secondary payers. The BCRC collects information on group and non-group health plans from a range of sources including beneficiaries, doctors or other providers, employers, insurers, workers' compensation plans, and attorneys. In cases where a Medicare beneficiary has other sources of insurance coverage, the BCRC initiates an investigation to determine whether Medicare or the other insurer has primary responsibility for payment. The BCRC posts MSP records on a special data site called the Common Working File (CWF), where payers and carriers can verify beneficiary eligibility and conduct prepayment review and approval of claims. The BCRC also is responsible for recovering funds owed to the Medicare program as part of settlements, judgments, awards, or other payments by liability, no-fault insurance, or workers' compensation plans. The BCRC does not handle payment recoveries with respect to group health plans. (See " Non-Group Health Plan Recovery Process .") In instances where a group health plan is determined to be the primary payer rather than Medicare, the Commercial Repayment Center (CRC) initiates any necessary payment recovery from the employer and group health plan. (See " Group Health Plan Recovery Process .") The Workers' Compensation Review Contractor (WCRC) is responsible for overseeing creation and execution of Workers' Compensation Medicare Set-Aside Arrangements (WCMSA). The set-aside accounts are designed to cover future medical expenses relating to workers' compensation cases, thereby ensuring that medical services to treat the underlying disability or illness are not billed to Medicare. Proposed set-aside accounts are reviewed by CMS before final approval, if they meet certain guidelines. The BCRC and government agencies review information from a variety of sources, including beneficiary questionnaires, Social Security and Internal Revenue Service (IRS) databases, and mandatory industry reports. Medicare beneficiaries are mailed a voluntary Initial Enrollment Questionnaire (IEQ) about three months before their Medicare entitlement begins. The BCRC questionnaire asks about employment status and spouse's employment status; health insurance coverage such as Black Lung, workers' compensation, or liability coverage; and any health insurance purchased through an employer. If the questionnaire is not returned within 45 days, a follow-up survey is sent to the beneficiary. Beneficiaries are asked, but not required, to respond to the IEQ. The Social Security Act authorizes a data match program to identify cases where an insurer other than Medicare is the primary payer. Each October, the Social Security Administration (SSA) sends a file to the IRS. The IRS has 40 business days to match this file against its tax records. The file is returned to SSA, which has another 40 business days to process the "Data Match Employer-Employee File" for CMS. The BCRC reviews and analyzes these data in preparation for use in contacting employers concerning possible other insurance coverage that is primary to Medicare. The purpose of the data match is to identify secondary payer situations before Medicare makes payment, and to facilitate recoveries when incorrect Medicare payments have been made. The BCRC sends selected employers a questionnaire to determine which employers offer health insurance, and to determine the insurance status of specific beneficiaries. The information becomes part of the CWF. CMS may impose civil monetary penalties on employers who do not respond to the questionnaire. This information is used on an ongoing basis to identify claims for which Medicare should not be the primary payer. Medicare providers, including hospitals, physicians, and outpatient hospital departments, among others, must ask beneficiaries a series of standardized questions before providing services to ascertain whether another insurer is primary to Medicare. For recurring outpatient hospital services, the MSP information needs to be verified once every 90 days. While the information is not required to be collected for every visit, incorrect Medicare payments are still subject to repayment. Health care providers must bill other primary payers before billing Medicare. In addition to the general data reporting requirements, Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007, ( P.L. 110-173 , MMSEA) requires Responsible Reporting Entities (RRE) that include group health plans and what CMS calls non-group health plans such as liability, no-fault, and workers' compensation insurers, to provide information regarding health insurance status of employees, as well as judgments, payments, or settlements involving Medicare beneficiaries. The information is used prospectively to determine whether Medicare is a primary or a secondary payer and retrospectively to collect reimbursement for erroneous payments and conditional payments. The 2007 requirements were phased in gradually, in response to concerns from businesses and insurers about the possible burden of the law. The SMART Act ( P.L. 112-242 ) makes additional changes to Section 111 that are intended to speed up the process for estimating conditional payments that must be reimbursed. (See Appendix B .) The SMART Act also eases some requirements that businesses found onerous. For example, RREs that did not comply with the Section 111 reporting requirements were subject to mandatory fines of $1,000 per day per violation. The SMART Act provides that failure to report a claim under Section 111 may carry with it a civil penalty of up to $1,000 per day per claim. The MMSEA instituted mandatory reporting for group health plans, which include insurers, third-party administrators or insurance plans, and in the case of self-insured and self-administered plans, an administrator or fiduciary. Plans may also use third parties such as data firms to submit their information. Under Section 111, group health plans provide information to the BCRC on a quarterly basis regarding active, covered individuals in their plans. Active, covered individuals are people who may be Medicare-eligible and are currently employed, or who are spouses or dependents of workers who are covered by a group health plan and may be Medicare-eligible . The BCRC, after receiving the data, provides insurers with information about primary and secondary coverage for individuals that it can identify as Medicare beneficiaries. The Secretary of HHS is entitled to share this enrollment information with other government entities in order to coordinate benefits. The MMSEA Section 111 quarterly reporting requirements apply to non-group health plans such as auto, homeowners, no-fault, and workers' compensation insurance. These plans are required to supply CMS with information regarding Medicare beneficiaries or dependent spouses of Medicare-eligible beneficiaries for whom they assume responsibility for ongoing medical payments, or who receive a settlement, judgment, or award from liability insurance, no-fault insurance, or a workers' compensation plan. This group of insurers and related entities may also enter into voluntary data sharing agreements with the BCRC. The 2007 law requires these RREs to report information including diagnosis codes for injuries or illnesses; the amount of any settlement, judgment, or other financial awards; and information about any other claimants. Section 111 initially required RREs to submit a beneficiary's Medicare identification number (HICN) or Social Security number. Reporting entities also have been required to provide an Employer Identification Number (EIN). Congress altered these requirements in the SMART Act. The law requires the Secretary of HHS to modify reporting requirements, within 18 months of enactment, so that plans complying with MSP laws are permitted, but not required, to access or report Social Security or HICN numbers. (See Appendix B .) CMS phased in implementation of the MMSEA Section 111 requirements in response to concerns from business and insurance interests. Group health plans began data reporting in 2009 and were phased in by 2011. Workers' compensation and other liability insurance reporting requirements, based on set, dollar-level thresholds, are being phased in through 2015. Even with the staggered requirements, the HHS noted in its 2011 Financial Report that the volume of reports regarding MSP liability and other payment situations had doubled since the MMSEA was passed. Most of the increased reporting has been from group health plans. (More than 1,500 group health insurers provide data under Section 111.) The GAO in a March 2012 report to Congress noted that the number of reported MSP cases involving liability and no-fault plans rose by 176% from FY2008 to FY2011, while the number of workers' compensation set-aside proposals submitted to the CMS contractor rose by 42% during that period. However, the GAO noted that a number of workers' compensation cases that were submitted did not meet certain financial thresholds required for CMS review. (See " Medicare Set-Aside Accounts .") When Medicare is the secondary payer, a health care provider must first submit a claim to a beneficiary's primary payer, who processes the claim according to terms of the coverage contract. If the primary payer does not pay the full charges for the service, Medicare secondary payments may be made if the service is covered by Medicare . In no case can the actual amount paid by Medicare exceed the amount it would pay as primary payer. Any primary payments from a third-party payer for Medicare-covered services are credited toward the beneficiary's Medicare Part A and Part B deductibles and, if applicable, coinsurance amounts. However, if the primary payment is less than the deductible, the beneficiary may be responsible for paying his/her unmet Medicare deductibles and coinsurance amounts. The Medicare secondary payment amount is subject to certain limits. For some services, such as inpatient hospital care, the combined payment by the primary payer and Medicare cannot exceed Medicare's recognized payment amount (without regard to beneficiary cost-sharing charges). As one example of how Medicare would decide its secondary payment amount for inpatient hospital services, assume that an individual received inpatient hospital services costing $6,800. The primary payer paid $4,360 for the Medicare-covered services. No part of the inpatient hospital deductible ($1,183 for 2013) had previously been met. Medicare's gross payment amount, without regard to the deductible, is $4,700. As the secondary payer, Medicare would pay the lowest of Medicare's gross payment amount, without regard to deductible, minus the primary payer's payment—$4,700-$4,360 = $340; Medicare's gross payment amount minus the Medicare inpatient deductible—$4,700-$1,183 = $3,517; the hospital charge minus the primary payer's payment—$6,800-$4,360 = $2,440; the hospital charge minus the Medicare inpatient deductible—$6,800-$1,183 = $5,617. In this case, Medicare would pay $340. The combined payment made by the primary payer and Medicare is $4,700. The beneficiary has no liability for Medicare-covered services, since the primary payer's payment satisfied the $1,183 inpatient deductible. If Medicare's payment amount had been lower than the primary payer's amount, it would not have made a secondary payment. In other cases, such as physicians' services, the Medicare secondary payment amount cannot exceed the lowest of the calculation of the following three options. For example, assume that a physician charges $175 for a service; the primary payer's allowable charge is $150, of which it pays 80%, or $120; and Medicare's recognized payment amount for the service is $125, of which it pays 80%, or $100. The options are described below: actual provider charge minus the primary payer's allowable charge, adjusted for copayment: $175-$120 = $55; Medicare's payment amount, adjusted for copayment: .80 x $125 = $100; primary payer's allowable charge of $150 is compared to the Medicare recognized payment amount of $125, and the higher of the two (which in this case is the primary payer's charge of $150) minus the primary payer's payment of $120: 150-$120 = $30. Because Medicare's secondary payment is based on the lowest of these three options, Medicare would pay $30. In some cases, Medicare may pay first for a medical claim, and then the BCRC may receive notification or otherwise determine that Medicare was actually the secondary payer. In other instances, Medicare will make conditional payments for medical treatment even when it is the recognized secondary payer. Examples include cases when (1) Medicare could reasonably expect payment to be made under a workers' compensation or no-fault insurance claim, but Medicare determines the payment will not be paid or will not be made promptly (within 120 days); (2) a beneficiary's employer-sponsored plan denies a properly filed claim, in some cases; or (3) a properly filed claim is not made due to physical or mental incapacity of the beneficiary. Medicare can also make payments in cases where Medicare benefits have been claimed for an injury that allegedly was caused by another person. Medicare will not make conditional payments under the following conditions: (1) a third-party payer plan alleges that it is secondary to Medicare; (2) a plan limits payment when the individual is entitled to Medicare; (3) a plan provides covered services for younger employees and spouses, but not for employees and spouses who are 65 and older; (4) a proper claim is not filed, or is not filed in a timely manner, for any reason other than the physical or mental incapacity of the beneficiary; or (5) a group health plan fails to furnish needed information to CMS to determine whether or not an employer plan is primary to Medicare. Medicare must be repaid for conditional payments by the primary payer or anyone who has received the primary payment, if it is demonstrated that another payer, such as a liability insurer, had a responsibility to make a payment. Repayment is expected when a beneficiary receives a settlement or other payment. In addition to statutory authority to collect reimbursement for conditional payments, CMS has the right of subrogation in liability or other cases that involve Medicare beneficiaries. Typically, subrogation occurs when an insurance company that pays its insured client for injuries, losses, or medical expenses, seeks to recover its payment. The insurer, in this case Medicare, may reserve the "right of subrogation" in the event of a loss. This means that the insurer may choose to take action to recover the amount of a claim paid for services provided to a beneficiary if the loss was caused by a third party. For example, if a beneficiary is injured in a car accident, Medicare may seek to recover its payment from any money collected by the beneficiary, or it may sue on behalf of the beneficiary to recover its payment, from automobile liability insurance, uninsured motorist insurance, or under-insured motorist insurance. CMS is subrogated to any individual, provider, supplier, physician, private insurer, state agency, attorney, or any other entity entitled to payment by a primary payer. Medicare will reduce its recovery to take account of the beneficiary's cost of procuring a judgment or settlement. If the Medicare payment is less than the judgment or settlement amount, Medicare will prorate the procurement costs. If the payment equals the judgment or settlement, it may recover the total amount minus total procurement costs. One of the more challenging aspects of the MSP program has been to develop an expeditious system to process and resolve conditional payment claims arising from liability and workers' compensation cases. In the case of a group health plan, when Medicare finds evidence of a mistaken payment, the Commercial Repayment Center (CRC) issues a Primary Payment Notice to the insurer or plan sponsor, seeking verification of enrollment and beneficiary information. The employer or plan sponsor has 45 days to respond. If the issue is not resolved, a demand letter is issued for the claims at question. The employer or plan sponsor can then pay the claim or contest the claim. If the claim is neither paid nor contested, interest will begin to accrue and if CMS efforts are unsuccessful, the claim may be turned over to the Department of the Treasury. The actual time for resolving claims may vary from the timeline, depending on factors involved in the cases. In a case of accident or illness involving liability and other insurers, where the BCRC has been notified and Medicare has stepped in to make conditional payments, the BCRC follows up with a letter to the affected parties laying out their rights and responsibilities. The BCRC contractor then begins to review bills and other documents relevant to the underlying illness or injury, and calculates the amount owed to Medicare. The BCRC next issues a conditional payment notification that summarizes Medicare payments made. When a settlement, judgment, or payment is reached, the parties submit information to the BCRC, including total payments and costs, as well as attorney's fees. CMS determines total repayment after deducting allowable expenses such as legal bills, and issues a demand letter, with payment due within 60 days. Beneficiaries can pay, appeal, or request a waiver of repayments. Interest begins to accrue on any outstanding balance from the date of demand, and is assessed beginning after the 60-day timeframe. If full payment is not received in 120 days (assuming all correspondence regarding the conditional payments has been reviewed and resolved), the BCRC may issue a letter saying it will refer the issue to the Department of the Treasury for collection. CMS will not refer debt to Treasury any earlier than 120 days from the date of the demand letter, nor any later than 240 days from the demand letter. As is the case with conditional payment claims involving group health plans, the actual time it takes to resolve a claim can vary significantly. The MMSEA Section 111 reporting requirements prompted an increase in number of conditional payment cases reported to CMS, but also led to complaints from beneficiaries, insurers, and businesses about what they said were delays in CMS response time to their requests for information needed to settle claims or lawsuits or process awards. On June 22, 2011, the House Energy and Commerce Subcommittee on Oversight and Investigations held a hearing on issues related to MSP reporting requirements and response time by CMS contractors. The House hearing followed a 2010 investigation by the Senate Homeland Security and Governmental Affairs Select Subcommittee on Contracting Oversight. The subcommittee, citing reports by CMS auditors, identified performance problems with the contractors. The GAO in a March 2012 report to Congress identified areas for improvement in MSP administration, noting that average wait times for telephone calls to contractors regarding MSP cases had increased substantially from FY2008 to FY2011, as had the time for the contractors to process claims. The GAO noted that the rising delays were due partly to the fact that a larger number of cases were submitted to CMS. CMS made progress in reducing its backlog of cases during 2011. CMS has created several options for speeding conditional payment claims in certain cases—both for past medical bills and for some cases that involve future medical payments. Examples of cases where expedited options are in place include $1,000 Threshold—if a beneficiary has suffered a physical trauma-type injury, obtains a liability settlement of $1,000 or less, and does not receive nor expect to receive additional "settlements" related to the incident, Medicare will not pursue recovery. Fixed Payment Option—if a beneficiary suffers a physical trauma-based injury, obtains a liability settlement of $5,000 or less, and does not receive nor expect to receive additional settlements related to the incident, the beneficiary may resolve Medicare's recovery claim by paying 25% of the gross settlement. Self-Calculated Conditional Payment Option—if a beneficiary suffers a physical trauma-based injury at least six months prior to selecting this option, anticipates obtaining a settlement of $25,000 or less, proves that medical care has been completed, and has not received nor expects to receive additional settlements related to the incident, the beneficiary may self-calculate Medicare's recovery claim. Medicare then reviews the beneficiary's calculations and provides Medicare's final, conditional payment amount. The 2013 SMART Act was designed to streamline the process for resolving outstanding conditional payments involving non-group health plans. (For a detailed explanation of the SMART Act and its implementing regulations, see Appendix B .) Under the SMART Act, as of the date of enactment, January 10, 2013, the civil penalties for non-compliance with mandatory insurance reporting requirements became discretionary and "up to" $1,000 for each day of non-compliance with respect to each claimant. As required, the Secretary solicited proposals for safe harbor situations where good faith efforts could be made to identify a Medicare beneficiary in order to comply with the mandatory reporting requirements. Effective July 10, 2013, a MSP action for recovery of conditional payments by CMS may not be brought more than three years after the date of receipt of notice to CMS of a settlement, judgment, award, or other payment. Prior to the SMART Act, it was not clear which statute of limitations, if any, was applicable to such lawsuits. In one of the most significant changes in the new law, the Secretary issued final regulations establishing a process by which parties might notify Medicare of a reasonably expected settlement and request and receive a demand letter from Medicare setting forth the total reimbursement amount due to Medicare. The final "statement of reimbursement amount" constitutes the final conditional payment amount recoverable by CMS, if certain conditions are met. The Secretary also maintains a website permitting beneficiaries to access information about claims and services paid by Medicare. Regulations implementing the timeline and website requirements of Section 201 were promulgated on September 20, 2013, and became effective on November 19, 2013. (For a full discussion of the regulations see Appendix B .) As of January 1, 2014, certain liability claims are exempt from reporting and reimbursement if the claim falls below the annual threshold as calculated by the Secretary. The threshold amount will be determined such that CMS's costs of recovery will not be greater than the amount collected. On February 28, 2014, CMS announced the threshold amount would be $1,000. Other changes relating to access or reporting Social Security numbers or health identification claim numbers (HICNs) by responsible reporting entities must be made by the Secretary within 18 months. Even after the law takes full effect, some beneficiaries will have the flexibility to continue using existing CMS procedures for resolving small-dollar claims and no-fault claims, rather than the new system. Further, the SMART Act does not address issues regarding creating set-aside accounts to cover future medical bills in workers' compensation and other cases. In addition to reimbursing CMS for past, conditional payments, individuals must protect Medicare's interest with respect to future medical bills if they have received, reasonably anticipate receiving, or should have reasonably anticipated receiving, Medicare-covered items and services for a medical condition after the date of a settlement or payment based on that condition. CMS suggests, though MSP law does not require, that individuals who receive workers' compensation settlements that include payments for future medical expenses create set-aside accounts. The accounts allocate a share of a settlement to cover future medical bills, thus ensuring that Medicare does not pay for services related to a disability or illness that triggered a settlement (and where workers' compensation or liability insurance would otherwise be primary). Set-aside accounts are becoming more common in other liability settlements as well. CMS does not review workers' compensation settlements for current Medicare beneficiaries when an award is less than $25,000 in total payments. However, CMS cautions that this threshold is not considered a safe harbor for such accounts and that individuals remain obliged to protect Medicare's interests. CMS generally reviews workers' compensation set-asides in cases where an individual is within 30 months of becoming eligible for Medicare and the payment over the life of the settlement is more than $250,000. For example, a person who is age 63 and is awarded a settlement equal to $25,000 per year to cover medical payments would qualify for review of a set-aside account, based on the fact that he or she would be eligible for Medicare at age 65 (within 30 months) and would have a life expectancy of more than 10 years (exceeding the $250,000 threshold). In reviewing the adequacy of set-aside accounts, the Workers Compensation Review Contractor (WCRC) considers a number of factors including the severity of the underlying illness, life expectancy, and the cost of expected medical procedures. Once a set-aside account has been approved, Medicare will not pay for items or services related to the injury or illness until the account has been exhausted. (Medicare will cover other, unrelated medical services.) Set-aside accounts are not mandatory, and individuals can use other means to ensure that Medicare's interests regarding future medical bills are protected. However, the ABA and other lawyers and beneficiaries say that even though the set-asides are not required, they are the best way to receive assurance from CMS that Medicare's interests have been met and that Medicare will not withhold payment for future medical services. The ABA and other businesses and attorneys have criticized CMS for not developing formal regulations to guide the set-aside process, instead relying on more informal guidance documents. In June 2012 CMS issued a proposed rulemaking that would provide new options for set-aside accounts. (See " Expedited Set-Aside Accounts .") In addition, lawmakers have introduced legislation to impose formal requirements for handling set-aside accounts, which would remain voluntary. (See " Issues for Congress .") The number of workers' compensation set-aside accounts submitted to the WCRC has risen since the Section 111 reporting requirements took effect. The average time for processing an account rose from 22 days in April 2010 to 95 days in September 2011, according to the GAO, though the WCRC has since made progress in clearing up its backlog. In June 2012, CMS issued an advance notice of proposed rulemaking that spells out options for creating a standardized system for Medicare set-aside accounts in cases involving automobile and liability insurance (including self-insurance) and no-fault insurance cases, in addition to workers' compensation set-asides. The rules have not been finalized. CMS proposed a series of options to streamline the process for set-aside accounts, including Setting out specific conditions under which Medicare would not pursue future medical claims. Satisfying future claims by providing documentation that a course of care has been completed and reimbursing Medicare for any conditional payments. Expanding the current workers' compensation set-aside review system. Expanding or amending Medicare's existing three expedited payment options. Allowing for some type of up-front payment to satisfy MSP requirements. Waiving some payments if a beneficiary has a compromise settlement or a waiver or recovery. Having a beneficiary administer his or her own settlement account until it is exhausted. According to CMS, MSP laws and regulations reduced Medicare spending by about $50 billion from FY2006 through FY2012. The largest savings came from situations where group health plans acted as primary payers, leaving Medicare in the secondary position. CMS is processing a growing volume of claims regarding liability, no-fault, and workers' compensation cases. CMS's annual MSP report shows total MSP savings of more than $8 billion for FY2011, increasing from $6 billion in FY2006. Payments are expected to reach about $8 billion in FY2012 as well. As shown in Table 5 , about half of total savings each year came in cases where group health plans were the primary payers for the working aged and the working disabled. Workers' compensation payments have been the fastest growing part of MSP payments. CMS payments to contractors have also increased since the Section 111 payments took effect. According to the GAO, payments to the CMS contractors were $21 million higher in FY2011 than in FY2008. During this time the workload for the COBC rose 176%, the MSPRC by 102%, and the WCRC by 42%. While overall savings to Medicare appear to have increased, it could take years to determine final dollar amounts given the lag time between filing claims and collecting payments, according to the GAO. During the past several decades, Congress has expanded the scope of the MSP program in order to ensure that other insurers make contractually required payments, reduce Medicare expenditures, and extend the life of the Medicare Trust Fund. The changes have succeeded in increasing the volume and dollar amount of MSP payments reported to CMS, but have also resulted in a backlog for MSP contractors and created a backlash among businesses, insurers, and attorneys concerned about the time and expense of reporting, delay in CMS response and potential fines. Congress in the 2012 SMART Act addressed some of these issues, by creating a centralized website for conditional claim information and setting tighter timelines for CMS action. (See Appendix B .) The SMART Act did not address other issues related to MSP that have raised concerns among beneficiaries and industry officials, such as the process for creating set-aside accounts to cover future medical bills. Now that the SMART Act is law, there could be a new focus on legislation setting out a formal process for creating and reviewing workers' compensation set-aside accounts. Legislation introduced in the 113 th Congress, H.R. 1982 , would impose thresholds for review of set-aside accounts (which would remain voluntary); impose timelines for review, as well as an appeals process; and allow beneficiaries to set aside a set percentage of certain settlements, or make direct payments to Medicare, to cover future medical bills. In addition, Congress will be overseeing implementation of the SMART Act. The Congressional Budget Office has estimated that the SMART Act will result in modest budget savings to Medicare. It remains unclear, whether CMS will be able to comply with the law's timelines for calculating and issuing final conditional payments. During House debate on the measure, lawmakers noted that Congress did not provide CMS with additional funding to create the required website, or to implement other features of the measure. Appendix A. Selected MSP Legislation Appendix B. SMART Act Section by Section Summary of the Statute During the 112 th Congress, lawmakers approved additional changes to the process for resolving outstanding MSP conditional payments. Title II of P.L. 112-242 , signed into law on January 10, 2013, is entitled "Strengthening Medicare Secondary Payer Rules" (also known as the SMART Act). The act's provisions make substantive and procedural changes to the MSP statute and current CMS procedures, including provisions relating to Medicare conditional payments, MMSEA Section 111 reporting requirements, appeal rights, use of Social Security numbers, and statutes of limitations. The new provisions apply to what CMS calls non-group health plans such as workers' compensation, no-fault, and liability insurance (including self-insurance) plans, but not to employer group health plans. Section 201 of P.L. 112-242 directs CMS to make a password-protected website available to Medicare beneficiaries, authorized representatives, and "applicable plans" with information on the items and services claimed that relate to a specific injury or incident that forms the basis of a potential settlement, judgment, award, or other payment. CMS must update the conditional payment information (including provider or supplier name(s), diagnosis codes, date of service, and conditional payment amounts) on the website in as timely a manner as possible, but not later than 15 days after the date Medicare pays a claim. CMS is also required to provide a "timely process" for Medicare beneficiaries/claimants and their authorized representatives to resolve discrepancies in downloaded statements of conditional payments from the website. No administrative or judicial review of this dispute resolution process is provided; however, beneficiaries would still be able to exercise formal administrative or judicial appeals to contest final conditional payment demands from CMS. A Medicare beneficiary or applicable plan may notify CMS at any time beginning 120 days before the reasonably expected date of a settlement, judgment, award, or other payment that a payment is reasonably expected and the expected date of payment. Medicare then has a 65-day response period (95 days in some circumstances) in which to post conditional payments on the website. After the response period, during a prescribed "protected period," a Medicare beneficiary/claimant or applicable plan may download a "statement of reimbursement amount" that will constitute the final conditional payment amount recoverable by CMS, if certain conditions are met. Regulations implementing the website and dispute resolution requirements of Section 201 must be promulgated within nine months of enactment of this statute. This section also requires the Secretary to promulgate regulations (no specified deadline) establishing a right of appeal and an appeal process for non-group health plans and their attorneys, agents, or third-party administrators to appeal Medicare final conditional payment determinations for which CMS seeks to recover from such plans. An applicable plan must provide notice to Medicare beneficiaries of its intent to appeal. Under current MSP law, only Medicare beneficiaries can file an administrative appeal or federal court action to challenge Medicare conditional payment demand amounts. Section 202 requires the Secretary of HHS to annually calculate and publish a single threshold amount below which MSP re-payment and Section 111 of MMSEA reporting obligations will not apply. The threshold amount will apply to settlements, judgments, awards, or other payments arising from liability insurance (including self-insurance), and for alleged physical trauma-based incidents (excluding alleged ingestion, implantation, or exposure cases), and will apply to years beginning with 2014. Section 203 changes current law under which Responsible Reporting Entities (RREs) that fail to report certain information regarding Medicare claimants to CMS "shall be subject to a civil monetary penalty of $1,000 for each day of non-compliance with respect to each claimant" to provide that an RRE "may" be subject to a fine "of up to" $1,000 per day. In addition, the Secretary must publish a notice within sixty days of enactment soliciting proposals "for the specification of practices for which sanctions will and will not be imposed … including not imposing sanctions for good faith efforts to identify a beneficiary ..." After consideration of submitted proposals the Secretary is directed to publish proposed safe harbor practices, and thereafter issue final regulations. Section 204 requires that, no later than 18 months after the date of enactment, the Secretary shall modify the reporting requirements for non-group health plans so that such plans are permitted, but not required, to report to CMS the Social Security Numbers or Health Insurance Claim Numbers of Medicare beneficiaries. The deadline for implementing this modification may be extended by the Secretary upon notice to Congress that compliance with current deadline would threaten patient privacy or the integrity of the secondary payer program. Section 205 requires that CMS file suit for recovery of Medicare conditional payments in the non-group health plan context within three years after the date CMS receives notice of a settlement, judgment, award, or other payment under Section 111 of MMSEA. This provision applies to actions brought and penalties sought on or after 6 months after the date of the enactment of this act. The Congressional Budget Office (CBO) has estimated that the SMART Act will reduce federal outlays by $45 million from FY2013 to 2022. According to the CBO, the bill would allow some liability and other legal settlements to take place more quickly. At the same time, some settlements might be less than they would have been under previous law because of the tighter timeframe for estimating conditional payments. Interim Final Rule on Conditional Payment Web Portal Under Section 201 of the SMART Act On September 20, 2013, the Secretary promulgated an interim final rule (IFR) with a comment period specifying the process and timeline for expanding the current MSP Web portal. These regulations became effective on November 19, 2013. Highlights of this rule include the following: Beneficiaries will continue to have access to details of their claims related to their pending settlements through CMS' Web portal. CMS intends to implement a multifactor authentication process that will be used for access to the Web portal. When that security feature is implemented, no later than January 1, 2016, all authorized parties, including the beneficiary's attorney or other authorized representative or applicable plan, will be able to view claim-specific data via the Web portal. (42 C.F.R. §411.39(b).) In order to obtain a final conditional payment amount through the Web portal, the beneficiary, his or her attorney or other representative, or an applicable plan is required to provide initial notice of pending liability insurance, no-fault insurance, and workers' compensation settlements, judgments, awards, or other payment to the appropriate Medicare contractor. After receiving such notification, Medicare will have 65 days to post its initial claims compilation on the Web portal. CMS' response may be extended by 30 days under certain circumstances. At any time after Medicare posts its initial claims compilation, the beneficiary may notify CMS once, and only once, through the Web portal that he or she is within 120 days of settlement of the claim. Based on these timelines, under the rule, initial notification to the Medicare contractor must be provided at least 185 days prior to an expected settlement. (42 C.F.R. §411.39(c)(1)(i).) A beneficiary, or his or her attorney, or other representative may address discrepancies by disputing a claim, once and only once, if he or she believes that improper claims have been included in the claims compilation. The dispute will be resolved within 11 business days of notice of the dispute and any required supporting documentation. The beneficiary maintains his or her traditional appeal rights regarding CMS' MSP recovery determination, once CMS issues its final demand. (42 C.F.R. §411.39(c)(1)(iv).) After disputes have been resolved and the beneficiary, his or her attorney or other representative has executed a final "claims refresh" and has obtained confirmation that refresh has been performed (within 5 business days after the claims refresh request is initiated), he or she may download a time and date stamped final conditional payment summary through the Web portal. This form will constitute the final conditional payment amount if settlement is reached within 3 days of the date on the conditional payment summary form. Within 30 days of securing the settlement, the beneficiary or his or her attorney or other representative must submit through the Web portal settlement information specified by the Secretary, or else the final conditional payment amount will expire. Once the settlement information is received, a pro rata reduction will be applied to the final conditional payment amount and a final MSP recovery demand letter will be issued. (42 C.F.R. §411.39(c)(1)(vi).) The rule specifies that obligations with respect to possible future medical items and services are not included in the final conditional payment amounts obtained through the Web portal. (42 C.F.R. §411.39(d).) Appeals Process The SMART Act required CMS to write rules establishing the right of an applicable plan, an attorney, agent, or a third-party administrator acting on behalf of an applicable plan, to appeal a CMS determination on MSP payments. CMS on December 27, 2013, published a proposed regulation laying out an administrative appeals process for liability insurers, no-fault insurers, and workers' compensation laws or plans when Medicare pursues a MSP recovery claim directly from the insurer. The appeals provisions of the proposed regulations are designed to address the situation whereby a Medicare beneficiary has formal rights and a process to appeal a MSP recovery demand, but insurers do not. Imposition of Section 111 Penalties CMS on December 11, 2013, published an advanced notice of proposed rulemaking seeking input from the industry and others on how to define specific situations when civil monetary penalties would, or would not, be imposed on insurers for failure to report Section 111 MSP situations to the federal government. Specifically, CMS said in its notice of rulemaking that it is interested in recommendations to define ''noncompliance'' in the context of current law, which allows financial penalties ''... for each day of noncompliance with respect to each claimant ...'' CMS in the notice also solicited proposals for determining the dollar amount of any penalty that could be levied on insurers for noncompliance, and how CMS might devise a means to determine what actions by an insurer could constitute ''good faith effort(s)'' to identify a Medicare beneficiary for the purposes of the mandatory reporting requirements.
|
Medicare is a federal program that covers medical services for qualified beneficiaries. Established in 1965 to provide health insurance to individuals age 65 and older, Medicare has been expanded to include disabled individuals under 65. Medicare now consists of four parts (A-D) that cover hospitalizations, physician services, prescription drugs, skilled nursing facility care, home health visits, hospice care, and other treatments. Generally, Medicare is the "primary payer" for medical services, meaning that it pays health claims first. If a beneficiary has other health insurance, that insurance is billed after Medicare has made payments, to fill all, or some, of any gaps in Medicare coverage. In certain situations, however, federal Medicare Secondary Payer (MSP) law prohibits Medicare from making payments for an item or service when payment has been made, or can reasonably be expected to be made, by another insurer such as an employer-sponsored group health plan. Congress initiated MSP in 1980 to ensure that certain insurers met their contractual obligations to beneficiaries and to reduce Medicare expenditures, thus extending the life of the Medicare Trust Fund. According to the Department of Health and Human Services (HHS), private insurers designated legally primary to Medicare now pay about $8 billion in claims from Medicare recipients each year. In general, Medicare is the secondary payer for beneficiaries who are also covered through (1) a group health plan based on their own or their spouse's current employment; (2) auto and other liability insurance; (3) no-fault liability insurance; and (4) workers' compensation programs, including the Federal Black Lung Program. Additionally, Medicare is prohibited from covering items and services paid for directly, or indirectly, by another government entity, such as the Department of Veterans Affairs (subject to certain limitations), although Medicaid is always secondary to Medicare. In cases when Medicare is the secondary payer but primary payment is delayed or in dispute—for example, a medical liability lawsuit—Medicare can step in to cover claims to ensure that beneficiaries do not experience a gap in coverage. Medicare must be reimbursed for these conditional payments when a primary insurer makes payment. To identify cases where Medicare is the secondary payer and prevent improper Medicare payments, HHS matches information about Medicare recipients against data from the Social Security Administration and Internal Revenue Service. The Medicare, Medicaid, and SCHIP Extension Act of 2007 (P.L. 110-173) requires private insurers such as group health plans, liability insurers, no-fault insurers, and workers' compensation plans to regularly submit coverage information to HHS regarding Medicare beneficiaries. In December 2012, Congress approved, H.R. 1845 (the SMART Act, P.L. 112-242), which includes provisions designed to speed up the process for settling Medicare conditional claims in liability, no-fault, and similar cases. President Obama signed the act into law in January 2013. Title II of P.L. 112-242 requires HHS to establish a secure website that beneficiaries and their representatives can access to view information on conditional payments relating to a potential settlement, judgment, or award. The law made additional changes to the MSP statute and current HHS procedures, including data reporting requirements, appeal rights, use of Social Security numbers, and statutes of limitations. Separately, HHS has been attempting to create streamlined processes for settling smaller-dollar liability and workers' compensation cases involving Medicare beneficiaries. In September 2013, HHS published interim final regulations to implement the SMART Act. This report examines the MSP system, reporting requirements, liability issues, and issues for Congress.
|
The home mortgage foreclosure rate in the United States began to rise rapidly around the middle of 2006 and remained elevated for several years thereafter. The large increase in home foreclosures negatively impacted some individual households, local communities, and the economy as a whole. Consequently, an issue before Congress was whether to use federal resources and authority to help prevent some home foreclosures and, if so, how to best accomplish that objective. This report provides background on the increase in foreclosure rates in the years following 2006, describes temporary initiatives intended to preserve homeownership that were implemented by the federal government and remained active through at least 2016, and briefly outlines some of the challenges inherent in designing foreclosure prevention initiatives. Additional foreclosure prevention initiatives that were established in 2007 or after but ended prior to the end of 2016 are described in the Appendix . Foreclosure refers to formal legal proceedings initiated by a mortgage lender against a homeowner after the homeowner has missed a certain number of payments on his or her mortgage. When a foreclosure is completed, the homeowner loses his or her home, which is either repossessed by the lender or sold at auction to repay the outstanding debt. In general, the term "foreclosure" can refer to the foreclosure process or the completion of a foreclosure. This report deals primarily with preventing foreclosure completions. In order for the foreclosure process to begin, two things must happen: a homeowner must fail to make a certain number of payments on his or her mortgage, and the mortgage holder or mortgage servicer must decide to initiate foreclosure proceedings rather than pursue other options, such as offering a repayment plan or a loan modification. (See the nearby text box explaining the role of mortgage servicers.) A borrower that misses one or more payments is usually referred to as being delinquent on a loan; when a borrower has missed three or more payments, he is generally considered to be in default. Servicers can generally begin foreclosure proceedings after a homeowner defaults on his mortgage, although servicers vary in how quickly they begin foreclosure proceedings after a borrower goes into default. Furthermore, the foreclosure process is governed by state law. Therefore, the foreclosure process and the length of time the process takes vary by state. Home prices began to rise rapidly throughout some regions of the United States beginning in the early 2000s. Housing has traditionally been seen as a safe investment that can offer an opportunity for high returns, and rapidly rising home prices reinforced this view. During this housing "boom," many people decided to buy homes or take out second mortgages in order to access their increasing home equity. Furthermore, rising home prices and low interest rates contributed to a sharp increase in people refinancing their mortgages. Some refinanced to access lower interest rates and lower their mortgage payments, while many also used the refinancing process to take out larger mortgages in order to access their home equity. For example, between 2000 and 2003, the number of refinanced mortgage loans jumped from 2.5 million to over 15 million, and the Federal Reserve estimated that 45% of refinances included households taking equity out of their homes. Around the same time, subprime lending also began to increase, reaching a peak between 2004 and 2006. (See the nearby text box for a description of prime and subprime mortgages.) Beginning in 2006 and 2007, home sales started to decline and home prices stopped rising and began to fall in many regions. The rates of homeowners becoming delinquent on their mortgages began to increase, and the percentage of home loans in the foreclosure process in the United States began to rise rapidly beginning around the middle of 2006. Although not all homes in the foreclosure process will end in a foreclosure completion, an increase in the number of loans in the foreclosure process is generally accompanied by an increase in the number of homes on which a foreclosure is completed. According to the Mortgage Bankers Association (MBA), an industry group, about 1% of all home loans were in the foreclosure process in the second quarter of 2006. By the fourth quarter of 2009, the rate had more than quadrupled to over 4.5%, and it peaked in the fourth quarter of 2010 at about 4.6%. Since then, the percentage of mortgages in the foreclosure process has decreased, but as of the end of 2016 remained slightly higher than historical standards. In the fourth quarter of 2016, the rate of loans in the foreclosure process was about 1.5%. Figure 1 illustrates the trends in the rates of all mortgages, subprime mortgages, and prime mortgages in the foreclosure process between 2001 and 2016. The foreclosure rate for subprime loans has always been higher than the foreclosure rate for prime loans. For example, in the second quarter of 2006, just over 3.5% of subprime loans were in the foreclosure process compared to less than 0.5% of prime loans. However, both prime and subprime loans saw increases in foreclosure rates in the years following 2006. Like the foreclosure rate for all loans combined, the foreclosure rates for prime and subprime loans both more than quadrupled after 2006, with the rate of subprime loans in the foreclosure process increasing to over 15.5% in the fourth quarter of 2009 and the rate of prime loans in the foreclosure process increasing to more than 3% over the same time period. As of the fourth quarter of 2016, the rate of subprime loans in the foreclosure process was just under 7%, while the rate of prime loans in the foreclosure process was less than 1%. In addition to mortgages that were in the foreclosure process, an additional 1.6% of all mortgages were 90 or more days delinquent but not yet in foreclosure in the fourth quarter of 2016. These are mortgages that are in default, but for one reason or another, the mortgage servicer has not started the foreclosure process yet. Such reasons could include the volume of delinquent loans that the servicer is handling, delays due to efforts to modify the mortgage before beginning foreclosure, or voluntary pauses in foreclosure activity put in place by the servicer. Considering mortgages that are 90 or more days delinquent but not yet in foreclosure, as well as mortgages that are actively in the foreclosure process, may give a more complete picture of the number of mortgages that are in danger of ultimately resulting in foreclosure completions. Losing a home to foreclosure can have a number of negative effects on a household. For many families, losing a home can mean losing the household's largest store of wealth. Furthermore, foreclosure can negatively impact a borrower's creditworthiness, making it more difficult for him or her to buy a home in the future. Finally, losing a home to foreclosure can also mean that a household loses many of the less tangible benefits of owning a home. Research has shown that these benefits might include increased civic engagement that results from having a stake in the community, and better health, school, and behavioral outcomes for children. Some homeowners might have difficulty finding a place to live after losing their homes to foreclosure. Many will become renters. However, some landlords may be unwilling to rent to families whose credit has been damaged by foreclosure, limiting the options open to these families. There can also be spillover effects from foreclosures on current renters. Renters living in buildings where the landlord is facing foreclosure may be required to move, sometimes on very short notice, even if they are current on their rent payments. As more homeowners become renters and as more current renters are displaced when their landlords face foreclosure, pressure on local rental markets may increase, and more families may have difficulty finding affordable rental housing. Some observers have also raised the concern that high numbers of foreclosures can contribute to homelessness, either because families who lose their homes have trouble finding new places to live or because the increased demand for rental housing makes it more difficult for families to find adequate, affordable units. However, researchers have noted that a lack of data makes it difficult to measure the extent to which foreclosures contribute to homelessness. If foreclosures are concentrated, they can also have negative impacts on communities. Many foreclosures in a single neighborhood may depress surrounding home values. If foreclosed homes stand vacant for long periods of time, they can attract crime and blight, especially if they are not well-maintained. Concentrated foreclosures also place pressure on local governments, which can lose property tax revenue and may have to step in to maintain vacant foreclosed properties. There are many reasons that a household might become delinquent on its mortgage payments. Some borrowers may have simply taken out loans on homes that they could not afford. However, many homeowners who believed they were acting responsibly when they took out a mortgage nonetheless find themselves facing foreclosure. Factors that can contribute to a household having difficulty making its mortgage payments include changes in personal circumstances, which can be exacerbated by macroeconomic conditions, and features of the mortgages themselves. Changes in a household's circumstances can affect its ability to pay its mortgage. For example, a number of events can leave a household with a lower income than it anticipated when it bought its home. Such changes in circumstances can include a lost job, an illness, or a change in family structure due to divorce or death. Families that expected to maintain a certain level of income may struggle to make payments if a household member loses a job or faces a cut in pay, or if a two-earner household becomes a single-earner household. Unexpected medical bills or other unforeseen expenses can also make it difficult for a family to stay current on its mortgage. Furthermore, sometimes a change in circumstances means that a home no longer meets a family's needs, and the household needs to sell the home. These changes can include having to relocate for a job or needing a bigger house to accommodate a new child or an aging parent. Traditionally, households that needed to move, or who experienced a decline in income, could usually sell their existing homes. However, the home price declines in many communities nationwide left many households in a negative equity position, or "underwater," meaning that they owed more on their mortgages than the houses were currently worth. This limits homeowners' ability to sell their homes for enough money to pay off their mortgages if they have to move; many of these families are effectively trapped in their current homes and mortgages because they cannot afford to sell their homes at a loss. The risks presented by changing personal circumstances have always existed for anyone who took out a loan, but deteriorating macroeconomic conditions in the years following 2006, such as falling home prices and increasing unemployment, made families especially vulnerable to losing their homes for such reasons. The fall in home values that left some homeowners owing more than the value of their homes made it difficult for homeowners to sell their homes in order to avoid a foreclosure if they experienced a change in circumstances, and it may have increased the incentive for homeowners to walk away from their homes if they could no longer afford their mortgage payments. Along with the fall in home values, another macroeconomic trend accompanying the increase in foreclosures was high unemployment. More households experiencing job loss and the resultant income loss made it difficult for many families to keep up with their monthly mortgage payments. Borrowers might also find themselves having difficulty staying current on their loan payments due in part to features of their mortgages. In the years preceding the sharp increase in foreclosure rates, there had been an increase in the use of alternative mortgage products whose terms differ significantly from the traditional 30-year, fixed interest rate mortgage model. While borrowers with traditional mortgages are not immune to delinquency and foreclosure, many of these alternative mortgage features seem to have increased the risk that a homeowner might have trouble staying current on his or her mortgage. Many of these loans were structured to have low monthly payments in the early stages and then adjust to higher monthly payments depending on prevailing market interest rates and/or the length of time the borrower held the mortgage. Furthermore, many of these mortgage features made it more difficult for homeowners to quickly build equity in their homes. Some examples of the features of these alternative mortgage products are listed below. Adjustable Rate Mortgages (ARMs): With an adjustable-rate mortgage, a borrower's interest rate can change at predetermined intervals, often based on changes in an index. The new interest rate can be higher or lower than the initial interest rate, and monthly payments can also be higher or lower based on both the new interest rate and any interest rate or payment caps. Some ARMs also include an initial low interest rate known as a teaser rate. After the initial low-interest period ends and the new interest rate kicks in, the monthly payments that the borrower must make may increase, possibly by a significant amount. ARMs make financial sense for some borrowers, especially if interest rates are expected to stay the same or go down in the future or if the gap between short-term and long-term rates gets very wide (the interest rate on ARMs tends to follow short-term interest rates in the economy). The lower initial interest rate on ARMs can help people own a home sooner than they may have been able to otherwise, or can make sense for borrowers who cannot afford a high loan payment in the present but expect a significant increase in income in the future that would allow them to afford higher monthly payments. Further, in markets with rising property values, borrowers with ARMs may be able to refinance their mortgages before the mortgage resets in order to avoid higher interest rates or large increases in monthly payments. However, ARMs can become problematic if borrowers are not prepared for increases in monthly payments that can accompany higher interest rates. If home prices fall, refinancing the mortgage or selling the home to pay off the debt may not be feasible, leaving the homeowner with higher mortgage payments if interest rates rise. Zero- or Low-Down- Payment Loans: As the name suggests, zero-down-payment and low-down-payment loans require either no down payment or a significantly lower down payment than has traditionally been required. These types of loans can make it easier for certain creditworthy homebuyers who do not have the funds to make a large down payment to purchase a home. This type of loan may be especially useful in areas where home prices are rising more rapidly than income, because it allows borrowers without enough cash for a large down payment to enter markets they could not otherwise afford. However, a low- or no-down-payment loan also means that families have little or no equity in their homes in the early phases of the mortgage, making it difficult to sell the home or refinance the mortgage in response to a change in circumstances if home prices are not increasing. Such loans may also mean that a homeowner takes out a larger mortgage than he or she would otherwise. Interest-Only Loans: With an interest-only loan, borrowers pay only the interest on a mortgage—but no part of the principal—for a set period of time. This option increases the homeowner's monthly payments in the future, after the interest-only period ends and the principal amortizes. These types of loans limit a household's ability to build equity in the home, making it difficult to sell or refinance the home in response to a change in circumstances if home prices are not increasing. Negative Amortization Loans: With a negative amortization loan, borrowers have the option to pay less than the full amount of the interest due for a set period of time. The loan "negatively amortizes" as the remaining interest is added to the outstanding loan balance. Like interest-only loans, this option increases future monthly mortgage payments when the principal and the balance of the interest amortizes. These types of loans can be useful in markets where property values are rising rapidly, because borrowers can enter the market and then use the equity gained from rising home prices to refinance into loans with better terms before payments increase. They can also make sense for borrowers who currently have low incomes but expect a significant increase in income in the future. However, when home prices stagnate or fall, interest-only loans and negative amortization loans can leave borrowers with negative equity, making it difficult to refinance or sell the home to pay the mortgage debt. Low- or No-Documentation Loans: As the name suggests, these types of loans do not require the full range of income and asset documentation that is usually required to obtain a mortgage. Traditionally, these types of loans were made to borrowers with good credit scores and, usually, high incomes or large amounts of personal wealth, but they began to be used more widely in the years preceding the increase in foreclosure rates. Low- or no-documentation loans may be useful for borrowers with income that is difficult to document, such as those who are self-employed or work on commission. However, because a lender does not have full income information, these loans may not be underwritten as rigorously as other types of mortgages. Furthermore, they have the potential to allow for more fraudulent activity on the part of both borrowers and lenders. While all of these types of loans can make sense for certain borrowers in certain circumstances, many of these loan features began to be used more widely and may have played a role in the increase in foreclosure rates. Some homeowners were current on their mortgages before their monthly payments increased due to interest rate resets or the end of option periods. Some built up little equity in their homes because they were not paying down the principal balance of their loan or because they had not made a down payment. Borrowers without sufficient equity find it difficult to take advantage of options such as refinancing into a more traditional mortgage if monthly payments become too high or selling the home if their personal circumstances change. Stagnant or falling home prices in many regions also hampered borrowers' ability to build equity in their homes, and mortgage payment increases combined with house price declines resulted in limited options for some troubled borrowers. When a household falls behind on its mortgage, there are options that lenders or mortgage servicers may be able to employ as an alternative to beginning foreclosure proceedings. Some of these options, such as a short sale and a deed-in-lieu of foreclosure, allow a homeowner to avoid the foreclosure process but still result in a household losing its home. This section describes methods of avoiding foreclosure that allow homeowners to keep their homes; these options generally take the form of repayment plans or loan modifications. Many types of loan modifications, in particular, are costly for lenders or mortgage investors because they generally reduce the amount that is repaid—either through reducing principal or interest payments—or change the timing of the repayment. However, foreclosure is also costly for lenders or mortgage investors; there are costs associated with the foreclosure process itself, and the sales price of a foreclosure is generally less than the amount that was owed on the mortgage. Therefore, in some circumstances, loan modifications may be less costly than a foreclosure. A repayment plan allows a delinquent borrower to regain current status on his loan by paying back the payments he or she has missed, along with any accrued late fees. This is different from a loan modification, which changes one or more of the terms of the loan (such as the interest rate). Under a repayment plan, the missed payments and late fees may be paid back after the rest of the loan is paid off, or they may be added to the existing monthly payments. The first option increases the time that it will take for a borrower to pay back the loan, but his or her monthly payments will remain the same. The second option results in an increase in monthly payments. Repayment plans may be a good option for homeowners who experienced a temporary loss of income but are now financially stable. However, since they do not generally make payments more affordable, repayment plans are unlikely to help homeowners with unaffordable loans avoid foreclosure in the long term. One form of a loan modification is when the lender voluntarily lowers the interest rate on a mortgage. This is different from a refinance, in which a borrower takes out a new mortgage with a lower interest rate and uses the proceeds from the new loan to pay off the old loan. Unlike refinancing, a borrower does not have to pay closing costs or qualify for a new loan to get a mortgage modification with an interest rate reduction, which can make interest rate reductions a good option for troubled borrowers who owe more on their mortgages than their homes are worth. The interest rate can be reduced permanently, or it can be reduced for a period of time before increasing again to a certain fixed point. Lenders can also freeze interest rates at their current level in order to avoid impending interest rate resets on adjustable rate mortgages. Interest rate modifications are relatively costly to the lender or mortgage investor because they reduce the amount of interest income that the lender or investor will receive, but they can be effective at reducing monthly payments to a more affordable level. Another type of loan modification that can lower monthly mortgage payments is extending the amount of time over which the loan is paid back. While extending the loan term increases the total cost of the mortgage for the borrower because more interest will accrue, it allows monthly payments to be smaller because they are paid over a longer period of time. Most mortgages in the United States have an initial loan term of 30 years; extending the loan term from 30 to 40 years, for example, could result in a lower monthly mortgage payment for the borrower. Principal forbearance means that a lender or servicer removes part of the principal from the portion of the loan balance that is subject to interest, thereby lowering borrowers' monthly payments by reducing the amount of interest owed. The portion of the principal that is subject to forbearance still needs to be repaid by the borrower in full, usually after the interest-bearing part of the loan is paid off or when the home is sold. Because principal forbearance does not actually change any of the loan terms, it resembles a repayment plan more than a loan modification. Principal forgiveness, also called principal reduction or a principal write-down, is a type of mortgage modification that lowers borrowers' monthly payments by forgiving a portion of the loan's principal balance. The forgiven portion of the principal never needs to be repaid. Because the borrower now owes less, his or her monthly payment will be smaller. This option is costly for lenders or mortgage investors, but it can help borrowers achieve affordable monthly payments, as well as increase the equity that borrowers have in their homes and therefore potentially increase their desire to stay current on the mortgage and avoid foreclosure. As foreclosure rates began to increase rapidly in the years after 2006, there was broad bipartisan consensus that the rapid rise in foreclosures had negative consequences on households and communities. However, there was less agreement among policymakers about how much the federal government should do to prevent foreclosures. Proponents of enacting government policies and using government resources to prevent foreclosures argued that, in addition to assisting households experiencing hardship, such action may prevent further damage to home values and communities that can be caused by concentrated foreclosures. Supporters also suggested that preventing foreclosures could help stabilize the economy as a whole. Opponents of government foreclosure prevention programs argued that foreclosure prevention should be worked out between lenders and borrowers without government interference. Opponents expressed concern that people who did not really need help, or who were not perceived to deserve help, could unfairly take advantage of government foreclosure prevention programs. They argued that taxpayers' money should not be used to help people who could still afford their loans but wanted to get more favorable mortgage terms, people who may be seeking to pass their losses on to the lender or the taxpayer, or people who knowingly took on mortgages that they could not afford. Despite the concerns surrounding foreclosure prevention programs, and disagreement over the proper role of the government in preserving homeownership, the federal government implemented a variety of temporary initiatives to attempt to address the high rates of residential mortgage foreclosures. Some of these initiatives were enacted by Congress, while others were created administratively by the George W. Bush and Obama Administrations. Several of these initiatives remained active through at least 2016, including the following: the Home Affordable Modification Program (HAMP), which provided financial incentives to mortgage servicers to modify certain mortgages; the Home Affordable Refinance Program (HARP), which allows certain homeowners with little or no equity in their homes to refinance their mortgages; the Hardest Hit Fund, which provides funding to certain states to use for locally tailored foreclosure prevention programs; the FHA Short Refinance Program, which allowed certain borrowers to refinance their mortgages into new loans insured by the Federal Housing Administration (FHA) while reducing the principal amount of the loan; and additional funding for housing counseling to assist people in danger of foreclosure. In addition to federal efforts to address mortgage foreclosures, many state and local governments also implemented a range of initiatives to reduce the number of foreclosures in recent years. The private sector also pursued foreclosure prevention efforts, including creating the HOPE NOW Alliance, a voluntary alliance of mortgage servicers, lenders, investors, counseling agencies, and others that formed in October 2007 with the encouragement of the federal government to engage in active outreach efforts to troubled borrowers. While many private lenders and mortgage servicers participate in federal foreclosure prevention initiatives, many also have their own programs or procedures in place to work with borrowers who are having difficulty making their mortgage payments. This report focuses on federal efforts to prevent foreclosure, and does not address these state, local, and private sector efforts. The following sections describe federal foreclosure prevention initiatives that remained active through at least 2016. The Appendix describes certain additional federal foreclosure prevention initiatives that were implemented in response to the increase in foreclosure rates but ended prior to 2016. On February 18, 2009, President Obama announced the Making Home Affordable (MHA) initiative. Making Home Affordable included separate programs to (1) help certain troubled borrowers obtain affordable loan modifications and (2) make it easier for certain homeowners with little or no equity in their homes to refinance their mortgages. These initiatives were known as the Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP), respectively. This section describes HAMP, while a later section describes HARP. The deadline to apply for HAMP was December 30, 2016. In the past, Treasury extended the program expiration date multiple times, but the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) put the December 31, 2016, expiration date in statute. HAMP applications received prior to December 30, 2016, can still be considered for modifications, and modifications that have already been made through HAMP remain in effect. HAMP was primarily administered by the Department of the Treasury. Fannie Mae and Freddie Mac each issued their own HAMP requirements for the mortgages that they owned or guaranteed. Through HAMP, the government provided financial incentives to participating mortgage servicers who modified eligible troubled borrowers' mortgages in order to reduce the borrowers' monthly mortgage payments to no more than 31% of their monthly income. HAMP was voluntary for mortgage servicers, but once a servicer signed an agreement with Treasury to participate in the program, that servicer was bound by the rules of the program and was required to modify eligible mortgages that it serviced according to the program guidelines. For mortgages that were modified under HAMP, servicers reduced borrowers' payments by reducing the interest rate, extending the loan term, and forbearing principal, in that order, as necessary to reach the target payment ratio of 31% of monthly income. (Servicers were permitted to reduce mortgage principal as part of a HAMP modification, but were not required to do so.) Servicers could reduce interest rates to as low as 2%. The new interest rate is required to remain in place for five years; after five years, if the interest rate is below the market rate at the time the modification agreement was completed, the interest rate can rise by one percentage point per year until it reaches that market rate. (For more information on these interest rate adjustments, see the " Interest Rate Adjustments " subsection later in this report.) Borrowers were required to make modified payments on time during a three-month trial period before the modification could be converted to permanent status. The government provides financial incentives to servicers, investors, and borrowers for participation. Although the deadline to apply for HAMP has passed, Treasury can continue to pay incentives related to existing modifications (or modifications on mortgages where the application was received prior to the deadline) for several years into the future. Servicers received an upfront incentive payment for each successful permanent loan modification and can receive a "pay-for-success" payment for up to three years if the borrower remains current after the modification and the mortgage payment was reduced by at least 6%. The borrower can also receive a "pay-for-success" incentive payment (in the form of principal reduction) for up to five years if he or she remains current on the mortgage after the modification is finalized, as well as an additional principal reduction payment at the end of the sixth year after modification if the loan is in good standing. Investors received a payment cost-share incentive: after the investor bore the cost of reducing the monthly payment to 38% of monthly income, the government paid half the cost of further reducing the monthly mortgage payment from 38% to 31% of monthly income. Investors could also receive incentive payments for loans modified before a borrower became delinquent and for modifications in areas with declining home prices ("Home Price Decline Protection" incentives), provided that the borrower's monthly mortgage payment was reduced by at least 6%. Treasury made a number of changes to the rules governing HAMP in the years after the program was introduced. Some of these changes were relatively minor, while others were more significant. Treasury communicated changes to the HAMP requirements to servicers in documents called Supplemental Directives. In addition, Treasury implemented several additional HAMP-related programs to attempt to assist certain groups, such as unemployed borrowers or borrowers with negative equity, which are described in the " Related HAMP Programs " section of this report. Borrowers seeking a HAMP modification applied through their mortgage servicer. The requirements governing HAMP were complex, and a number of factors could impact whether or not a specific borrower qualified for the program. However, there were several basic eligibility criteria that a borrower had to meet in order to qualify for a standard HAMP modification, including the following: a borrower had to have a mortgage on a single-family (one-to-four unit) property that was originated on or before January 1, 2009, the borrower had to live in the home as his or her primary residence (this criterion did not necessarily have to be met to qualify for a certain type of HAMP modification called "HAMP Tier 2," described further below), the unpaid principal balance on the mortgage could not be greater than $729,750 for a one-unit property, the borrower had to be paying more than 31% of his monthly gross income toward mortgage payments, the borrower had to be experiencing a financial hardship that made it difficult to remain current on the mortgage. Borrowers did not need to already be in default on their mortgages in order to qualify, but default had to be "reasonably foreseeable," and the estimated net present value of a modification had to result in greater value for the mortgage investor than the net present value of pursuing a foreclosure (this "net present value test" is described in more detail below). More detailed eligibility criteria and program requirements were included in Treasury's Making Home Affordable Handbook and related policy directives. Treasury's requirements governed mortgages that were not backed by Fannie Mae and Freddie Mac; Fannie and Freddie issued their own program requirements for the mortgages that they owned or guaranteed. Servicers participating in HAMP conducted a "net present value test" (NPV test) on eligible mortgages that compared the expected financial returns to investors from doing a loan modification to the expected financial returns from pursuing a foreclosure. If the expected returns from a loan modification were greater than those from foreclosure, servicers were required to reduce borrowers' payments to no more than 38% of monthly income. The government then shared half the cost of reducing borrowers' payments from 38% of monthly income to 31% of monthly income. Servicers were not required to modify mortgages with negative net present value results. In early 2012, Treasury announced an expanded version of HAMP, referred to as HAMP Tier 2, for some borrowers who were not eligible for a standard HAMP modification. HAMP Tier 2 represented an alternative to the standard HAMP modification (thereafter referred to as HAMP Tier 1), rather than a replacement of the standard HAMP modification. Under HAMP Tier 2, borrowers still had to meet many of the basic HAMP eligibility criteria, including having a mortgage on a single-family property that was originated on or before January 1, 2009, experiencing a documented hardship, and having an unpaid principal balance below specified thresholds. However, borrowers might have been able to qualify even if they did not meet other requirements to qualify for a standard HAMP modification, such as if they had a mortgage payment-to-income ratio that was already below 31% or if they did not live in the home as a primary residence. In order for a mortgage secured by a rental property to be eligible for HAMP Tier 2, the borrower had to be delinquent on the mortgage (mortgages in "imminent default" were not eligible), the property had to be currently occupied by a tenant or be vacant, and the borrower had to certify that he or she intended to rent the property for at least five years (although at any point in that five-year period the borrower could sell the home or choose to occupy it as a principal residence). In addition to the eligibility requirements being different for HAMP Tier 2, the way in which servicers modified mortgages and the incentive payment structure also differed. Only mortgages that were not backed by Fannie Mae or Freddie Mac were eligible for HAMP Tier 2. The Administration originally estimated that HAMP would cost $75 billion. Of this amount, $50 billion was to come from Troubled Asset Relief Program (TARP) funds, and $25 billion was to come from Fannie Mae and Freddie Mac for the costs of modifying mortgages that those entities owned or guaranteed. Treasury later revised its estimate of the amount of TARP funds that would be used for HAMP, and used some of the $50 billion originally allocated to HAMP to help pay for other foreclosure-related programs (the Hardest Hit Fund and the FHA Refinance program, both described in later sections of this report). Ultimately, Treasury committed about $38 billion of TARP funds to its foreclosure prevention programs, rather than the initial $50 billion. Of this amount, nearly $28 billion was committed to HAMP and its related programs, $9.6 billion was committed to the Hardest Hit Fund, and just over $100 million was committed to the FHA Short Refinance Program. As of December 31, 2016, $16 billion of the $28 billion allocated for HAMP and its related programs had been disbursed. In addition, another nearly $8 billion was committed for the payment of future financial incentives associated with existing modifications. These amounts did not include any funds that might be committed in the future for modifications of mortgages where the borrower's application had been received prior to the December 30, 2016, application deadline, but where the modification had not yet been finalized. The Treasury Department releases quarterly reports detailing the program's progress. These reports offer a variety of information, including the number of overall trial and permanent modifications made under HAMP and the number of each that are currently active, the number of trial and permanent modifications made by individual servicers, and the number of trial and permanent modifications underway in each state. (As noted earlier, borrowers must successfully complete a three-month trial period before the modification is converted to permanent status.) The Administration originally estimated that HAMP could eventually help up to between 3 million and 4 million homeowners. As of the fourth quarter of 2016, about 1 million HAMP modifications were active. Of these, about 38,000 were active trial modifications and about 962,000 were active permanent modifications. Table 1 shows the total number of HAMP trial and permanent modifications that had started since the program began, along with the number of each that were currently active as of the fourth quarter of 2016. According to Treasury, the median HAMP modification resulted in a decrease of nearly $500 per month in a borrower's monthly mortgage payment, prior to the impact of any future interest rate adjustments (discussed further in the " Interest Rate Adjustments " section). Treasury also established a number of additional components or subprograms that operated under HAMP. These subprograms generally targeted certain perceived barriers to modifications and/or certain populations of borrowers. Like HAMP, the deadline to apply for these programs was generally December 30, 2016, or in some cases earlier. The subprograms that operated under HAMP included the following: Many borrowers have second mortgages on their homes. A mortgage involves a claim, or lien , on the property that gives the lender a security interest in the home in the event that the borrower does not repay the loan. The lien that secures a second mortgage is referred to as a "secon d lien" because it is second in priority after the lien that secures the first mortgage. Second liens have the potential to make loan modifications more difficult because (1) modifying the first lien may not reduce households' total monthly mortgage payments to an affordable level if the second mortgage remains unmodified, and (2) holders of primary mortgages may be hesitant to modify the mortgage if the second mortgage holder does not agree to re-subordinate the second mortgage to the first mortgage or to modify the second mortgage as well. The Second Lien Modification Program was aimed at addressing second liens on properties where the first mortgage was modified through HAMP. If the servicer of the second lien was participating in 2MP, then that servicer had to agree either to modify the second lien in accordance with program guidelines, or to extinguish the second lien entirely in exchange for a lump sum payment, when a borrower's first mortgage was modified under HAMP. (Servicers signed up to participate in 2MP separately from signing up to participate in HAMP.) Participating servicers and investors could receive financial incentives for modifying or extinguishing second liens under 2MP, and borrowers who remain current on both their HAMP modification and 2MP modification can receive "pay-for-success" incentive payments for up to five years. 2MP was first announced in August 2009. Treasury reported that about 79,000 second-lien modifications were active under 2MP as of the fourth quarter of 2016. Through the Home Affordable Foreclosure Alternatives (HAFA) program, when a borrower met the basic eligibility criteria for HAMP, but did not ultimately qualify for a modification, did not successfully complete the trial period, or defaulted on a HAMP modification, participating servicers could receive incentive payments for completing a short sale or a deed-in-lieu of foreclosure as an alternative to foreclosure. Servicers could receive financial incentive payments for each short sale or deed-in-lieu that was successfully executed, and borrowers could receive financial incentive payments to help with relocation expenses. Investors could receive partial reimbursement if they agreed to share a portion of the proceeds of the short sale with any subordinate lienholders. (The subordinate lienholders, in turn, had to release their liens on the property and waive all claims against the borrower for the unpaid balance of the subordinate mortgages.) In order to attempt to streamline the process of short sales and deeds-in-lieu of foreclosure under HAFA, Treasury provided standardized documentation and processes for participating servicers to use. HAFA went into effect on April 5, 2010, although servicers had the option to begin implementing the program before this date. Treasury reported that about 454,000 HAFA transactions had been completed as of the fourth quarter of 2016. Most of these transactions were short sales (390,000) rather than deeds-in-lieu of foreclosure (64,000). The Home Affordable Unemployment Program (UP) targeted borrowers who were unemployed. Under UP, participating servicers were required to offer forbearance periods to unemployed borrowers who applied for HAMP and met the UP eligibility criteria before evaluating those borrowers for HAMP. The forbearance period lasted for a minimum of 12 months, or until the borrower became re-employed, whichever occurred sooner. Borrowers' mortgage payments were lowered to 31% or less of their monthly income through principal forbearance during this time period. After the forbearance period ended, some borrowers may have regained employment and not needed further assistance. Other borrowers, such as those who were re-employed but at a lower salary, may have been able to qualify for a regular HAMP modification. Still other borrowers may have qualified for a foreclosure alternative such as a short sale or a deed-in-lieu of foreclosure, and some borrowers ultimately may not have been able to avoid foreclosure. UP went into effect on July 1, 2010, although servicers could choose to implement the program earlier. Treasury reported that about 46,000 UP forbearance plans had been started as of the fourth quarter of 2016. Under the Principal Reduction Alternative (PRA), participating servicers were required to consider reducing principal balances as part of HAMP modifications for homeowners who owed at least 115% of the value of their home. This applied to mortgages that were not backed by Fannie Mae and Freddie Mac. Fannie's and Freddie's regulator, the Federal Housing Finance Agency (FHFA), generally does not allow principal reduction for mortgages that Fannie Mae or Freddie Mac own or guarantee. (See the " Debate Over the Use of Principal Reduction in Mortgage Modifications " section later in this report for more information on Fannie Mae, Freddie Mac, and principal reduction.) Under PRA, servicers ran two net present value tests for borrowers who owed at least 115% of the value of their homes: the first was the standard NPV test, and the second included principal reduction. If the net present value of the modification was higher under the test that included principal reduction, servicers had the option to reduce principal. However, they were not required to do so. If the principal was reduced, the amount of the principal reduction was initially treated as principal forbearance; the forbearance amount would be forgiven in three equal amounts over three years as long as the borrower remained current on his or her mortgage payments. Treasury offered additional financial incentives to investors when principal was reduced under PRA. The PRA went into effect on October 1, 2010. According to Treasury, about 164,000 permanent PRA modifications were active as of the fourth quarter of 2016. In addition, there were about 37,000 active HAMP modifications that included principal reduction outside of PRA. In the years after HAMP was created, a number of concerns were raised related to its implementation and effectiveness. This section briefly discusses three issues that were raised: interest rate adjustments on HAMP modifications; conversions of trial modifications to permanent status; and assessments of mortgage servicers' performance in implementing HAMP. Under HAMP, one of the ways in which mortgages were modified to achieve a 31% mortgage payment-to-income ratio was by reducing the interest rate on the mortgage to as low as 2%. The modified interest rate remains in effect for five years from the date of the modification, at which point the interest rate can rise by up to one percentage point per year until it reaches the market interest rate that was in effect at the time of the modification. For example, say a borrower had an interest rate of 6% on his original mortgage, that the interest rate was reduced to 3% under a modification, and that the market interest rate in effect at the time of the modification was 4.5%. After five years, the modified interest rate would increase to 4% from 3%, and the year after that it would increase to 4.5% from 4%. At that point there would be no further interest rate increases for this particular borrower. (Average market interest rates fluctuate over the course of a year, but the average annual interest rates for the years between 2009 and 2016 range from under 4% to just over 5%.) The first interest rate increases began in the later quarters of 2014. Treasury estimates that 80% of borrowers who received a standard HAMP modification (i.e., not a "Tier 2" modification) will experience interest rate increases, with a median total monthly payment increase of just over $200 after all of the interest rate increases go into effect. However, expected average payment increases vary by state. Some housing advocates have expressed concerns that the interest rate increases and resulting payment increases could make it difficult for some borrowers to continue making their mortgage payments. In December 2014, Treasury announced that homeowners who remain current on their payments under HAMP through six years will be eligible for an additional financial incentive of $5,000 in the form of principal reduction. (Borrowers were already eligible for up to $1,000 per year in the form of principal reduction for each of the first five years of the modification if they remained current on their modified mortgages.) The additional financial incentive may, in part, be intended to mitigate the impact of the interest rate increases on borrowers. After HAMP had been in place for several months, many observers began to express concern at the high number of trial modifications that were being canceled rather than converting to permanent status and the length of time that it was taking for trial modifications to become permanent. In response to these concerns, Treasury took a number of steps to attempt to facilitate the conversion of trial modifications to permanent modifications, including outreach efforts to borrowers to help them understand and meet the program's documentation requirements and increased reporting requirements and monitoring of servicers. Most notably, since June 1, 2010, Treasury has required servicers to have documented income information from borrowers before offering a trial modification and to verify that information before a borrower can be approved for a trial period plan. Prior to June 2010, Treasury had allowed servicers to approve borrowers for trial modifications on the basis of stated income information in order to get trial modifications started more quickly, but the servicers had to verify this information before a modification could become permanent. In cases where the borrowers' stated income information differed from the documented information, servicers often had to re-evaluate borrowers for the program (for example, by running a new NPV test), which sometimes took additional time or resulted in borrowers who had been approved for a trial modification being denied for a permanent modification. Requiring verified information before a trial modification could begin was expected to result in more trial modifications converting to permanent modifications going forward. As of the fourth quarter of 2016, Treasury reported that about 116,000 trial modifications had been canceled since the requirement for servicers to verify income upfront had gone into effect in June 2010. This is compared to about 675,000 trial modifications that were canceled prior to June 2010. Over the years, some have questioned whether mortgage servicers have been implementing HAMP properly. Concerns have been raised that in some cases servicers have wrongly denied eligible borrowers for modifications, repeatedly lost borrowers' paperwork, or otherwise did not evaluate borrowers for HAMP according to program requirements. Since April 2011, Treasury has released results of examinations of the performance of the largest servicers participating in HAMP on a quarterly basis. As a result of the first servicer examination, Treasury announced that it would be withholding incentive payments to three of the largest participating servicers due to findings that the servicers' performance under the program was not meeting Treasury's standards. The servicers, Bank of America, JP Morgan Chase, and Wells Fargo, were all found to need "substantial" improvement in several areas. Treasury said that it would reinstate the incentive payments when the servicers' performance improved and was no longer found to need substantial improvement. The remaining 6 of the 10 largest servicers were found to need moderate improvement, but Treasury did not withhold incentive payments from those servicers. Treasury's subsequent assessments of servicer performance generally showed improvement. As of the fourth quarter of 2016, seven servicers were included in the assessment. In that quarter, one servicer was found to need substantial improvement, one was found to need moderate improvement, and five were found to need minor improvement. Although Treasury's assessments have shown improvements in servicer performance, many have continued to raise concerns about servicers' implementation of HAMP and the extent to which some eligible borrowers may have been wrongly denied modifications or may have their modifications terminated without good cause. HARP is the refinancing component of the Making Home Affordable initiative. It applies to mortgages backed by Fannie Mae and Freddie Mac, and the program requirements are set by those entities and their regulator, the Federal Housing Finance Agency (FHFA). HARP was originally scheduled to end on June 10, 2010, but has been extended multiple times. HARP is currently scheduled to be available until September 30, 2017. FHFA has announced that it will be implementing a new refinancing option for Fannie Mae- and Freddie Mac-backed loans with high loan-to-value ratios in October 2017. HARP was most recently extended so that it will remain available until the new program is in place. HARP allows certain homeowners with mortgages owned or guaranteed by Fannie Mae or Freddie Mac to refinance their mortgages in order to benefit from lower interest rates, even if the amount owed on the mortgage exceeds 80% of the value of the home. Generally, borrowers who owe more than 80% of the value of their homes have difficulty refinancing their mortgages, and therefore benefitting from lower interest rates, because they do not have enough equity in their homes. By allowing borrowers who owe more than 80% of the value of their homes to refinance their mortgages, HARP is meant to help qualified borrowers lower their monthly mortgage payments to a level that is more affordable. Rather than targeting homeowners who are behind on their mortgage payments, HARP targets homeowners who have kept up with their payments but have lost equity in their homes due to falling home prices. Originally, qualified borrowers were eligible to refinance through HARP if they owed up to 105% of the value of their homes (that is, if the loan-to-value ratio, or LTV, was at or below 105%). In July 2009, the program was expanded to include borrowers who owe up to 125% of the value of their homes. In October 2011, as part of a broader package of changes to HARP, the cap on the loan-to-value ratio was removed entirely. The broader package of changes to HARP that was announced in October 2011 was intended to allow more people to qualify for the program and is commonly referred to as "HARP 2.0." In addition to removing the LTV cap, other changes included eliminating or reducing certain fees paid by borrowers who refinance through HARP, waiving certain representations and warranties made by lenders on the original loans (intended to make lenders more likely to participate in HARP by releasing them from some responsibility for any defects in the original loan), and encouraging greater use of automated valuation models instead of property appraisals in order to streamline the refinancing process. Mortgages must meet a variety of requirements in order to be eligible for HARP. Some of the key eligibility criteria include the following: the original mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac (limiting the program to mortgages that are already backed by Fannie Mae or Freddie Mac ensures that these entities do not take on any new risk by backing the refinanced mortgages), the mortgage must be for a single-family home, the original mortgage must have closed on or before May 31, 2009, and the borrower must be current on the mortgage payments. HARP is voluntary, and lenders are not required to refinance mortgages through the program even if the mortgages meet all of the eligibility criteria. Because HARP is a refinancing program, which involves taking out a new mortgage, borrowers can shop around to different lenders to refinance through HARP. The Administration originally estimated that HARP could help up to between 4 million and 5 million homeowners. According to the Federal Housing Finance Agency, about 3.4 million loans with loan-to-value ratios above 80% had refinanced through HARP as of December 2016. The majority of these mortgages (2.4 million) had loan-to-value ratios between 80% and 105%, while about 590,000 mortgages had loan-to-value ratios above 105% up to 125% and about 433,000 mortgages had loan-to-value ratios above 125%. Table 2 shows the number of HARP refinances completed by Fannie Mae and Freddie Mac since the program began. Another temporary program created by Treasury is the Hardest Hit Fund (HHF). The HHF provides funds to selected states to use to create foreclosure prevention programs that fit local conditions. Ultimately, 18 states plus the District of Columbia were selected to receive funds through the HHF through several rounds of funding. The funding comes from the TARP funds that Treasury initially set aside for HAMP. Therefore, all Hardest Hit Fund funding must be used in ways that comply with the law that authorized TARP, the Emergency Economic Stabilization Act of 2008 ( P.L. 110-343 ), and state HHF programs must be approved by Treasury. States originally had until December 31, 2017, to use their funds. In 2016, Treasury extended the deadline to December 31, 2020. Initially, there were four rounds of funding through the Hardest Hit Fund. Each round of funding made funds available to certain state housing finance agencies (HFAs) based on certain state characteristics. The Administration set maximum allocations for each state based on a formula, and the HFAs of those states were required to submit their plans for the funds to Treasury for approval in order to receive funds through the program. The first four rounds of funding were as follows: First Round: On February 19, 2010, the Obama Administration announced that it would make up to a total of $1.5 billion available to the HFAs of five states that had experienced the greatest declines in home prices. The five states are California, Arizona, Florida, Nevada, and Michigan. The participating states can use the funding for a variety of programs that address foreclosures and are tailored to specific areas, including programs to help unemployed homeowners, programs to help homeowners who owe more than their homes are worth, or programs to address the challenges that second liens pose to mortgage modifications. Second Round: On March 29, 2010, a second round of funding made up to a total of $600 million available to five states that had large proportions of their populations living in areas of economic distress, defined as counties with unemployment rates above 12% in 2009 (the five states that received funding in the first round were not eligible). The five states that received funding through this second round are North Carolina, Ohio, Oregon, Rhode Island, and South Carolina. These states can use the funds to support the same types of programs eligible under the first round of funding, and are subject to the same requirements. Third Round: On August 11, 2010, a third round of funding made a total of up to $2 billion available to 18 states and the District of Columbia, all of which had unemployment rates higher than the national average over the previous year. Nine of the states that received funds through the third round of funding also received funding in one of the previous two rounds of Hardest Hit Fund funding. The states that received funding in the third round but not in either of the previous two rounds are Alabama, Georgia, Illinois, Indiana, Kentucky, Mississippi, New Jersey, Tennessee, and the District of Columbia. Like the first two rounds of funding, states had to submit plans for the funds for Treasury's approval. Unlike the first two rounds of funding, states have to use funds from the third round specifically for foreclosure prevention programs that target the unemployed. Fourth Round: In September 2010, Treasury announced an additional $3.5 billion of funding to be distributed to the 18 states (and the District of Columbia) that were receiving funding through earlier rounds, bringing the total amount of funding allocated to the HHF to $7.6 billion. Treasury's authority to make additional commitments of TARP funds expired on October 3, 2010, meaning that Treasury could no longer allocate additional TARP funds to the HHF after that time. However, in December 2015 the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) authorized Treasury to make up to an additional $2 billion in unused TARP funds available to the HHF. In February 2016, Treasury announced that it was allocating an additional $2 billion to the states participating in the HHF. The $2 billion was allocated in two phases. First, $1 billion was allocated to participating states based on population and utilization of previous HHF funds. States must have used at least 50% of their previous HHF funds to be eligible for this funding. Each participating state except for Alabama received additional HHF funding in this first phase of Round Five. Second, an additional $1 billion was allocated competitively among participating states. All but six participating states received additional HHF funding in this second phase of Round Five. Five states did not apply for funding in Phase Two (Alabama, Arizona, Florida, Nevada, and South Carolina), and one state applied but was not awarded funding (Georgia). The additional funding brings the total amount committed to the HHF to $9.6 billion. Table 3 shows the total funding that each participating state has received through the Hardest Hit Fund. In addition to the total, it shows the aggregate amount that each state received in Rounds 1 through 4, and the amount received through each of the phases of Round 5. As of the end of December 2016, over $7 billion, or more than 70%, of HHF funds had been drawn down by states. (Funds that have been drawn down by states may or may not have actually been spent by the states to date. In order to draw down additional amounts from Treasury, a state may not have more than 5% of its total allocation on hand.) The percentages of their allocations that individual states have drawn from Treasury range from a low of 35% (Alabama) to a high of 89% (Oregon), with most states falling somewhere in between. These percentages take into account all HHF funds, including those allocated through Round Five. As described, states had flexibility to design different types of programs using their Hardest Hit Fund allocations, as long as their programs met the purposes of the Emergency Economic Stabilization Act and were approved by Treasury. State HFAs may operate one or more programs with their HHF funds. (States that received funding in the third round are required to use those funds to assist unemployed homeowners.) In general, the types of programs that states have implemented fall under a few broad categories: standard mortgage modification programs, principal reduction programs, mortgage reinstatement programs (to help borrowers pay arrearages and late fees to bring a mortgage current again), programs to help unemployed homeowners with mortgage payments, programs to address second liens, programs to facilitate short sales or deeds-in-lieu of foreclosure, and, more recently, blight elimination programs (programs for demolishing vacant or abandoned homes that are contributing to blight) and down payment assistance programs (intended to help prevent foreclosures by encouraging home buying activity). Some states have also used HHF funds for other types of programs to help prevent foreclosures, such as assisting homeowners with reverse mortgages or helping to pay tax liens on properties. According to Treasury, as of the fourth quarter of 2016 there were more than 80 Hardest Hit Fund programs operating in the 18 states (plus DC) that received Hardest Hit Fund allocations, and these programs had assisted over 290,000 borrowers. States have continued to add or make changes to their Hardest Hit Fund programs. On March 26, 2010, the Administration announced a new Federal Housing Administration (FHA) Short Refinance Program for homeowners who owed more on their mortgages than their homes were worth. Detailed program guidance was released on August 6, 2010. The FHA Short Refinance Program began on September 7, 2010, and ended on December 31, 2016. Under the FHA Short Refinance Program, certain homeowners who owed more than their homes were worth were eligible to refinance into new, FHA-insured mortgages for an amount lower than the home's current value. Specifically, the new mortgage could not have a loan-to-value ratio of more than 97.75%. The original lender would accept the proceeds of the new loan as payment in full on the original mortgage; the new lender would have FHA insurance on the new loan; and the homeowner would have a first mortgage balance that was below the current value of the home, thereby giving him or her some equity in the home. Homeowners had to be current on their mortgages to qualify for this program. Further, the balance on the first mortgage loan had to be reduced by at least 10%. This program was voluntary for lenders and borrowers, and borrowers with mortgages already insured by FHA were not eligible. The FHA Short Refinance Program was similar in structure to the Hope for Homeowners program (described in the Appendix ), which was still active at the time that the FHA Short Refinance Program began but ended in 2011. However, there were some key differences between the two programs. First, Hope for Homeowners required that any second liens on the property be extinguished. Under the FHA Short Refinance Program, second liens were specifically allowed to remain in place. Incentives were offered for the second lien-holder to reduce the balance of the second lien, and the homeowner's combined debt on both the first and the second lien was not allowed to exceed 115% of the value of the home after the refinance. Second, under Hope for Homeowners, borrowers could be either current or delinquent on their mortgages and qualify for the program. Under the FHA Short Refinance Program, borrowers had to be current on their mortgages. Finally, under Hope for Homeowners, borrowers had to agree to share some of their initial equity in the home with the government when the house was eventually sold. The FHA Short Refinance Program did not appear to require any equity or appreciation sharing. As of the end of December 2016, FHA reported insuring about 7,200 refinanced loans through the program. While the program expired on December 31, 2016, it is possible that FHA could insure some additional mortgages where the applications were received prior to the deadline. Treasury originally planned to use up to $8 billion of the TARP funds originally set aside for HAMP to pay for the cost of this program, but given the low volume of participation and the associated lower number of defaults expected under the program, it has since reduced the total maximum amount that it will spend on the program to just over $100 million. Any additional program costs would be borne by FHA. Another federal effort to slow the rising number of foreclosures has been to provide additional funding for housing counseling. In particular, Congress has provided funding specifically for foreclosure mitigation counseling to be administered by the Neighborhood Reinvestment Corporation, commonly known as NeighborWorks America. NeighborWorks America is a nonprofit organization created by Congress in 1978 that has a national network of community partners. It traditionally engages in a variety of housing and community reinvestment activities, including housing counseling, and also provides training for other nonprofit housing counseling organizations. The Consolidated Appropriations Act, 2008 ( P.L. 110-161 ) provided $180 million to NeighborWorks to use for housing counseling for borrowers in danger of foreclosure, which it did by setting up the National Foreclosure Mitigation Counseling Program (NFMCP). NeighborWorks competitively awards the funding to qualified housing counseling organizations. Congress directed NeighborWorks to award the funding with a focus on areas with high default and foreclosure rates on subprime mortgages. The Housing and Economic Recovery Act of 2008 (HERA, P.L. 110-289 ) provided an additional $180 million for NeighborWorks to distribute through the NFMCP, $30 million of which was to be distributed to counseling organizations to provide legal help to homeowners facing delinquency or foreclosure. Since HERA, Congress continued to provide funding for the NFMCP through annual appropriations acts, in amounts ranging from $40 million to $80 million per year. Funding provided for the NFMCP is shown in Table 4 . In FY2016, Congress provided $40 million for the NFMCP. NeighborWorks reports that, as of April 30, 2016, over 2 million borrowers received foreclosure prevention counseling through the NFMCP. Evaluations of the program have found that borrowers who received counseling through the NFMCP were more likely to receive loan modifications, and more likely to remain current on their mortgages after receiving a loan modification, than borrowers who did not receive counseling. There are several challenges associated with designing successful programs to prevent foreclosures. Some of these challenges are practical and concern issues surrounding the implementation of loan modifications. Other challenges are more conceptual, and are related to questions of fairness and precedent. This section describes some of the most prominent considerations that were involved in developing programs to preserve homeownership in the years following the increase in foreclosure rates that began in 2006, as well as how some of these challenges were addressed in the years following the programs' establishment. Some of these issues evolved over the years as loan modification programs came into wider use. This section also briefly describes debate over the use of principal reduction in mortgage modifications and the extent to which principal reduction was utilized in mortgage modifications as of the end of 2016. Over the past several decades, the practice of lenders packaging mortgages into securities and selling them to investors has become more widespread. This practice is known as securitization, and the securities that include the mortgages are known as mortgage-backed securities (MBS). When mortgages are sold through securitization, several players become involved with any individual mortgage loan, including the lender, the servicer, and the investors who hold shares in the MBS. The servicer is usually the organization that has the most contact with the borrower, including receiving monthly payments and initiating any foreclosure proceedings. However, servicers are usually subject to contracts with investors which limit the activities that the servicer can undertake and require it to safeguard the investors' financial interest. One question that has faced foreclosure prevention programs, particularly in the early stages of the response to rising foreclosure rates, has been the extent to which servicers have the authority to make certain loan modifications. Contractual obligations may limit the amount of flexibility that servicers have to modify loans in ways that could arguably yield a lower return for investors. In some cases, loan modifications can result in less of a loss for investors than foreclosure; however, servicers may not want to risk having investors challenge their assessment that a modification is more cost-effective than a foreclosure. One possible way to partially address the question of who can modify mortgages is to provide a safe harbor for servicers. In general, a safe harbor protects servicers who engage in certain mortgage modifications from lawsuits brought by investors. While proponents of a safe harbor believe that a safe harbor is necessary to encourage servicers to modify more mortgages without fear of legal repercussions, opponents argue that a safe harbor infringes on investors' rights and could even encourage servicers to modify mortgages that are not in trouble if it benefits their own self-interest. The Helping Families Save Their Homes Act of 2009 ( P.L. 111-22 ) provided a safe harbor for servicers who modified mortgages prior to December 31, 2012, in a manner consistent with the Making Home Affordable program guidelines or the since-expired Hope for Homeowners program. The legislation specified that the safe harbor does not protect servicers or individuals from liability for any fraud committed in their handling of the mortgage or the mortgage modification. The existence of HAMP and other foreclosure prevention programs may have also helped to standardize mortgage modifications to some extent, possibly providing a clearer set of guidelines to servicers about what constitutes an appropriate mortgage modification. The net present value test in programs such as HAMP is intended to help ensure that the modifications servicers make are in the best interest of the investors in the mortgage. Another issue that has faced loan modification programs is the high volume of delinquencies and foreclosure proceedings that have been underway since 2007. Lenders and servicers have a limited number of employees to reach out to troubled borrowers and find solutions, and this was particularly true in the early years of the foreclosure response before servicers increased staffing levels to address the volume of delinquent mortgages. Contacting borrowers—some of whom may avoid contact with their servicer out of embarrassment or fear—and working out large numbers of individual loan modifications can overwhelm the capacity of the lenders and servicers. In addition, the complexity of mortgage modification programs and changes in program requirements can stress servicing staff. Streamlined plans that use a formula to modify all loans that meet certain criteria may make it easier for lenders and servicers to help a greater number of borrowers in a shorter amount of time. However, streamlined plans may be more likely to run into the contractual issues between servicers and investors described above. Mortgage servicers are the entities that are often primarily responsible for making the decision to modify a mortgage or to begin the foreclosure process. Some observers have raised concerns that mortgage servicers' compensation structures may provide incentives for them to pursue foreclosure rather than modify loans in certain cases, even if a modification would be in the best interest of the investor as well as the borrower. Servicers' actions are governed by contracts with mortgage holders or investors that generally require servicers to act in the best interests of the entity on whose behalf they service the mortgages, although, as described above, such contracts may in some cases also include restrictions on servicers' abilities to modify loans. In addition to their contractual obligations, servicers have an incentive to service mortgages in the best interest of investors because that is one way that mortgage servicers ensure that they will attract continued business. However, some have suggested that servicers' compensation structures may provide incentives for servicers to pursue foreclosure even when it is not in the best interest of the investor in the mortgage. For example, servicers' compensation structures may not provide an incentive to put in the extra work that is necessary to modify a mortgage, and servicers may be able to charge more in fees or recoup more expenses through a foreclosure than a modification. Programs such as HAMP provide financial payments to servicers to modify mortgages, but some argue that these may not be large enough to align servicers' incentives with those of borrowers and investors. In 2011, the Federal Housing Finance Agency (FHFA) and HUD announced a joint initiative to consider alternative servicer compensation structures. A challenge associated with loan modification programs is the possibility that a homeowner who receives a modification will nevertheless default on the loan again in the future. This possibility might be of particular concern for lenders or investors if the home's value is falling, because in that case delaying an eventual foreclosure reduces the value that the mortgage holder can recoup through a foreclosure sale. Furthermore, modified mortgages that default again in the future can potentially harm borrowers. If a borrower defaults again and eventually loses his home to foreclosure, he may have been better off going through foreclosure earlier rather than making modified mortgage payments for a period of time when that money could have been put to another use. According to data from the Office of the Comptroller of the Currency (OCC), redefault rates for modified mortgages improved dramatically over the years. For loans that were modified in 2008, nearly 45% were at least 60 days delinquent again six months after the modification, and over 60% were at least 60 days delinquent again three years after the modification. In contrast, for loans modified in 2012, about 13% were at least 60 days delinquent six months after the modification and 17% were 60 days delinquent three years after the modification. The six-month redefault rate for mortgages modified in subsequent years remained in a similar range. A number of factors may have contributed to the improvement in redefault rates over the years, including changes in the types of loan modifications being offered, improvements in mortgage servicers' responses to delinquent borrowers, and improving housing market conditions. The OCC also reports data that show redefault rates according to whether the loan modification increased monthly payments, decreased monthly payments, or left monthly payments unchanged. The reports include such data for loans modified since the beginning of 2008. The report covering the third quarter of 2015 shows that, for loans modified in 2014, about 15% of loan modifications that resulted in monthly payments being reduced by 20% or more were 60 or more days delinquent 12 months after modification. This compares to a redefault rate of 22% for loans where monthly payments were reduced by between 10% and 20%; 28% for loans where payments were reduced by less than 10%; 31% for loans where payments remained unchanged; and 33% for loans where monthly payments increased. While loan modifications that lower monthly payments do appear to perform better than modifications that increase monthly payments, a significant number of modified loans with lower monthly payments still become delinquent again after the loan modification. Another challenge is that loan modification programs may provide an incentive for borrowers to intentionally miss payments or default on their mortgages in order to qualify for a loan modification that provides more favorable mortgage terms. While many of the programs described above specifically require that a borrower must not have intentionally missed payments on his or her mortgage in order to qualify for the program, it can be difficult to prove a person's intention. Programs that are designed to reach out to distressed borrowers before they miss any payments, as well as those who are already delinquent, may minimize the incentive for homeowners to intentionally fall behind on their mortgages in order to receive help. Opponents of some foreclosure prevention plans argue that it is not fair to help homeowners who have fallen behind on their mortgages while homeowners who may be struggling to stay current receive no help. Others argue that borrowers who took out mortgages that they knew they could not afford should not receive federal government assistance. Supporters of loan modification plans point out that many borrowers go into foreclosure for reasons outside of their control, and that some troubled borrowers may have been victims of deceptive, unfair, or fraudulent lending practices. Furthermore, some argue for foreclosure prevention programs because foreclosures can create problems for other homeowners in the neighborhood by depressing property values or putting a strain on local governments. To address these concerns about fairness, some loan modification programs reach out to borrowers who are struggling to make payments but are not yet delinquent on their mortgages. Most programs also specifically exclude individuals who provided false information in order to obtain a mortgage. Some opponents of government efforts to provide or encourage loan modifications argue that changing the terms of a contract retroactively sets a troubling precedent for future mortgage lending. These opponents argue that if lenders or investors believe that they could be required or encouraged to change the terms of a mortgage in the future, they will be less likely to provide mortgage loans in the first place or will only do so at higher interest rates to counter the perceived increase in the risk of not being repaid in full. Most existing programs attempt to address this concern by limiting the program's scope. Often, these programs apply only to mortgages that were originated during a certain time frame, and end at a predetermined date, although the end dates for several programs have been extended multiple times. While the federal government has undertaken several types of initiatives to help prevent foreclosures—including encouraging mortgage modifications, facilitating refinancing for underwater borrowers, and providing funding for counseling—over the years some policymakers and others have argued for additional actions to be taken to assist troubled borrowers. Among other things, some policymakers and advocates have urged wider use of principal reduction, whereby the mortgage holder forgives some of the principal amount that the borrower owes. Mortgages that are not backed by Fannie Mae or Freddie Mac or government agencies such as the Federal Housing Administration (FHA) are eligible for principal reduction at the discretion of the mortgage holder. According to data from the Office of the Comptroller of the Currency (OCC), for mortgages modified in the third quarter of 2015, about 25% of modifications of mortgages held by private investors and 29% of modifications of mortgages held in bank portfolios included principal reduction. However, only about 8% of the total number of mortgages modified in the third quarter of 2015 included principal reduction. Given over 3 million homes with mortgages continued to be in negative equity positions as of the fourth quarter of 2016, advocates of principal reduction argue that increasing its use could be an effective tool in preventing foreclosures. Proponents of principal reduction argue that it can provide an advantage over other types of modifications because it better aligns the amount a borrower owes with the amount that the house is worth, possibly giving borrowers more of an incentive to remain current on the modified mortgage. Advocates also argue that reducing principal can be in the best interest of mortgage holders if the cost of principal reduction is less than the cost of foreclosure. Those who oppose more widespread use of principal reduction argue that monthly mortgage payments can be reduced without forgiving mortgage principal, that reducing principal for some borrowers is unfair to others who do not benefit from such relief, and that greater use of principal reduction could encourage some people to purposely default on their mortgages to try to qualify for principal reduction. Programs such as the HAMP Principal Reduction Alternative (PRA), described earlier in this report, provided incentives for reducing mortgage principal for certain borrowers. However, mortgages backed by the Federal Housing Administration (FHA) are not eligible for principal reduction, nor are most mortgages backed by Fannie Mae or Freddie Mac. The Federal Housing Finance Agency (FHFA), the regulator of Fannie Mae and Freddie Mac, has generally not allowed principal reduction on mortgages backed by those entities, either through the PRA or otherwise. However, in April 2016 Fannie Mae and Freddie Mac announced the availability of a principal reduction modification for a limited number of borrowers. Only borrowers with mortgages backed by Fannie Mae or Freddie Mac who met specific criteria were eligible for this principal reduction. Servicers sent solicitation letters to eligible borrowers, and the deadline for servicers to offer eligible borrowers a principal reduction modification was December 31, 2016. FHFA estimated that approximately 33,000 borrowers may be eligible. In addition to the foreclosure prevention initiatives described earlier in this report, several other foreclosure prevention initiatives were created or announced in response to the housing market turmoil that began around 2007-2008 but ended in earlier years. Some of these programs were precursors to the programs that are described in the body of this report. This Appendix briefly describes some of these initiatives. The programs discussed in this Appendix include the Emergency Homeowners Loan Program, Hope for Homeowners, FHASecure, Fannie Mae's and Freddie Mac's Streamlined Modification Program, and the FDIC's program for modifying loans that had been held by IndyMac Bank. All of these initiatives expired between 2008 and 2011, although some borrowers may have continued to receive assistance through these programs if they began participating in the program prior to the program's end date. Emergency Homeowners Loan Program The Dodd-Frank Wall Street Reform and Consumer Protection Act ( P.L. 111-203 ), which was signed into law by President Obama in July 2010, included up to $1 billion for HUD to use to administer a program to provide short-term loans to certain troubled borrowers who had experienced a decrease in income due to unemployment, underemployment, or a medical emergency, in order to help them make their mortgage payments. HUD chose to provide this funding to the 32 states (and Puerto Rico) that did not receive funding through the Administration's Hardest Hit Fund (described in the " Hardest Hit Fund " section of this report). By statute, HUD was not able to enter into new agreements under this program, called the Emergency Homeowners Loan Program (EHLP), after September 30, 2011. EHLP funds were used to provide five-year, zero-interest, nonrecourse loans secured by junior liens on the property to help pay arrearages on the mortgage and to assist the borrower in making mortgage payments for up to 24 months going forward. An individual borrower was eligible to receive up to a maximum loan of $50,000. To qualify for the EHLP, borrowers had to meet certain conditions, including the following: borrowers must have had a household income of 120% or less of area median income prior to the unemployment, underemployment, or medical event that made the household unable to make its mortgage payments; borrowers must have had a current gross income that was at least 15% less than the household's income prior to the unemployment, underemployment, or medical event; borrowers must have been at least three months delinquent and have received notification of the lender's intent to foreclose; borrowers must have had a reasonable likelihood of being able to resume making full monthly mortgage payments within two years, and had a total debt-to-income ratio of less than 55%; and borrowers must have resided in the property as a principal residence, and the property must have been a single-family (one- to four-unit) property. Borrowers were required to contribute 31% of their monthly gross income at the time of their application (but in no case less than $25) to monthly payments on the first mortgage, and were required to report any changes in income or employment status while they were receiving assistance. The assistance ends when one of the following events occurs: (1) the maximum assistance amount has been reached; (2) the household regains an income level of 85% or more of its income prior to the unemployment or medical event; (3) the homeowner no longer resides in or sells the property or refinances the mortgage; (4) the borrower defaults on his portion of the first mortgage payments; or (5) the borrower fails to report changes in employment status or income. Borrowers are not required to make payments on the EHLP loans for a five-year period as long as the borrowers remain in the properties as their principal residences and stay current on their first mortgage payments. If these conditions are met, the balance of the EHLP loan declines by 20% annually until the debt is extinguished at the end of five years. However, the borrower will be responsible for repaying the loan to HUD under certain circumstances. HUD has not released final data on how many borrowers participated in the program. Media reports from the time the program ended suggested that between 10,000 and 15,000 borrowers may have been assisted, with only about half of the funding allocated to the program ultimately being spent. Participation may have been lower than initially anticipated in part because of delays in getting the program started and borrowers having difficulty meeting the eligibility criteria to qualify for assistance. Hope for Homeowners Congress created the Hope for Homeowners (H4H) program in the Housing and Economic Recovery Act of 2008 ( P.L. 110-289 ), which was signed into law by President George W. Bush on July 30, 2008. The program, which was voluntary on the part of both borrowers and lenders, offered certain borrowers the ability to refinance into new mortgages insured by FHA if their lenders agreed to certain conditions. Hope for Homeowners began on October 1, 2008, and ended on September 30, 2011. In order to be eligible for the program, borrowers were required to meet the following requirements: The borrower must have had a mortgage that was originated on or before January 1, 2008. The borrower's mortgage payments must have been more than 31% of gross monthly income. The borrower must not have owned another home. The borrower must not have intentionally defaulted on his or her mortgage or any other substantial debt within the last five years, and he or she must not have been convicted of fraud during the last 10 years under either federal or state law. The borrower must not have provided false information to obtain the original mortgage. Under Hope for Homeowners, the lender agreed to write the mortgage down to a percentage of the home's currently appraised value, and the borrower received a new loan insured by the FHA. The new mortgage was a 30-year fixed-rate mortgage with no prepayment penalties, and could not exceed $550,440. Homeowners paid upfront and annual mortgage insurance premiums to FHA, and any second lien-holders were required to release their liens. When the homeowner sells or refinances the home, he or she is required to pay an exit premium to HUD. The exit premium is a percentage of the initial equity the borrower had in the home after the H4H refinance; if the borrower sells or refinances the home during the first year after the H4H refinance, the exit premium is 100% of the initial equity. After five years, the exit premium is 50% of the initial equity. Congress authorized certain changes to the Hope for Homeowners program in the Emergency Economic Stabilization Act of 2008 ( P.L. 110-343 ) and the Helping Families Save Their Homes Act of 2009 ( P.L. 111-22 ). HUD used the authority granted in both of these laws to make changes to H4H from its original form. For example, HUD lowered the mortgage insurance premiums charged to borrowers; made changes to the maximum loan-to-value ratio on the refinanced loan; offered immediate payments to certain second lien-holders to release their liens; eliminated a requirement for a borrower to share any home price appreciation with HUD when the home was sold or refinanced; and replaced a requirement for a borrower to share equity in the home with HUD with the exit premium. Furthermore, eligibility for the program was limited to borrowers with a net worth below a certain threshold. The Congressional Budget Office originally estimated that up to 400,000 homeowners could be helped to avoid foreclosure over the life of H4H. In total, about 760 borrowers refinanced through the program. Some have suggested that more borrowers and lenders did not use Hope for Homeowners because the program was too complex. The legislative and administrative changes described above were intended to address some of the obstacles to participating in the program. FHASecure FHASecure was a program announced by the Federal Housing Administration (FHA) on August 31, 2007, to allow delinquent borrowers with non-FHA adjustable-rate mortgages (ARMs) to refinance into FHA-insured fixed-rate mortgages. The new mortgage helped borrowers by offering better loan terms that either reduced a borrower's monthly payments or helped a borrower avoid steep payment increases under his or her old loan. FHASecure expired on December 31, 2008. To qualify for FHASecure , borrowers originally had to meet the following eligibility criteria: The borrower had a non-FHA ARM that had reset. The borrower became delinquent on his or her loan due to the reset, and had sufficient income to make monthly payments on the new FHA-insured loan. The borrower was current on his or her mortgage prior to the reset. The new loan met standard FHA underwriting criteria and was subject to other standard FHA requirements (including maximum loan-to-value ratios, mortgage limits, and up-front and annual mortgage insurance premiums). In July 2008, FHA expanded its eligibility criteria for the program, such as allowing borrowers who were delinquent due to circumstances other than the mortgage reset to participate and relaxing the definition of being current on the mortgage. FHASecure expired on December 31, 2008. In the months before its expiration, some housing policy advocates called for the program to be extended; however, HUD officials contended that continuing the program would be prohibitively expensive, possibly endangering FHA's single-family mortgage insurance program. HUD also pointed to the Hope for Homeowners program as filling the role that FHASecure did in helping households avoid foreclosure. Supporters of extending FHASecure argued that the statutory requirements of Hope for Homeowners may have offered less flexibility in the face of changing circumstances than FHASecure , which could have been more easily amended by HUD. When FHASecure expired at the end of 2008, about 4,000 loans had been refinanced through the program. Critics of the program point to the relatively stringent criteria that borrowers had to meet to qualify for the program as a possible reason that more people did not take advantage of it. IndyMac Loan Modifications On July 11, 2008, the Office of Thrift Supervision in the Department of the Treasury closed IndyMac Federal Savings Bank, based in Pasadena, CA, and placed it under the conservatorship of the Federal Deposit Insurance Corporation (FDIC). In August 2008, the FDIC put into place a loan modification program for holders of mortgages either owned or serviced by IndyMac that were seriously delinquent or in danger of default, or on which the borrower was having trouble making payments because of interest rate resets or a change in financial circumstances. Many of the features of the IndyMac loan modification program were later included in HAMP. In order to be eligible for a loan modification, the mortgage must have been for the borrower's primary residence and the borrower had to provide current income information that documented financial hardship. Furthermore, the FDIC conducted a net present value test to evaluate whether the expected future benefit to the FDIC and the mortgage investors from modifying the loan would be greater than the expected future benefit from foreclosure. If a borrower met the above conditions, the loan would be modified to achieve a mortgage debt-to-income (DTI) ratio of 38%. The 38% DTI could be achieved by lowering the interest rate, extending the period of the loan, forbearing a portion of the principal, or a combination of the three. The interest rate would be set at the Freddie Mac survey rate for conforming mortgages, but if necessary it could be lowered for a period of up to five years in order to reach the 38% DTI; after the five-year period, the interest rate would rise by no more than 1% each year until it reached the Freddie Mac survey rate. Then-FDIC Chairman Sheila Bair estimated that about 13,000 loans were modified under this program while IndyMac was under the FDIC's conservatorship. The FDIC completed a sale of IndyMac to OneWest Bank on March 19, 2009. OneWest agreed to continue to operate the loan modification program subject to the terms of a loss-sharing agreement with the FDIC. OneWest became a participating servicer in HAMP, described earlier in this report. Fannie Mae and Freddie Mac Streamlined Modification Program On November 11, 2008, James Lockhart, then the director of the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, announced a new Streamlined Modification Program for Fannie Mae and Freddie Mac and certain private lenders and servicers. Fannie Mae and Freddie Mac had helped troubled borrowers through individualized loan modifications for some time, but the SMP represented an attempt to formalize the process and set an industry standard. The SMP took effect on December 15, 2008, but was soon replaced by HAMP, which was announced in February 2009 and is described in the " Home Affordable Modification Program (HAMP) " section of this report. In order for borrowers whose mortgages were owned by Fannie Mae or Freddie Mac to be eligible for the SMP, they had to meet the following criteria: The mortgage must have been originated on or before January 1, 2008. The mortgage must have had a loan-to-value ratio of at least 90%. The home must have been a single-family residence occupied by the borrower, and it must have been the borrower's primary residence. The borrower must have missed at least three mortgage payments. The borrower must not have filed for bankruptcy. Mortgages insured or guaranteed by the federal government, such as those guaranteed by FHA, the Department of Veterans Affairs, or the Rural Housing Service, were not eligible for the SMP. The SMP shared many features of the FDIC's plan to modify troubled mortgages held by IndyMac, and many of these features were also later included in HAMP. Qualified borrowers' monthly mortgage payments were lowered so that the household's mortgage debt-to-income ratio (DTI) was 38% (not including second lien payments). After borrowers successfully completed a three-month trial period (by making all of the payments at the proposed modified payment amount), the loan modification automatically took effect. In order to reach the 38% mortgage debt-to-income ratio, servicers were required to follow a specific formula. First, the servicer capitalized late payments and accrued interest (late fees and penalties were waived). If this resulted in a DTI of 38% or less, the modification was complete. If the DTI was higher than 38%, the servicer could extend the term of the loan to up to 40 years from the effective date of the modification. If the DTI was still above 38%, the interest rate could be adjusted to the current market rate or lower, but to no less than 3%. Finally, if the DTI was still above 38%, servicers could offer principal forbearance. The amount of the principal forbearance would not accrue interest and was non-amortizing, but would result in a balloon payment when the loan was paid off or the home was sold. Principal forgiveness was not allowed under the SMP. To encourage participation in the SMP, Fannie Mae and Freddie Mac paid servicers $800 for each loan modification completed through the program. If the SMP did not produce an affordable payment for the borrower, servicers were to work with borrowers in a customized fashion to try to modify the loan in a way that the homeowner could afford. Fannie Mae and Freddie Mac completed over 51,000 loan modifications between January 2009 and April 2009, when Fannie and Freddie stopped using the SMP and began participating in the Making Home Affordable program instead. However, it is unclear how many of these loan modifications were done specifically through the SMP.
|
The home mortgage foreclosure rate began to rise rapidly in the United States beginning around the middle of 2006 and remained elevated for several years thereafter. Losing a home to foreclosure can harm households in many ways; for example, those who have been through a foreclosure may have difficulty finding a new place to live or obtaining a loan in the future. Furthermore, concentrated foreclosures can negatively impact nearby home prices, and large numbers of abandoned properties can negatively affect communities. Finally, elevated levels of foreclosures can destabilize housing markets, which can in turn negatively impact the economy as a whole. In the years that followed the increase in foreclosure rates, there was a broad consensus that there are many negative consequences associated with high numbers of foreclosures. There was less consensus over whether the federal government should have a role in preventing foreclosures and, if so, what that role should be. Nevertheless, in the years after the foreclosure rate began to rise, Congress and both the Bush and Obama Administrations created a variety of temporary initiatives aimed at preventing further increases in foreclosures and helping more families preserve homeownership. These efforts included several initiatives that remained active through 2016 or beyond, including the Home Affordable Modification Program (HAMP), the Home Affordable Refinance Program (HARP), the Hardest Hit Fund, the Federal Housing Administration (FHA) Short Refinance Program, and the National Foreclosure Mitigation Counseling Program (NFMCP). Two other initiatives, Hope for Homeowners and the Emergency Homeowners Loan Program (EHLP), expired at the end of FY2011. Some of these federal foreclosure prevention initiatives were criticized as being ineffective or less effective than had been hoped. This led some policymakers to suggest that changes should be made to these initiatives to try to make them more effective, while other policymakers argued that some of these initiatives should be eliminated entirely. For example, in the 112th Congress, the House of Representatives passed a series of bills that, if enacted, would have terminated several foreclosure prevention initiatives (including HAMP and the FHA Short Refinance Program) prior to their intended end dates. However, these bills were not considered by the Senate. While many observers agreed that slowing the pace of foreclosures was an important policy goal, several challenges have complicated such efforts. These challenges have included implementation issues, such as deciding who has the authority to make mortgage modifications, developing the capacity to complete widespread modifications, and assessing the possibility that homeowners with modified loans might default again in the future. Other challenges have been related to the perception of unfairness in providing help to one set of homeowners over others, the possibility of inadvertently providing incentives for borrowers to default, and the possibility of setting an unwanted precedent for future mortgage lending.
|
The federal government responded to the September 11, 2001, terrorist attacks and the subsequent anthrax attacks with increased focus on and funding for biodefense. A key consideration in this response was addressing capacity shortages for diagnostic, clinical, and research laboratories. Since 2001, the Department of Defense (DOD), the Department of Homeland Security (DHS), the Department of Health and Human Services (HHS), and the Department of Agriculture (USDA) have increased or are in the process of increasing their laboratory capacity for the study of dangerous pathogens. Because stringent protocols and engineering are used to contain the most dangerous pathogens, these facilities are often referred to as high-containment laboratories. High-containment laboratories play a critical role in the biodefense effort, offering the hope of better responses to a biological attack and a better understanding of the bioterrorism threat. However, they could also increase the risk of a biological attack by being a source of materials or training. In addition to increasing laboratory capacity, the federal government invested in research to develop countermeasures, diagnostics, and detectors for dangerous pathogens potentially usable in a terrorist attack. One group has calculated that congressionally appropriated funding for civilian biodefense increased from $690 million in FY2001 to $5.4 billion in FY2008. Much of this funding supports academic and industrial researchers and laboratories that handle these dangerous pathogens. The influx of funds and researchers has exacerbated existing concerns about aging laboratory infrastructure and limited research and diagnostic laboratory capacity. Non-federal entities have also expanded or constructed additional high-containment laboratories. In addition to the threat of bioterrorism, an increasing awareness of the threat posed by emerging and re-emerging diseases has led to the proliferation of high-containment laboratories internationally, as the technologies used are widely available. The increase in high-containment laboratory capacity has raised new policy questions and increased focus on existing ones. How much laboratory capacity is enough? What is the necessary federal investment? Should laboratories be consolidated or dispersed? What is the optimal size and type of high-containment laboratory? With multiple agencies expanding high-containment laboratory capacity, is a plan coordinating these efforts necessary? Does increasing laboratory capacity and the number of trained scientists increase the risk of accidents and/or opportunities for purposeful misuse? What is an acceptable balance between the benefits these laboratories provide and the risks they pose? Policymakers have become increasingly interested in the expansion of these facilities following reports of accidents, regulatory noncompliance, and recent examples of community resistance to the laboratories. The Commission on the Prevention of Weapons of Mass Destruction Proliferation and Terrorism recommended tightening government oversight of high-containment laboratories. These laboratories may also be regulated by state and local laws, regulations, and ordinances. This report focuses on the federal government's regulation of high containment laboratories. It explains the concepts of biosecurity and biosafety, including the mechanisms by which the federal government oversees their implementation; describes the proliferation of high-containment laboratories; discusses issues facing federal policymakers; and identifies policy options for congressional consideration. Biosecurity and biosafety are closely related. Their definitions vary from source to source and sometimes overlap. In this report, biosecurity refers to steps taken to secure pathogens or biological materials from theft, unauthorized access, or illegal use, while biosafety refers to mechanisms or practices employed to lower the risk of unintentional infection in the laboratory or environmental release from the laboratory. While biosecurity and biosafety are clearly related closely, their practices and oversight mechanisms have mainly developed independently. Although biosafety has been a concern of the general laboratory science community for many years, biosecurity has only recently come to the fore. The major federal regulatory program addressing biosecurity is the Select Agent Program. The federal government created the Select Agent Program in order to regulate and oversee commerce in pathogens that might have severe consequences if released into the environment. The Select Agent Program was first established by the Antiterrorism and Effective Death Penalty Act of 1996 ( P.L. 104-132 ). This law required HHS to identify a list of organisms and toxins that could potentially be used for bioterrorist attacks and to regulate their transfer, though not their possession. These pathogens and toxins were to be known as select agents. The 2001 anthrax mailings increased the federal government's interest in the threat of bioterrorism. Congress enacted the USA PATRIOT Act ( P.L. 107-56 ) and the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 ( P.L. 107-188 ) which increased restrictions on the possession of pathogens and toxins that have been identified as possessing the greatest potential for malevolent use. Entities possessing select agents were required to develop explicit security and biosafety plans and procedures to be reviewed and certified by the federal government. The Select Agent Program oversees regulation of select agents possession, transfer, and use. It focuses mainly on two areas: people who have access to select agents and facilities where select agents are used and stored. Scientists who want access to select agents must register with the federal government. Applicants provide information to the Department of Justice (DOJ), which performs background checks to determine whether the applicant may be permitted to handle select agents. Such permits are nontransferable and are valid for five years. Facilities that possess or use select agents must develop and implement a security plan to protect the select agents from theft or improper access. These plans are submitted either to HHS, through the Centers for Disease Control and Prevention (CDC), or to USDA, through the Animal and Plant Health Inspection Service (APHIS). These agencies review them for regulatory compliance and audit their security plan implementation. The CDC performs announced inspections of each regulated facility at least once every three years. Failure to comply with the regulations of the Select Agent Program is punishable by fines. Persons possessing select agents who have not successfully completed the DOJ security risk assessment process or are prohibited from possessing select agents under the USA PATRIOT Act may be in violation of 18 U.S.C. 175, which prohibits the possession of biological weapons. As of February 2009, approximately 390 entities had been issued certificates allowing work with select agents and 15,300 staff had active security risk assessment approvals to have access to select agents. See Table 1 for details. The largest group of certified entities are owned or operated by state or local governments. Many of these entities are state or local public health laboratories. As part of efforts to develop robust testing and response capabilities following a biological attack, the federal government has developed a Laboratory Response Network that links many of these state or local public health laboratories. One of the goals in establishing the Laboratory Response Network was to create a laboratory in each state capable of handling dangerous pathogens. Additionally, the large number of academic entities, and presumably researchers, has increased tensions over the Select Agent Program in academia. This community has a long tradition of openness and has, in some cases, viewed the select agent regulations as too onerous to continue performing research with these pathogens. Approximately 200 entities either transferred or destroyed their select agent inventories rather than registering under the select agent regulations. The performance of the Select Agent Program has been the topic of a number of investigations by agency Inspectors General (IG). These investigations have focused on agency internal controls on select agents, the ability of lead agencies to process researcher and entity applications, and the regulatory compliance of facilities receiving select agent certificates. The HHS IG found that 11 of 15 representative universities investigated did not fully comply with the select agent regulations. It also found that none of the eight representative state, local, private, or commercial laboratories investigated were in full compliance. Three of these entities chose to withdraw their select agent licenses following the investigation. The USDA IG found similarly that APHIS controls over registered entities and registered entities' compliance with select agent regulations were not complete. In 2007, the CDC suspended a select agent entity certificate at Texas A&M University, reportedly because of failure to report occupational exposures in a timely fashion and because laboratory workers lacking a security risk assessment were allowed access to select agents. Other companies, laboratories, and universities have also been cited and fined for violations of the select agent regulations. The HHS OIG has levied a total of $1,887,000 in fines on 12 organizations for failure to comply with the Select Agent regulations. Scientists studying dangerous pathogens generally acknowledge the risk of contracting the disease under study and the potential of accidentally releasing a pathogen into the environment. Over time, scientists have developed best practices to mitigate these risks. In the 1970s and 1980s, the U.S. government began collecting these practices and issuing them as formal guidelines. The most commonly referenced guidelines are disseminated by HHS in the publication Biosafety in Microbiological and Biomedical Laboratories (BMBL). The Centers for Disease Control and Prevention (CDC) and the National Institutes of Health (NIH) have established four main levels of biosafety (BSL-1 to BSL-4) to guide laboratory researchers in the safe handling of biological agents. Each biosafety level is associated with specific physical and procedural protections. See Table 2 . In general, the more dangerous the pathogen is to human health, the higher its recommended biosafety level. Each successive biosafety level consists of the protective measures of the lower biosafety levels, augmented with additional protective measures. Generally, the term "high-containment laboratory" refers to BSL-3 and BSL-4 laboratories. The current BMBL guidelines grew out of earlier efforts by the DOD, HHS, and USDA. These best practices were developed to protect laboratory workers based on the various specific risks posed by different pathogens. The guidelines present criteria to define the different biosafety levels, best practices for safe laboratory operation at these biosafety levels, and mechanisms for identifying the appropriate biosafety level for a given organism and procedure. Because the biosafety level may vary depending on the procedure, some experts recommend that biosafety levels be thought of as linked to a combination of pathogen and experiment, not as accompanying particular pathogens. The BMBL describes primary and secondary barriers to infection, as well as standard and special laboratory practices for each biosafety level. Unlike previous editions, the most recent edition of the BMBL also contains some security guidelines for the different biosafety levels. According to federal grant policy and standard contract language, researchers and laboratory workers at institutions receiving federal funds are to be trained in the procedures described in the BMBL before they gain access to the laboratory. The correct biosafety level depends on the pathogen, its potential for transmission and treatment, and the research procedure or activity being conducted. Procedures deemed unlikely to produce disease in healthy humans should be conducted at BSL-1. Those that may cause disease in healthy humans, but for which immunization or antibiotic treatment is available, should be conducted at BSL-2. Procedures that may cause serious or potentially lethal diseases as a result of pathogen inhalation should be conducted at BSL-3. Procedures that pose a high individual risk of aerosol-transmitted laboratory infections and life-threatening disease should be conducted at BSL-4. Because the recommended biosafety level for a particular activity is determined by considering both the pathogen and procedure, it is possible to safely handle potentially deadly pathogens at lower biosafety levels when performing certain types of experiments or activities. Several pathogens thought to pose the greatest health threat, as defined by their inclusion on the select agent list, may be handled outside high-containment facilities. See Table 3 . For example, the BMBL recommends the bacteria that causes the disease anthrax be handled at BSL-2 for "activities using clinical materials and diagnostic quantities of infectious cultures" and at BSL-3 for "work involving production quantities or high concentrations of cultures, screening environmental samples (especially powders) from anthrax-contaminated locations, and for activities with a high potential for aerosol production." Of the 73 human and animal select agents and toxins, 13 warrant BSL-4 containment for any procedure. However, 30 others may be studied at BSL-2 containment depending on the circumstances. Some of the work performed in BSL-4 facilities is on pathogens that are not select agents. All of the BSL-4 facilities in the United States perform at least some work with select agents and therefore are regulated under the Select Agent Program. Only some of the work in BSL-3 facilities uses select agents, so many BSL-3 facilities are not subject to select agent regulations. A relatively small proportion of BSL-2 facilities fall under the Select Agent Program. See Figure 1 . The BMBL guidelines are best practices. Compliance with these guidelines is typically voluntary, but it is widely adopted as facility policy. Some mandatory adoption and compliance requirements exist. For example, federal contracts and grants require compliance with the BMBL guidelines, and noncompliance can result in loss of current and potentially future federal funding. Some federal agencies have promulgated management directives requiring compliance with the BMBL in agency laboratories. Industrial, academic, and non-profit laboratories generally establish health and safety officials or other responsible persons whose responsibilities include verifying the good operation of protective equipment installed in laboratories and thus continued compliance with the guidelines. Finally, laboratories regulated under the Select Agent Program are required to consider the BMBL guidelines when preparing the biosafety component of required security plans. In addition to voluntary compliance, the BMBL guidelines are incorporated into building design standards, grant and contract requirements, other federal requirements related to DNA research, and the Select Agent Program. Federal facilities, and most other facilities built using federal funds, are built to design standards established by the agency that builds a facility or funds its construction. These design standards generally adhere to the guidelines promulgated in the BMBL. The design standards may contain or refer to other security requirements. For example, the National Institutes of Health has design specifications for NIH buildings. These specifications provide requirements for systems such as ventilation, utilities, and access controls. Security requirements are specified in a separate document. For high-containment laboratories, NIH issues checklists to ensure that requirements are tested and determined to be satisfactory before the laboratory is occupied. This testing process is often called certifying or commissioning a laboratory. The NIH has developed a guide to aid proper laboratory commissioning. A similar process occurs in other agencies. The policies and directives established by other agencies generally require comportment with the biosafety guidelines established by HHS through the BMBL. Agencies generally contract out the process of commissioning a newly constructed or existing laboratory at a given biosafety level. Some agencies have guidelines for this process. For example, NIH suggests that commissioning or certifying occur via companies not involved in the design or construction of a facility. The NIH Model Commissioning Guide also states: Individuals should be highly specialized in the types of facilities and systems being installed. Due to the degree of technical oversight which is expected, individuals should be licensed Professional Engineers (or as applicable for specialized systems/facilities) with extensive experience in the design, optimization, remediation, and acceptance testing of applicable systems as well as training and building manual preparation. Laboratory facilities that receive federal funding, even if not owned or operated by the federal government, generally agree, as a funding condition, to adhere to the biosafety guidelines set forth in the BMBL. If these laboratories are found not to be in compliance with the guidelines, existing federal funding could be withdrawn and future federal funding withheld. For example, the NIH Grants Policy Statement states: Grantee organizations are not required to submit documented assurance of their compliance with or implementation of these regulations and guidelines. However, if requested by the awarding office, grantees should be able to provide evidence that applicable Federal, State, and local health and safety standards have been considered and have been put into practice. Similar language may be inserted into contracts and other award mechanisms. Federal research grants dealing with recombinant DNA research generally require that the grantee create an institutional biosafety committee (IBC) to oversee the grantee's compliance with federal guidelines addressing such research. One role of the IBC is to determine the appropriate biosafety level for novel recombinant DNA research. An IBC thus has the authority to require that recombinant DNA research activities be performed with specific biosafety precautions or not be performed at that institution. While this authority does not currently extend past recombinant DNA research, some have proposed using the IBCs as a mechanism to oversee other research with biosafety concerns. The BMBL suggests that IBCs help scientists to determine the appropriate level of protection for specific proposed experiments. Some non-governmental experts, however, have objected that the IBC mechanism does not provide sufficient oversight or rigorous review for such responsibilities. The Select Agent Program regulations incorporate the BMBL guidelines by reference. This incorporation makes consideration of the BMBL a mandatory component of compliance with the Select Agent Program. Entities possessing select agents must develop the security plan discussed previously in " Biosecurity and the Select Agent Program " and a biosafety plan which takes into account the BMBL guidelines. Both of these plans may be reviewed by federal officials as part of the oversight process. The number of BSL-3 and BSL-4 laboratories is generally believed to have increased in recent years. While the number of BSL-3 laboratories is not known, the total amount of planned or existent BSL-4 space in the United States has increased by an estimated twelve-fold since 2004. This expansion of high-containment laboratory space resulted from federal construction, increased federal funding of research and development activities requiring high-containment laboratories, and a greater focus on public health and diagnostic laboratory capacity. The federal government is constructing or funding the construction of numerous high-containment laboratories. This section provides examples of federal investment in biocontainment laboratories in the four departments principally sponsoring this expansion: the Departments of Defense, Homeland Security, Health and Human Services, and Agriculture. Some of the facilities are federally owned and operated, some are federally owned but privately operated, and some are privately owned and operated. Thus, the federal investment in high-containment laboratories is creating both government and private infrastructure. The Department of Defense (DOD) has maintained a high-containment laboratory infrastructure for many years. These laboratories arose during World War II and have been modernized as research activities have evolved. These laboratories performed both offensive and defensive research, i.e. they developed biological weapons and the means to protect troops against the use of biological weapons. In 1969, President Nixon discontinued the U.S. offensive biological weapons program. All DOD biological laboratories perform solely defensive work, mainly focused on developing countermeasures to protect the warfighter or on preventive clinical research. The United States Army Medical Research Institute for Infectious Diseases (USAMRIID) in Frederick, MD, is the sole location of BSL-4 laboratory space in DOD, but BSL-3 laboratory space is found at other sites. The DOD is engaged in a $683 million expansion of its facilities at USAMRIID that will increase its BSL-3 and BSL-4 laboratory space. A number of other DOD laboratories have also either increased their BSL-3 capacity or increased their degree of containment since 2001. The DOD maintains its BSL-3 and BSL-4 laboratories for a number of reasons, including basic and applied research into infectious disease, evaluation of vaccines and other biological countermeasures, and testing for naturally occurring disease outbreaks under the Global Emerging Infections Surveillance and Response System. In the aftermath of the anthrax mailings, the federal government determined that it needed a specialized facility to analyze pathogens for specific characteristics that could help identify perpetrators of a biological attack. President Bush assigned this bioforensic responsibility in 2004 to the Department of Homeland Security (DHS). To meet this responsibility, the DHS established the National Bioforensics Analysis Center as part of the National Biodefense Analysis and Countermeasures Center. These laboratories are currently located in interim facilities at USAMRIID. Permanent facilities are under construction, also in Frederick, MD, including a BSL-4 laboratory and several BSL-3 laboratories to accommodate both bioforensic and biological threat assessment activities. These facilities are expected to become fully operational in 2010. The Homeland Security Act of 2002 ( P.L. 107-296 ) transferred the Plum Island Animal Disease Center (PIADC), which contains BSL-3 facilities, from USDA to DHS. The DHS has determined that PIADC has reached the end of its usable lifespan. While maintaining the existing PIADC facility, the DHS is in the process of establishing the National Bio- and Agro-Defense Facility (NBAF), a BSL-4 laboratory, to replace PIADC. This new high-containment facility will have the main goal of performing research on pathogens affecting animals and developing countermeasures against these pathogens. When complete, it will take over the research projects performed at PIADC and expand a currently limited research capability for animal pathogens requiring the highest level of biocontainment. The DHS announced its decision to site the NBAF in Kansas. The Department of Health and Human Services (HHS) currently maintains BSL-4 laboratories at the National Institutes of Health (NIH) in Bethesda, MD, and at the Centers for Disease Control and Prevention in Atlanta, GA. Additionally it has invested in construction of two BSL-4 National Biocontainment Laboratories (NBLs) and thirteen BSL-3 Regional Biocontainment Laboratories (RBLs). The NBLs and RBLs are to serve as a national resource for conducting clinical and laboratory research and testing on pathogens in support of the NIH National Institute of Allergy and Infectious Diseases' biodefense research agenda. Additionally, both are expected to be available to assist public health efforts during a bioterrorism or emerging infectious disease emergency. The two NBLs are being built in Boston, MA, and Galveston, TX. The RBLs are geographically dispersed throughout the United States. The NBLs and RBLs are being constructed through a grant-making process and will be privately owned and operated. The HHS has also developed the Laboratory Response Network (LRN), a network of laboratories that engage in public health activities. The LRN is charged with maintaining an integrated network of laboratories that can respond to bioterrorism, chemical terrorism and other public health emergencies. The LRN includes federal and state public health facilities, medical institutions, and others. These laboratories are primarily engaged in diagnostic and public health testing of samples, especially in an emergency situation where additional capacity for such testing is needed. Many of these laboratories possess BSL-3 capabilities. The Department of Agriculture (USDA) will conduct research in the new NBAF being built by DHS. The USDA is also constructing new BSL-3 laboratories. These include laboratories in Ames, IA, consolidating animal health research, diagnosis, and product evaluation in a single facility, and at the National Wildlife Research Center in Fort Collins, CO. Academic institutions are investing in high-containment laboratory facilities for a variety of reasons. As federal funding for biodefense research and development has increased, universities have responded by building more high-containment laboratory space. Such laboratory space is seen as increasing their faculty's ability to compete for federal funding and helping the university recruit new faculty. The University of Minnesota, Purdue University, and Ohio State University are examples that have constructed or plan to construct additional BSL-3 laboratory space. Private sector companies and non-profit institutions also maintain high-containment laboratory facilities. Pharmaceutical and other companies may need such facilities for medical testing and evaluation, animal efficacy studies, and other product development purposes. Some large companies have determined that the costs of an in-house high-containment laboratory are justified by their product development and manufacturing goals. Others have chosen to contract with outside firms to obtain this capability. These contract firms include Lovelace Respiratory Research Institute, Battelle Memorial Institute, Southern Research Institute, and others. The expansion of high-containment laboratories has raised several issues for policymakers. These include how to determine the appropriate capacity to meet national needs, whether oversight of facilities or personnel need to be increased, balancing the desire for additional laboratory capacity with its accompanying increase in risk, possible international ramifications, and local concerns. After the 2001 anthrax mailings, it became apparent to some policymakers that the existing high-containment laboratory infrastructure was insufficient to meet the needs of that crisis. Congress and the administration decided that additional high-containment laboratory space should be constructed. The high capital and maintenance costs of these facilities were deemed to require federal investment and support. At the same time, these high costs make it important to avoid over-building capacity and to fully utilize existing resources. Decisions to build and support high-containment laboratories were made in multiple agencies and in multiple budget cycles. Agencies considered their individual requirements, without any robust national needs assessment or coherent, coordinated expansion or utilization plan. As a consequence, policymakers have expressed concern that the new high-containment laboratory capacity may now exceed the national need or the amount that can be operated safely. A lack of information on existing federal and non-federal high-containment laboratory capacity is hindering more coordinated planning. The National Institute of Allergy and Infectious Diseases identified 277 domestic BSL-3 laboratories, but its survey suffered from a low response rate and other methodological shortcomings. In compliance with the Project BioShield Act of 2004 ( P.L. 108-276 ), DHS and HHS estimated that there are 630 BSL-3 and BSL-4 laboratories. This estimate has also been criticized by nongovernmental experts. The DHS and HHS estimate drew heavily on the number of facilities registered to work with select agents. However, a BSL-3 laboratory need not necessarily work with select agents and therefore may not be required to hold a registration certificate. Conversely, entities registered to work with select agents may or may not use high-containment laboratories (see Table 3 ). Other, nongovernmental estimates, though incomplete, have identified large increases in high-containment laboratory capability. The Government Accountability Office was unable to definitively determine the number of BSL-3 laboratories, but did document an increase in laboratories. Determining whether ongoing and planned construction has surpassed future national needs likely requires a government-wide assessment with the participation of many federal agencies. Previous efforts by a single agency to determine the number of extant laboratories have failed. Congress may consider whether such a survey should be performed at the agency level or through a higher or external coordinating body. The continued construction of high-containment facilities raises questions about capacity utilization. Fully utilizing additional capacity will likely require increased funding for research, operations, and management. This increase in funding may be particularly difficult for those agencies that are undergoing a large increase in capacity. For example, an agency increasing its high containment laboratory capacity four-fold will have concomitant increases in operations and maintenance costs for the larger facility regardless of whether the agency fully uses the new capacity. Individual agencies may feel pressure to request larger research budgets to justify their increased operations and maintenance costs. Interagency federal planning efforts may help alleviate overcapacity costs, but would require agreement among agencies regarding prioritization and shared use of different agency facilities. Planning efforts arising from individual agency initiatives may have difficulty influencing synergies or redundancies between agencies. For example, DHS, through the Under Secretary for Science and Technology, has attempted to coordinate homeland security research and development, but this activity was not prescriptive and did not address use of other agency laboratory assets. Conversely, higher-level, multi-agency strategies may not specify the utilization of existing or future facilities and laboratory space on an agency basis. Congress may wish to consider whether multi-agency coordination of high-containment laboratory use is best performed through central coordination or at the agency level. The growth of BSL-3 and BSL-4 laboratories has raised concerns about the potential for pathogen release into local communities, as well as biological weapon proliferation, either through the transfer of pathogens or the transfer of technical knowledge through training and employment of foreign scientists in such venues. Events, such as laboratory infections with select agents, improper shipping of select agents, and performance of research at inadequate biosafety levels have led policymakers to reexamine the current oversight framework. Consensus has not been reached regarding the best approaches to overseeing these laboratories. The current, mainly self-regulatory approach is seen by some analysts as not stringent enough and in need of additional federal oversight. Some experts have suggested expanding regulations to require mandatory biosafety training or broadening biosecurity measures. Others feel that the broad application of the results and processes of high-containment laboratory work may lend itself better to an enhanced self-regulatory approach, focused on greater worker engagement and responsibility. These experts suggest that training in best practices be increased and that scientists develop more robust self-policing. Increased high-containment laboratory capacity is a two-edged sword. Expansion allows for a greater diversity of biodefense research, more efficient public health sample testing, and more research discoveries. However, the increase in laboratories also increases the potential for theft or accidental release of dangerous pathogens and transfer of technical knowledge to persons wishing to do harm. Legislation passed by previous Congresses addressed concern about the theft of dangerous pathogens by augmenting the Select Agent Program to enhance the physical security of stored pathogens, as discussed in " Biosecurity and the Select Agent Program ". As the number of high-containment facilities has expanded, more facilities have registered to possess select agents. Investigations by GAO and agency inspectors general have revealed security weaknesses at several facilities participating in the Select Agent Program. Additional regulatory focus on Select Agent Program compliance might minimize the likelihood of these events, though growing laboratory capacity may strain agency resources for these endeavors. Whether public or private sector, high-containment laboratories are planned and designed to minimize the possibility of accidents from human error or mechanical failure. Despite such planning, accidents do occur and can overwhelm the safety controls and barriers designed to mitigate their consequences. The GAO has testified that each high-containment facility has an inherent associated risk. As additional facilities are constructed, the total risk increases. The magnitude of this incremental risk is difficult to measure and may vary depending on each laboratory's compliance with best practices and regulation. Factors that might contribute to the risk include the rate of accidental or other releases, the rate of subsequent illness from any releases, and the total number of laboratories. Because this information is not generally available, policymakers may perform an approximate cost/benefit analysis relying on estimates of the potential benefits provided by research in high-containment laboratories and the potential costs resulting from an infectious release from a high-containment laboratory. For example, breakthroughs in biodefense research, such as vaccines against pathogens requiring high-containment, might be considered as a benefit while the loss of infected animals or infection of laboratory workers might be used as an example of a cost. Subtle and institutional effects, which may be hard to measure, such as the development of a national sampling laboratory network and the proliferation of high-containment laboratory technique, may be overlooked by federal policymakers. As a result, policy may be driven by response to high profile incidents rather than by judging the actual risk, or the full costs and benefits, of the increased number of facilities. Another concern is personnel surety or the "insider threat." The expansion of high-containment laboratories requires additional trained technicians, scientists, and other employees to utilize this capacity. As more people receive training in high-containment technique, the risk that some of them have malicious intent increases. Some experts have asserted that such skills are not necessary to carry out a bioterrorist attack, but others believe that they are key. The DOJ asserts that the perpetrator of the 2001 anthrax mailings was a government scientist expert in high-containment technique. The increase in high-containment capacity may have international ramifications. Other countries may perceive the increase in high-containment laboratory capacity as beyond that necessary for biodefense and health research. Such a perception might lead some governments to conclude that the United States is constructing this excess capacity for offensive biological weapons development. Such a perception would likely damage U.S. efforts to persuade other countries to adhere to the Biological Weapons Convention. Expansion of the U.S. infrastructure may also encourage construction of similar facilities in foreign countries in an effort to match U.S. efforts. Such international laboratory proliferation may lead to greater international availability of high-containment technique and information and a greater risk that this training will be used for malevolent purposes. Differences in biosafety regulation and oversight among countries may influence the business decisions of pharmaceutical and biotechnology companies. If multinational corporations consider the United States to have an unfavorable regulatory environment, they may tend to locate their research and production facilities in other countries. Apart from the possible economic effects of this decision, the location of pharmaceutical and biotechnology companies could also affect national capabilities to respond to bioterrorism or natural disease outbreaks. Countries that rely on foreign production of disease treatments might be at risk of reduced or restricted access to countermeasures during an international disease outbreak or bioterrorist attack. Governments may choose to hoard domestically produced countermeasures to treat their residents rather than allow the countermeasures to leave the country. Differences in biosecurity regulation between countries have led some U.S. scientists to curb their international collaborations. Because many scientists believe that international collaborations are a key component of the scientific process, this development may have a chilling effect. Perceived barriers to international collaboration between U.S. researchers and those in other countries may lead industry to locate or invest in research in countries where such barriers are perceived to be lower. The extent to which biosecurity regulations have hampered international collaboration, or research in general, remains ambiguous. Additionally, the presence of U.S. biosecurity standards may encourage international partners to develop similar or parallel policies harmonized with U.S. efforts. The construction of high-containment laboratories in the United States has been met with varying degrees of local resistance. Some groups have strongly supported the building of new laboratories in their communities, citing the importance of the mission and the likelihood of local economic benefits. Proponents state that high-containment laboratories will generate high-paying jobs and require ancillary support from community businesses, providing a boost to the local economy. Other groups have strongly opposed proposed new laboratories for public health and quality of life reasons, citing possible release of pathogens and increases in security and traffic. These groups are dubious of economic benefit claims by proponents, questioning whether the high-paying jobs will be available to the existing local workforce rather than individuals recruited from elsewhere. In addressing these issues policymakers have several options. Interested congressional policymakers could deem current efforts sufficient and no further action is warranted. Several expert panels are examining these issues currently and Congress could defer additional action until their reports are complete and their recommendations heard. Alternatively, Congress could decide to step up current oversight of facilities, pathogens, or personnel, or to take other actions. Oversight efforts attempt to balance security controls with research productivity, weighing the potential for an adverse event against that of scientific progress. One scientist summarized the potential trade-offs between additional oversight and scientific progress: "While, in principle, the scientific community supports measures that would reduce the threat of terrorists acquiring deadly pathogens, there also is strong opposition to measures that make it more difficult to perform research." Policymakers may determine that current oversight efforts regarding high-containment laboratories are sufficient and that additional measures may cause undue burdens on scientific progress. Some portion of the scientific community is likely to support relying on extant oversight mechanisms and taking no additional action. Supporters of the status quo might argue that securing high-containment laboratories in the United States provides less increased security than focusing federal efforts on identifying potential bioterrorists and disrupting individual bioterrorist activities. Additional resources dedicated to developing intelligence on potential bioterror groups, their organizational needs, and social aspects might allow for disruption of their activities at a lower total cost than the implementation of an overarching regulatory framework that affects, by and large, domestic scientists engaged in beneficial activities. Even if Congress concludes that current oversight efforts are insufficient, concerned policymakers may choose to defer action until they can obtain a fuller understanding of policy options and their impacts. Since 2005, the Bush Administration created at least three expert groups to examine aspects of biosafety and biosecurity issues: the Working Group on Strengthening the Biosecurity of the United States, the Trans-Federal Task Force on Optimizing Biosafety and Biocontainment Oversight, and the National Science Advisory Board for Biosecurity. Additionally, GAO is continuing to investigate the proliferation of high-containment laboratories. Congress could choose to wait until some or all of these groups have completed their efforts and made their recommendations. To make its intent clear, Congress could explicitly endorse the groups' activities while awaiting their results. Additionally some policymakers may deem these efforts as insufficient and may require the performance of additional studies. President Bush created the Working Group on Strengthening the Biosecurity of the United States on January 9, 2009, through Executive Order. This working group, co-chaired by the Secretaries of Defense and Health and Human Services, consists of the Secretaries of State, Agriculture, Commerce, Transportation, Energy, and Homeland Security; the Attorney General; the Administrator of the Environmental Protection Agency; the Director of National Intelligence; and the Director of the National Science Foundation. It is charged with reviewing and evaluating existing laws, regulations, guidances, and practices of physical, facility, and personnel security and assurance. Its recommendations to the President regarding existing and new biosafety and biosecurity laws, regulations, guidances, and practices are due in July 2009. The HHS announced the formation of the Trans-Federal Task Force on Optimizing Biosafety and Biocontainment Oversight during congressional hearings in October 2007. This group, established in December 2007, is to develop an options paper that: addresses the current framework for local and federal biosafety and biocontainment oversight of research at high-containment laboratories, addresses potential gaps in biosafety and biocontainment oversight of high-containment laboratories, and provides recommendations for closing these gaps. Co-chaired by HHS and USDA, the task force includes staff from the Environmental Protection Agency, the National Science Foundation, and the Departments of Commerce, Defense, Energy, Homeland Security, Labor, Transportation, and Veterans Affairs. The task force's recommendations will be presented to HHS and USDA leadership. The National Science Advisory Board for Biosecurity includes non-governmental voting members and non-voting members from 15 federal agencies and departments. The Board is developing policies relating to dual-use research (i.e., beneficial research that might be turned to malignant uses). Among other endeavors, the Board is trying to develop an effective framework for oversight of such research, a code of conduct for researchers, and effective biosafety training programs for researchers. The Board has multiple working groups producing analysis and publishes recommendations on an ongoing basis. The GAO is expected to release a report in 2009 that addresses high-containment laboratory issues and builds on prior testimony. This report may have additional recommendations for legislative branch and executive branch action. By waiting for the recommendations of such studies, Congress may be able to use the results of these efforts rather than duplicating them and possibly undercutting them. Additionally, these efforts may generate new policy ideas or options not currently under consideration. Alternatively, Congress may decide that high-containment laboratories issues are too pressing to wait for the results of these groups and instead address this issue without waiting for executive branch or GAO reports. The following are several policy options that may facilitate this approach. Previous efforts to determine the number and capacity of such laboratories have failed to produce a robust and reliable determination of the number of high-containment laboratories. Multiple sources, including non-governmental organizations and congressionally established commissions, have called for a comprehensive inventory of existing capacity. While compiling such a comprehensive inventory may appear straightforward, it likely would not be an easy or simple task. Non-federal laboratories reside in a variety of locations performing a variety of work. Non-federal high-containment laboratories are located in academic research institutions, public health agencies, and industrial research and quality control facilities. A voluntary self-reporting mechanism may be insufficient to identify existing facilities and get information about their capacity. Also, a survey would be a snapshot of the actual high-containment capacity but would not necessarily capture future construction or expansion. Concerns about industrial competitiveness and reporting burden may act as substantial barriers for obtaining a complete inventory. Efforts to incentivize self-reporting might increase participation depending on the incentive relative to the reporting barrier. Alternatively, congressional policymakers could mandate that all high-containment laboratories, both public and private, register with the federal government. If laboratories face a sufficient penalty for not registering, this approach could produce a comprehensive list of high-containment laboratories. Such a registry could potentially provide the government with information regarding the total available laboratory capacity, its current use, its geographic distribution, and availability. Facility registration was a component of early implementation of the Select Agent Program, prior to amendments requiring certification of facilities and personnel. Registration might be required even if no further security measures were mandated. Another option, given the difficulty of determining the full scope of high-containment laboratories, is to limit such a survey to federal facilities. Since federal facilities are within the scope of executive decree, all agencies could be required to report their high-containment facilities and capacity to Congress through the Executive Branch. If the existing federal capacity was well known by policymakers, the government might more efficiently plan for use and possible expansion of this capacity. A concomitant development of a government-wide needs assessment may also help the government to efficiently apportion resources. By comparing the needs assessment with existing and planned federal capacity, it may be possible for the government to determine if federal high-containment capacity is greater than the need. Overexpansion has both resource allocation costs and potentially increased security concerns. In considering whether to attempt to survey the number of high-containment laboratories, Congress may wish to weigh the potential economic costs of doing so under both a self-reporting framework and a mandatory reporting framework, as well as the quality and utility of the information so acquired. Additionally, the benefits of such a survey may be maximized through comparison with a needs assessment, which is currently unavailable across federal agencies. Concerned Members of Congress might require the submission of a needs assessment from specific agencies or from multiple agencies in addition to capacity information. Some policymakers have called for a moratorium on new federally funded construction of high-containment laboratories and a decrease in the proposed final number of laboratories. In weighing the effects of a moratorium, policymakers would likely have to address the benefit of constructing the right amount of laboratory capacity, rather than too much, versus the potential costs to research and other priorities posed by such a moratorium. In the absence of a government-wide capacity needs assessment, building additional laboratories increases the probability that capacity will be over-built or redundant operations established among agencies. The establishment and operation of new high-containment laboratories is likely to reach a level of diminishing returns as the capacity approaches the level of need. Incremental increases in high-containment laboratory capacity may yield greater return than the construction of large amounts of new laboratory space, suggesting that existing laboratory space could be expanded rather than new laboratory space constructed. Some agencies have countered such criticism by stating that they have assessed interagency needs on a case by case basis and that existing infrastructure is dated and not a candidate for expansion. For example, DHS states it has performed such an assessment as part of its development for the National Bio- and Agro-Defense Facility. However, in the absence of a government-wide assessment, it is possible that agency-specific needs assessments will not identify synergies or existing available infrastructure in other agencies. Enacting a construction moratorium might have ramifications for the federal government's ability to meet previously established national goals. For example, delays in construction of laboratory facilities may result in delays in performing planned research activities that require those facilities. Previously identified national priorities, such as the establishment of a permanent bioforensics capability, might be delayed or hampered. Additionally, advisory panels and other groups have made repeated calls for expansion of specific high-containment laboratory facilities. A moratorium on construction might impede the development of capabilities deemed necessary by such panels. Some analysts have suggested that the federal government license and certify all high-containment laboratories. Currently, only laboratories that handle select agents are required to register with the federal government and receive certification that they comply with specified security regulations. Among the possible approaches are directly regulating high-containment laboratories and expanding the scope of the Select Agent Program. An analysis of these two options follows. One approach to licensing might be applying the Select Agent Program requirements to all high-containment laboratories, regardless of the pathogens used at the laboratory. Such an approach might provide a uniform set of expectations regarding the security level at all high-containment laboratories. Alternatively, licensing could be another, separately administered program with its own requirements. Establishing a separately administered program might allow for flexibility in licensing requirements, differentiating, for example, between high-containment laboratories that possess select agents and those that do not. Laboratory licensing and certification mandates might pose a series of challenges, both in implementation and in acceptance from the scientific community. Licensing and certifying high-containment laboratories may not address the full universe of laboratories of concern. For example, select agents may be handled outside of high-containment laboratories under certain circumstances, indicating that certain manipulation of these pathogens could occur outside of a unified regulatory framework that covers only high-containment facilities. A more comprehensive approach would involve overseeing all laboratories capable of BSL-2 or higher containment. This approach would be certain to capture all locations of sufficient biosecurity for the use of any select agent but would have several disadvantages. Primary among them is the greatly increased number of facilities that would be overseen by this approach. Most facilities handling a human-infective pathogen would qualify under this approach, including and impacting public health, diagnostic, hospital, industrial, and academic laboratories. A different approach, focusing on the pathogens of concern rather than the facilities capable of handling them, might involve expanding the select agent list. As the Select Agent Program uses a list of pathogens to identify regulated entities, some experts have argued that some dangerous pathogens are not captured by this program. Some potentially dangerous diseases not covered by the Select Agent regulations include severe acute respiratory syndrome (SARS), dengue fever, western equine encephalitis, and yellow fever. Some of the pathogens that cause these diseases have been considered as biological weapons. Expanding the number of regulated pathogens would mean that more high-containment facilities would become regulated through the Select Agent Program. Some scientists have expressed concern about how the select agent list is constructed and may resist an expansion of the list. They argue that the current definition of a select agent, which relies on taxonomic definition of pathogens, may not be specific enough to accurately differentiate pathogens of concern from similar pathogens not of concern and thus may be unnecessarily hindering research. The NIH has requested the National Academies to determine the scientific advances necessary to identify select agents based on other features and properties beyond taxonomy. By focusing on the Select Agent list, regulatory impacts would affect only those entities using pathogens of concern. Other high-containment facilities would not be affected. Such an approach would potentially limit disruption of scientific development and public health activities, as well as allow the government to focus its regulatory efforts on a subset of the high-containment laboratory universe deemed to pose the greatest risk. Current Select Agent Program personnel background checks could be expanded to all personnel using BSL-3 and BSL-4 facilities. Select Agent Program personnel background checks have been identified by the DOJ Inspector General as sharing some of the requirements of other security regimes, such as the background investigation accompanying access to classified information or required for positions of public trust. Alternatively, a different level of background screening, perhaps less rigorous than used for possession of select agents, might be required for access to high-containment facilities that do not possess select agents. The scope of such background screening is likely to depend on policymakers' evaluation of the potential risks involved with gaining access to high-containment facilities. Efforts to enhance personnel oversight at high-containment facilities may pose a series of implementation challenges. Primary may be the potential resistance to government documentation and certification of laboratory researchers. Some scientists may assert that they would prefer to exit research fields requiring high-containment laboratories rather than obtain the required government clearance. The extent of this possible resistance is unclear. Making such personnel screening effective may be difficult. The Department of Defense maintains personnel oversight programs more extensive than required for access to select agents. However, the DOJ has asserted that, despite this increased oversight, a DOD scientist perpetrated the 2001 anthrax mailings. The Select Agent Program requires worker training prior to gaining access to select agents as well as annual retraining. Rather than prescribing specific training requirements, the regulations state, "The training must address the particular needs of the individual, the work they will do, and the risks posed by the select agents or toxins." While this allows for flexibility, it also risks allowing variation in quality. The development of training standards could help assure that each trainee receives certain core competencies. Some experts have suggested that, although there are some exemplary biosafety training programs, these efforts are insufficient to meet current demand and should be expanded. This type of training could be structured in many different ways, ranging from voluntary, local training to mandatory, federally centralized certification of competency. The effects of such training may be difficult to assess. Expanded biosafety training may reduce the number of laboratory acquired infections, but the rate of these infections is reportedly lower than that for other injuries. Additionally, purely biosafety training may not address biosecurity weaknesses or vulnerabilities. Enhancement of training to include considerations related to the potential dual-use nature of pathogens handled in high-containment laboratories might address concerns related to biosecurity and provide a more uniform understanding of biosecurity concerns among the high-containment laboratory worker community. When accidents or other unexpected events occur in high-containment laboratories, lessons may be learned from the success or failure in addressing the particular incident. Reporting mechanisms, both voluntary and mandatory, have been suggested and implemented in other areas to help disseminate information about accidents or near accidents, to help the community learn from the experiences of others. In the case of events involving select agents, the potential for criminal or other penalties to occur may pose a disincentive to reporting these events widely among the research community. Researchers or research institutions might also not report because of perceived loss of stature, embarrassment, or other professional repercussions. This lack of sharing may inhibit the improvement of practices and procedures that might prevent such events from happening in the future. Some experts have suggested enhancing the current reporting system to establish a database of accidents and corresponding remediation, such as changes in technology or practice. Such a database might provide warning to scientists involved in similar efforts, allowing future accidents to be avoided or minimized. The reporting required under the Select Agent Program could be coupled with such a database. Entries into such a database might be affiliated with the reporting entity or be anonymous after processing by HHS or USDA. Experts have recommended that penalties for reporting accidents to this database be minimized or eliminated so as to encourage such reports. When considering such a mechanism, Congress may have to weigh the potential for negligence to go unpunished when reported and the interaction of such reporting with the existing criminal and other penalties present in the Select Agent Program. When crafting the details of such programs, policymakers may have to assess the optimal balance between increasing oversight and the potential regulatory burden. Approaches that increase federal oversight would be likely met with at least some resistance from scientists and other affected stakeholders. The benefits of such increased oversight might be hard to quantify, expressing themselves mainly as reducing potential opportunities for ill-doers to use existing infrastructure in the pursuit of biological weapons. Expansion of the Select Agent Program, either through expanding the Select Agent list or by applying the program requirements to more laboratories, may increase barriers to public health response and international collaboration. Critics of the Select Agent Program have stated that the public health response to emerging disease, such as SARS and avian influenza, relies on timely and efficient transfer of materials between high-containment laboratories both domestically and internationally. Increasing the scope of the Select Agent Program, with its requirements for both laboratory and personnel certification, may increase the barriers to successful collaboration, leading to negative impacts on public health response. Similarly, international collaboration on regulated pathogens, both in the public health and the scientific research community, may be impeded because of a lack of comparable security regimes in foreign countries. The impacts of a licensing and certification regime on the regulated entities might be significant. Scientists not involved in biodefense activities would be affected by the licensure requirement, potentially reducing scientific productivity in both the academic and industrial sectors. Also, public health laboratories and hospitals may accrue costs associated with these regulatory activities. Moreover, an increase in regulated facilities would require a concomitant increase in federal resources, both to process initial registration and to perform necessary inspections and certification oversight. One overarching issue with any of these options is the identification of the most appropriate oversight agency. With regard to existing biosafety and biosecurity programs, policymakers determined that USDA and HHS had the necessary technical knowledge and relationship with the scientific community to make those agencies the appropriate regulators. Historically, many of these concerns were more focused on laboratory worker safety and minimizing the risk of pathogen accidental release. As homeland security concerns, such as pathogen theft and the possibility of training someone with malicious intent, have increased, policymakers may decide that another agency, such as DHS, would be more appropriate. If policymakers augment existing authorities rather than creating new ones, oversight could be performed by the agency currently possessing statutory authority. If policymakers choose to develop new, additional authorities, then a mixture of oversight authority might occur, where one agency regulates for security under the Select Agent Program, and another under a new authority regulates high-containment laboratories. Harmonizing any new requirements with existing requirements, including deciding whether to consolidate all oversight into one agency, may be important to smooth implementation of new oversight responsibilities. As biosafety is mainly based on voluntary adoption of best practices, limited federal resources have been expended in overseeing such adoption. If the scope of biosafety practices for high-containment laboratories is expanded, then the amount of federal resources necessary, even under a non-mandatory program, would likely increase. Additional funding or staffing may be necessary for those agencies to oversee and meet new mandates. The 111 th Congress has begun to consider some of these issues. Legislation addressing the Select Agent Program and the questions raised by the expansion of high-containment laboratory capacity have been introduced into both chambers. H.R. 1225 and S. 485 would extend the authorization of the Select Agent Program through 2013 or 2014 respectively and expand the criteria considered by CDC and USDA when determining if pathogens are select agents. The bills would require the National Academy of Sciences to review the Select Agent Program and recommend improvements. The HHS Secretary would be required to develop minimum biosafety and biosecurity training that would be mandatory to gain access to select agents. Additionally, the HHS Secretary would be required to issue guidance on improvements to the current select agent monitoring and inventory procedures. These bills would also require the HHS Secretary, in consultation with the USDA Secretary, to report to Congress an evaluation of sufficiency of current and planned capacity; how laboratory capacity and lessons learned could be best shared across the biodefense and infectious disease communities; how to improve and streamline guidance on laboratory infrastructure, commissioning, and maintenance; and ways to improve personnel training. Finally, the HHS Secretary is directed, in coordination with the USDA Secretary, to establish the Biological Laboratory Incident Reporting System, through which laboratory personnel could voluntarily report biosafety or biosecurity incidents. The Laboratory Surge Capacity Preparedness Act ( H.R. 1150 ) would authorize DHS to award competitive grants to Regional Biocontainment Laboratories for their operation and maintenance costs. This bill would also require the DHS Secretary, in consultation with the HHS Secretary, to provide a report to Congress. This report would detail activities undertaken to integrate the RBL network and describe whether additional BSL-3 laboratory surge capacity is needed to effectively respond to a biodefense or emerging infectious disease emergency. Regardless of U.S. domestic efforts, biocontainment technologies are widely dispersed around the globe and used by many scientists in many countries. Absent international harmonization, the threat of a high-containment laboratory being the source of a bioterror weapon may be only partially addressed by solely domestic policy changes. A key challenge for congressional policymakers is to define the goal of enhanced oversight of high-containment laboratories. The choice of goal may affect the relative importance of the issues of concern and thus the choice of policies to address them. For example, focusing on a registry of existing high-containment laboratory capacity may have benefits for planning, coordination, and efficiency of use but provide relatively limited security benefits. Similarly, a rigorous oversight program including facility and personnel licensure, mandatory training, and restricted construction of new facilities may provide security benefits at the cost of regulatory burden, increased federal expenditures, and impeded scientific progress in countermeasure research, bioforensics, and public health. When weighing potential policy options to address these complex policy issues, policymakers may have to reconcile many competing and potentially conflicting national needs.
|
The federal government responded to the September 11, 2001, terrorist attacks and the subsequent anthrax attacks with increased focus on and funding for biodefense. A key consideration in this response was addressing shortages in diagnostic, clinical, and research laboratory capacity. Several departments and agencies have increased or are in the process of increasing their laboratory capacity. High-containment laboratories play a critical role in the biodefense effort, offering the hope of better responses to an attack and a better understanding of the threat posed by bioterrorism. However, they also could increase the risk of a biological attack by serving as a potential source of materials or training. Indeed, the Commission on the Prevention of Weapons of Mass Destruction Proliferation and Terrorism recommends tightening government oversight of high-containment laboratories. Policymakers have become increasingly interested in the oversight of these facilities following reports of accidents, regulatory noncompliance, and community resistance. The increase in high-containment laboratory capacity has raised new policy questions and emphasized existing ones. How much laboratory capacity is enough? What is the necessary federal investment? Should laboratories be consolidated or dispersed? What plans exist to coordinate multiple agency efforts to expand high-containment laboratory capacity? Does increasing laboratory capacity increase the risk of accidents and the opportunity for purposeful misuse? What is an acceptable balance between the benefits these laboratories provide and the risks they pose? Interested Members of Congress might take action to address some or all of these concerns. Alternatively, they might defer action until efforts currently under way assess and make recommendations regarding the existing regulatory structure. If Congress chooses to enhance oversight, it might require a survey of existing facilities and their use and a national needs assessment, perhaps barring further construction until these are complete. Stakeholders could focus on enhancing self-regulatory activities such as improving or standardizing laboratory worker training or building a mechanism for sharing lessons learned. Rather than relying on self-regulation, policymakers might enhance oversight through additional regulation of high-containment facilities, requiring laboratory or personnel certification, or by broadening the Select Agent Program. Which agencies should implement any new mandates remains an open question. Biocontainment technologies are widely used by scientists around the world. Efforts to increase control of U.S. high-containment laboratories may put domestic industry at a competitive disadvantage and inhibit international academic collaboration. Absent international harmonization, the United States can only partially address the threat of a high-containment laboratory being the source of a bioterror weapon. A key task for policymakers is to define their goals for enhancing oversight of high-containment laboratories. The focus of the oversight effort may affect which policy issues are addressed. For example, focusing on a registry of existing high-containment laboratory capacity may improve planning, coordination, and efficiency of use but provide relatively limited security benefits. Similarly, a rigorous oversight program including facility and personnel licensure, mandatory training, and restricted construction of new facilities may provide security benefits at the cost of regulatory burden, increased federal expenditures, and impeded scientific progress in countermeasure research, bioforensics, and public health. When weighing options to address these complex policy issues, policymakers may have to reconcile many competing and potentially conflicting national needs.
|
On January 13, 2012, President Barack Obama announced that he would ask Congress to reinstate so-called presidential reorganization authority, and a legislative proposal that would renew this authority was conveyed to Congress on February 16, 2012. Bills based on the proposed language were subsequently introduced during the 112 th Congress in the Senate ( S. 2129 ) and the House ( H.R. 4409 ). Similar authority was available to Presidents periodically between 1932 and 1984. It allowed the President to present plans to reorganize executive branch departments and agencies to Congress that would be considered under an expedited parliamentary process. Should this authority be reinstated, the President indicated that his first submitted plan would propose consolidation of six business and trade-related agencies into one: U.S. Department of Commerce's core business and trade functions, the Export Import Bank, the Overseas Private Investment Corporation, the Small Business Administration, the U.S. Trade and Development Agency, and the Office of the U.S. Trade Representative. This report summarizes the repeated renewal and evolution of presidential reorganization authority from 1932 to 1984, as well as subsequent unsuccessful efforts to renew it since then. The report then discusses President Obama's request in the context of this background. Finally, the report provides analysis of the possible options for congressional consideration relative to this legislation. Between 1932 and 1981, Congress periodically delegated authority to the President that allowed him to develop plans for reorganization of portions of the federal government and to present those plans to Congress for consideration under special expedited parliamentary procedures. Under these procedures, the President's plan would go into effect unless one or both houses of Congress passed a resolution rejecting the plan, a process referred to as a "legislative veto." This process favored the President's plan because, absent congressional action, the default was for the plan to go into effect. In contrast to the regular legislative process, the burden of action under these versions of presidential reorganization authority rested with opponents rather than supporters of the plan. In 1984, the mechanism was amended to require Congress to act affirmatively in order for a plan to go into force. This arguably shifted the balance of power to Congress. The authority expired at the end of 1984 and subsequently has not been available to the President. Presidents used this presidential reorganization authority regularly, submitting more than 100 plans between 1932 and 1984. Presidents used the authority for a variety of purposes, from relatively minor reorganizations within individual agencies to the creation of large new organizations, including the Department of Health, Education, and Welfare (HEW), the Environmental Protection Agency, and the Federal Emergency Management Agency (FEMA). The terms of the authority delegated to the President varied greatly over the century. During some periods, Congress delegated relatively broad authority to the President, while during others the authority was more circumscribed. As noted above, the reorganization authority was refined and reauthorized on a number of occasions between 1932 and 1984. On some occasions, such as 1939, 1945, and 1949, Congress enacted a completely new statute. On other occasions, modifications were made by amendment of the preceding reorganization authority. As a result of these modifications, the statute currently laid out in the U.S. Code is structured very differently from the early statutes of 1932 and 1933. Nonetheless, all of the elements of the current statute are represented, though perhaps in embryonic form, in the authority's earliest incarnation. Each of the elements of the reorganization authority is integral to its overall scope and effect, but several of these more strongly influence the relative authority of the President and Congress, and the resulting balance of power between the two branches. These elements are the reorganization plan contents , the limitations on power , and the expedited parliamentary procedures . The provisions that define the potential scope of reorganization plan content, when combined with the provisions that further limit or prohibit certain reorganization plan content, set the boundaries of a reorganization that the President can propose under this special authority. The provisions that specify the parliamentary procedures to be used define the role of Congress in facilitating or impeding the enactment of a submitted plan. These procedures also define the requirements of the President during this process. Such requirements may be seen by the Administration as easing or making more difficult a plan's enactment and implementation. The roots of presidential reorganization authority can be traced to the Herbert Hoover Administration (1929-1933), and the statutory framework for this authority evolved throughout the middle of the 20 th century. Congress reshaped the contours of the authority in response to experience and political context. During successive renewals of the authority, Congress sometimes narrowed, and other times expanded, the scope of potential reorganization activities. In addition, the expedited procedures were altered in such a way that it became easier or harder to defeat one of the President's plans, though always easier than under the regular procedures. In general, the trend from the 1940s onward was to narrow the scope of potential activities and to make it easier for Congress to defeat a plan. The presidential reorganization authority was not continuous from 1932 to 1984; it lapsed for periods of less than two years on a number of occasions, and for longer periods from 1935 to 1939, from 1941 through 1945, from 1973 to 1977, and from early 1981 to late 1984. As discussed below, the type of expedited parliamentary procedure employed under the reorganization authority—a "legislative veto"—was found to be unconstitutional in 1983. The authority was modified to address this issue, and it was extended for approximately two months at the end of 1984. However, this version of reorganization authority was never used; the last plan was submitted in 1980, by President Jimmy Carter. The 1984 authority expired and therefore is not available to the President, but its provisions are listed at 5 U.S.C. Sections 901 et seq. Table 1 provides summary information, by President, regarding the various versions of this authority. The following sections summarize the development of this statutory mechanism. The text includes brief historical context, a summary of Presidents' requests for the authority and Congress's response, highlights of the changes to the authority over time, and a summary of the plans that were submitted under the authority. Congressional consideration of grants of expedited reorganization authority to the President often included debates over the constitutionality of the legislative veto mechanism that was, until 1984, a key component. Inasmuch as this set of procedures was found to be unconstitutional and has no longer been under consideration in the legislative proposals of recent years, these previous constitutional concerns are not described here. CRS specialists conducted a thorough research of the evolution of these procedures in 1980, however, and the resulting studies were published in a committee print. The earliest antecedent of the reorganization authority that is currently in the U.S. Code dates to 1932. While Secretary of Commerce, Herbert Hoover had been a proponent of the idea that Congress should delegate to the President authority to propose reorganizations of the executive branch for the purposes of improved economy and efficiency, subject to some form of congressional disapproval. He continued to advance this view during his presidency. In 1932, Hoover requested this power, and, a few months prior to the 1932 presidential election, Congress provided the first version of the President's reorganization authority. The statute was enacted on June 30, 1932, during the first session of the 72 nd Congress (1931-1932). Under the act, the President was authorized to direct, by executive order, specified government reorganization actions. Each such executive order was subject to congressional review, and could be nullified by a resolution of disapproval, within 60 days, by either chamber. In the event of an adjournment of Congress within the 60-day period, the order could not become effective until 60 days following reconvening. The first session of the 72 nd Congress adjourned on July 16, 1932, and it did not reconvene until December 5, 1932. The period between enactment and adjournment—16 days—seemingly would have been of insufficient duration to allow an executive order to go into effect under the congressional review and disapproval provision of the statute, even if it had been submitted upon enactment. Perhaps for this reason, President Hoover did not submit executive orders under the act to Congress until December 9, 1932. By this time, the President had been defeated in his bid for reelection, and he was completing his term in office. The act established definitions for federal government agencies that reflected the distinctions made among various entities at that time. It specified that, for purposes of the statute an "executive agency" was a "commission, board, bureau, division, service, or office in the executive branch," with executive departments excluded. An "independent executive agency," by contrast, was an "executive agency not under the jurisdiction or control of any executive department," that is, any freestanding entity that was not a department. Congress continued to distinguish between departments, subunits of departments, and other freestanding federal organizations in later versions of the statute. Under the act, an executive order could transfer all or part of an independent agency and/or its functions to a department or agency; transfer all or part of an agency from one department to another; consolidate or redistribute functions within a department or in its component agencies; or specify the name and functions of a consolidated entity, as well as the title, powers, and duties of its head. The use of these powers was to be consistent with the purposes identified by the statute: that is, to group, coordinate, and consolidate agencies according to major purpose; to reduce the number of agencies by combining those with similar functions; to eliminate overlap and duplication of effort; and to "segregate regulatory agencies and functions from those of an administrative and executive character." Within these broad parameters, limitations were placed on the range of actions the President could include in an executive order. The statute provided that "Whenever … the President concludes that any executive department or agency created by statute should be abolished and the functions thereof transferred to another executive department or agency or eliminated entirely the authority granted in this title shall not apply." In other words, an executive order under this authority could not abolish an entire federal organization or eliminate all of its functions. During the remainder of his term, President Hoover issued 11 executive orders under the authority of the act. The orders directed the consolidation, coordination, and grouping of specified agencies and activities according to the major functions and purposes. As previously noted, the act included a mechanism for disapproval by a resolution of a single house of Congress, also known as a "one-house legislative veto." Following four days of hearings in late December 1932, the House Committee on Expenditures in the Executive Departments recommended that the House disapprove all of the executive orders. Among other reasons, the committee expressed reservations about binding the incoming President with the initiatives of the outgoing President. The committee's report, published on January 9, 1933, noted that the testimony of the President's Director of the Budget appeared to endorse this view: At the conclusion of his testimony Colonel [J. Clawson] Roop, in reply to a question of the chairman of the committee, expressed his personal opinion that it would be unwise to make the proposed changes on the eve of the inauguration of a new President. This view, coming as it did from the Director of the Budget, the official who was designated by the President to prepare the information upon which the orders were based, naturally had great weight with members of the committee. The House disapproved all 11 of Hoover's orders on January 19, 1933, thus preventing their implementation. On January 3, 1933, President Hoover spoke out against opposition to his reorganization orders, and he urged Congress to either allow them to take effect, or to provide an enhanced authority to the next President: The same opposition has now arisen which has defeated every effort at reorganization for 25 years.... The proposal to transfer the job of reorganization to my successor is simply a device by which it is hoped that these proposals can be defeated.... Any real reorganization sensibly carried out will sooner or later embrace the very orders I have issued.... Either Congress must keep its hands off now, or they must give to my successor much larger powers of independent action than given to any President if there is ever to be reorganization. And that authority to be effective should be free of the limitations in the law passed last year which gives Congress the veto power, which prevents the abolition of functions, which prevents the rearrangement of major departments. Otherwise, it will, as is now being demonstrated in the present law, again be make-believe. Consistent with the spirit of this statement, one day before leaving office, President Hoover signed the Treasury-Post Office Appropriations Act of March 3, 1933, which included an amendment to the 1932 statute that extended and strengthened reorganization authority for the benefit of his successor, President Franklin D. Roosevelt. The 1932 provisions were further amended on March 20, 1933, after Roosevelt took office. As amended in 1933, the act expressed a greater sense of urgency, in the context of the national economic downturn, to reorganize the federal government. The introductory statement of the statute began: The Congress hereby declares that a serious emergency exists by reason of the general economic depression; that it is imperative to reduce drastically governmental expenditures; and that such reduction may be accomplished in great measure by proceeding immediately under the provisions of this title. The changes in the amended act addressed some of the features that Hoover had perceived to be shortcomings in the original law: While the executive orders were to be submitted to Congress as before, the amended act provided no expedited method of congressional disapproval. Consequently, any executive order under the 1933 act would go into effect, absent enactment of a new law to the contrary. Under the amended act, the list of possible reorganizational actions was expanded to include the abolishment of a statutorily established agency or function. An exception to this authority was that an order could not abolish or transfer a department or all of its functions. Overall, the 1933 amendments expanded the range of actions the President could order under the authority, and it all but eliminated the ability of Congress to prevent such orders from taking effect. Unlike the original 1932 act, however, the amended statute had a sunset date: Executive orders under this authority had to be transmitted to Congress within two years from enactment. Despite the availability of expansive reorganization powers, Roosevelt did not undertake a comprehensive rearrangement of the executive branch. He did, however, issue a number of executive orders making various individual regroupings, consolidations, transfers, and abolitions of executive agencies and functions. According to one observer, the most important of these changes were: The creation of an Office of National Parks, Buildings, and Reservations in the Department of the Interior in order to consolidate all functions of administering public buildings and reservations, national parks, national monuments, and national cemeteries; the creation of divisions of Disbursement and Procurement in the Treasury Department to handle all of the government's disbursement and procurement activities; the abolition of the United States Shipping Board and the transfer of its functions and those of its subsidiary Fleet Corporation to the Department of Commerce; the consolidation of the separate Bureaus of Immigration and Naturalization into the Immigration and Naturalization Service in the Department of Labor; the transfer of the functions of the Federal Board for Vocational Education to the Interior Department, where they were assigned to the Office of Education; the consolidation of all the government's agricultural credit agencies in a newly created Farm Credit Administration; the transfer of the Office of the Alien Property Custodian and its functions to the Department of Justice; the abolition of the Board of Indian Commissioners and the transfer of its functions to the Department of the Interior; and the creation of a Division of Territories and Insular Possessions in the Department of the Interior to consolidate all the governments functions pertaining to territorial matters. In his message transmitting Executive Order 6166 to Congress, President Roosevelt stated that it would "effect a saving of more than $25,000,000." Whether such savings ultimately were achieved under the order is unknown. It does not appear, however, that the number of government agencies declined during this period. One later assessment observed that, "[i]n the eighteen months from the middle of 1933 to the end of 1934, 60 new administrative units were created, some by Congress and others by executive order in pursuance of general legislation. None of these took the departmental form, and many remain[ed] as permanent units." Roosevelt's public statements suggest that he did not believe, in general, that government reorganization would be a source of much savings. He expressed this clearly in his articulation of the administrative benefits of reorganization when he sought a renewal of the authority in 1937: The experience of states and municipalities definitely proves that reorganization of government along the lines of modern business administrative practice can increase efficiency, minimize error, duplication and waste, and raise the morale of the public service. But that experience does not prove, and no person conversant with the management of large private corporations or of governments honestly suggests, that reorganization of government machinery in the interest of efficiency is a method of making major savings in the cost of government. Large savings in the cost of government can be made only by cutting down or eliminating government functions. And to those who advocate such a course it is fair to put the question—which functions of government do you advocate cutting off? By mid-1935, the reorganization authority that had been provided in 1933 had expired. Organizational changes under this authority, as well as statutes enacted by Congress during the first years of the Roosevelt Administration, had created a federal bureaucracy seemingly in need of administrative reorganization and improved management. In early 1936, both Congress and the President initiated studies of potential reorganization of the executive branch. The results of these studies were not publically released until after the 1936 election and the beginning of both the President's second term and the 75 th Congress (1937-1938). The research on behalf of Congress, which was carried out by the Brookings Institution, resulted in a series of 15 reports that were submitted to Congress periodically during this time. The reports were combined into a 1,200 page Senate report that was published in August 1937. This report contained the results of "a study of the organization and administration of [then] existing functions and … recommendations regarding the improvement of their administrative performance." As such, it did not speak to the question of presidential reorganization authority. By early 1937, the study conducted on the President's behalf had been completed and reported to the President and Congress. This work, which was carried out by the President's Committee on Administrative Management, also known as the Brownlow Committee, resulted in a legislative proposal that was forwarded to Congress. Included in the proposal was a new version of reorganization authority. The proposal differed from the 1933 amendments in a number of ways that arguably would have shifted more power from Congress to the President than had been the case in the previous law. For example, the President would not have been required to inform, or get approval from, Congress as part of the process. In addition, the authority, previously authorized for two years, would have been without expiration. Furthermore, the range of reorganizational tools available to the President would have been greater. Among other possible actions, he would have been empowered to establish or abolish any government agency or federal corporation, including a department. The proposal to reactivate and expand the authority was embedded in draft legislation that also would have made statutory changes to the federal government, including establishment of a Department of Social Welfare and a Department of Public Works. Consideration of the Administration's request for executive branch reorganization authority appears to have been influenced by a proposal by the President, during the same session of Congress, to reorganize the federal judiciary. By this time, President Roosevelt had completed his first term and much of his New Deal economic and social legislative agenda had been enacted. The Supreme Court, in turn, had invalidated some of these laws. The President's proposal to reorganize the judiciary, which has frequently been referred to as his "court-packing plan," would have temporarily expanded the number of members of the Supreme Court and allowed the President to appoint additional Justices. These new Justices presumably would have ruled more favorably on challenges to New Deal legislation. The President's plan was seen by some to be an effort to aggrandize the power of the executive. It proved to be controversial, and, opposed even by some Members of Congress of his own party, it was never enacted. In this context, the President's request for expanded executive branch reorganization authority was viewed by some as another effort to expand the President's power, in this case at the expense of the legislative branch. For example, during Senate debate on reorganization authority in early 1938, one Senator drew an explicit connection between the two efforts: [A] year ago, when like a vagrant meteor the Court-packing scheme burst upon the horizon of our Legislature, the people, both legislators and onlookers, stood aghast, astonished, and bewildered. Little time had they to appreciate what that bill then was; and no time had they to appreciate that the complement of that bill, the so-called reorganization bill, followed and was a part of the scheme which was then presented to the American people. A year ago we had two bills. The first was the Court-packing bill, which was designed to give the President control of the courts. The second was the reorganization bill, which was designed to give the President all the power Congress possessed. If either bill were successful, that which was desired would be brought about. The Court bill was not successful. Its purpose has been and will be accomplished in a measure because time and nature have done their work. So the President has attained in part his object in that regard. The reorganization bill has not yet been successful. Yet men stand upon this floor—just as good men as any of the rest of us, no doubt, with the same patriotic impulses the same desire to protect and preserve liberty in this land—and plead for the passage of the reorganization bill, which gives to the President plenary powers in the entire domain of Congress. Some scholars have also attributed congressional opposition to other factors. Included in these factors are perceptions of insufficient consultation with congressional leadership and inadequate attention to spending reductions, as well as opposition to the establishment of one or more new departments. Early in 1938, the Senate passed a renewal of reorganization authority that was more limited than what the President had requested. Notably, it would have required that the President inform Congress of executive orders under the statute. In addition, the authority would have been of only two years duration. The range of reorganizational tools available to the President would have been similar to those that had been available in 1933. The Senate-passed measure was considered and amended in the House. The House amendments restored a version of the 1932 mechanism for congressional disapproval of the executive orders, among other changes. Ultimately the bill was recommitted in the House and never enacted. Soon after the beginning of the 76 th Congress (1939-1940), President Roosevelt once again requested reorganization authority. The terms of the legislation were more limited in scope than those that had been requested during the preceding two years, and the Reorganization Act of 1939 was enacted on April 3, 1939. One observer noted: The Reorganization bill introduced in 1939 stood in sharp contrast to the measure defeated by the House the previous year. It was extremely mild, omitting nearly every controversial feature of its predecessor.... It sparked no storm of controversy; public fear was absent and pressure groups were quiescent. The authority, delineated under the first title of the statute, differed from that of 1933 in several ways. First, the legal vehicle by which a reorganization initiative would be proposed by the President was to be a reorganization plan, rather than an executive order. This provision addressed a long-standing concern that allowing Congress to void an executive order by resolution was a violation of the separation of powers. Second, a reorganization plan could be nullified by concurrent resolution of Congress within 60 calendar days of its transmittal—a so-called two-house legislative veto. This mechanism for congressional involvement in the process represented somewhat of a middle ground between the 1932 statute, which allowed either house to nullify the President's proposal by simple resolution, and the 1933 statute, which had no provision for congressional nullification of an initiative. The 1939 act provided the President with less authority and included more limits than the 1933 act. Although a reorganization plan under the 1939 act could abolish agencies and transfer functions, as could be done under the 1933 statute, it could no longer abolish functions. In addition, the range of actions that could not be included in a plan was expanded to include the creation of a new department; a change in the name of a department or the title of its head, or the designation of any agency as "department" or its head as "Secretary"; the transfer, consolidation, or abolition of the whole or any part of 21 enumerated agencies; the continuation of an agency or function beyond the time provided for by law; and the exercise of a function not provided for in law. As had been the case under the 1933 law, the authority under the 1939 act was of limited duration. All plans had to be transmitted to Congress before January 21, 1941, the beginning of the next presidential term. President Roosevelt submitted five plans under the act, and each went into effect. Although not required by the act, Congress passed a joint resolution of approval in each case. These resolutions provided a way for Congress to "amend" the plans as to their application and effective dates. One of the plans faced opposition, but ultimately was approved. The House passed a concurrent resolution disapproving Reorganization Plan No. IV of 1940, but the Senate did not adopt the measure. The joint resolution of approval under which Congress endorsed the plan was initiated in the House as a joint resolution of approval for Reorganization Plan No. V of 1940. The Senate amended this resolution with approval of plan no. IV, and the House then agreed to the amended resolution. For some Members of Congress, this outcome, in which a plan went into effect despite the opposition of one chamber of Congress, was evidence of the shortcomings of the method of congressional consideration in the 1939 act. For example, in 1945, Representative Walter H. Judd referred to this sequence of events in the context of advocating for a one-house veto over a two-house veto. He stated: [I]t was under that 1939 act that a thing happened which many people here believe was unwise—the transfer of the CAA [Civil Aeronautics Authority] into the Department of Commerce. That reorganization plan was disapproved, as I recall, by a vote of 4 to 1 in this House, but it was approved in the other body by a narrow margin and became the law, despite our objection. It was under that law which the House had disapproved that the CAA was placed under the Department of Commerce, so that it ceased to be a wholly independent quasijudicial agency and became subject to the control of the Secretary of Commerce, who is a political appointee. The President's five plans effected a number of changes, including some that had been recommended in the 1937 report of the Brownlow Committee. Included among these changes were reorganizations that shaped the newly created Executive Office of the President (EOP). The Federal Security Agency, predecessor to the Department of Health and Human Services, was also established under this authority, from functions transferred from the Departments of Labor (DOL), the Interior (DOI), and the Treasury (Treasury), as well as the Works Progress Administration, the Social Security Board, and the Civilian Conservation Corps. On May 24, 1945, President Harry S. Truman requested reorganization authority. By this time, the 1939 authority had been expired for four years. But the President had not been altogether without authority in this area. After the United States entered World War II, Congress provided the President with temporary and limited war-time reorganization authority. The First War Powers Act was enacted December 18, 1941, 11 days after the attack against the United States naval base at Pearl Harbor, HI. The statute provided the President with authority similar to that which had been conveyed through the Overman Act of 1918, during World War I. Under the authority, the President could transfer and consolidate agencies by executive order without congressional consultation or approval, as long as his actions related to the conduct of the war. After the war, however, the organizational structure of the departments and agencies was to revert to its pre-war status unless arrangements had been statutorily changed in the interim. The First War Powers Act seemingly diminished the need for a renewal of the 1939 authority at that time. Its reversion provision, however, planted the seeds for President Truman's 1945 request. As one observer later noted: The authority granted under Title I of the 1941 Act was to cease six months after termination of the war; and, as in the case of the Overman Act [of 1918], all agencies were to resume the exercise of duties, powers, and functions 'as heretofore or hereafter by law provided.' American participation in hostilities of World War II lasted almost forty-five months whereas in World War I it had lasted but nineteen. One hundred and thirty-five executive orders had been issued by President Roosevelt in regard to war organizations as contrasted with some twenty-four issued by President [Woodrow] Wilson [under the Overman Act]. The complexity of unraveling such a vast war organization and mobilization of manpower and resources was enormous. Truman discussed this problem in his message requesting reorganization authority: [E]very step taken under Title I [of the First War Powers Act] will automatically revert, upon the termination of the Title, to the pre-existing status. Such automatic reversion is not workable. I think that the Congress has recognized that fact…. In some instances it will be necessary to delay reversion beyond the period now provided by law, or to stay it permanently. In other instances it will be necessary to modify action heretofore taken under Title I and to continue the resulting arrangement beyond the date of expiration of the Title. Automatic reversion will result in the re-establishment of some agencies that should not be re-established. Truman also envisioned reorganization activities not related to post-war reversion under the requested authority. His message stated: "Quite aside from the disposition of the war organization of the Government, other adjustments need to be made currently and continuously in the Government establishment." The legislation proposed by the Truman Administration would have been similar to that enacted in 1939. It provided that action by both chambers—a two-house veto—would be required for disapproval of submitted reorganization plans, for example. The Truman proposal differed from the 1939 act in several significant respects, however. Under the proposal, the authority would have been permanent, rather than limited in duration. In addition, no agencies would have been exempted from reorganization activities, and the range of permissible organizational adjustments would have been broader. As before, Congress was not receptive to what was perceived as a broad grant of authority, and the bills that made their way through the House and the Senate were more limited in scope. The first related bill introduced in the House, for example, would have exempted 21 agencies, provided for a one-house veto, and prohibited the establishment of new departments. The Administration actively advocated for its version of the authority, and it was successful in obtaining authority that was broader than that initially proposed in the House. Some have also credited Comptroller General Lindsay C. Warren, a former House Member who had been directly involved with the development of the 1939 act, with advancing the Administration's cause, particularly in the House. In a hearing of the House Committee on Expenditures in the Executive Departments, Warren gave a vivid description of the problem as he saw it: That is why I say the present set-up is a hodgepodge and crazy-quilt of duplications, overlappings, inefficiencies, and inconsistencies, with their attendant extravagance. It is probably an ideal system for the tax eaters and those who wish to keep themselves perpetually attached to the public teat, but it is bad for those who have to pay the bill. In his view, this was a problem that the President, with the proposed reorganization authority, might solve, but that Congress could not: Here is something that we all admit is bad. We admit this Government establishment just cannot survive at the pace it is going now. I mean the growth of it. Sooner or later it will tumble of its own weight unless something is done to coordinate and check some of this. Now, we have an Executive who says he will do this job fairly and efficiently and fearlessly. Now, when he sends down the plans, if you don't like them, if you put in the cloture provision, you have a right to vote against them. Gentlemen, Congress could sit in daily session here for the next hundred years and they wouldn't reorganize the Government of its own volition. And that is not any detraction of Congress, when I say that. Active congressional consideration of reorganization authority began in September of 1945, and a bill was enacted three months later on December 20. The new statute was similar to that of 1939 in a number of ways. In a victory for the Administration, disapproval of reorganization plans still required action by both chambers. But the Administration did not get the permanent authority it sought; the duration of the new authority was to be roughly two and a quarter years. In addition, certain kinds of reorganization activities, such as the power to abolish or create a department, were still prohibited. The new statute also differed from that of 1939 in several ways. The 1939 act opened by stating: "The Congress hereby declares that by reason of continued national deficits beginning in 1931 it is desirable to reduce substantially Government expenditures." This declaration was dropped in 1945, although the act did include among its six purposes "to reduce expenditures and promote economy." Listed first among these purposes, however, was "to facilitate orderly transition from war to peace." Another way in which the 1945 act differed from the 1939 act is that, whereas the earlier statute exempted 21 agencies from the authority, the later act partially or fully exempted only 11. In addition to these differences, the 1945 act included a new provision that constrained the use of the authority with regard to many independent regulatory agencies. The act provided that No reorganization plan shall provide for, and no reorganization under this Act shall have the effect of—… (6) imposing, in connection with the exercise of any quasi-judicial or quasi-legislative function possessed by an independent agency, any greater limitation upon the exercise of independent judgment and discretion, to the full extent authorized by law, in the carrying out of such function, than existed with respect to the exercise of such function by the agency in which it was vested prior to the taking effect of such reorganization; except that this prohibition shall not prevent the abolition of any such function. The Senate Committee on the Judiciary, which added this provision to the legislation it reported, included its rationale in its accompanying report: [The provision] represents an attempt by the committee to protect the independent exercise of quasi-judicial authority now vested, by an act of Congress, in agencies in the executive branch. The committee recognizes that the exemptions contained in the bill as reported may be changed or deleted before the bill is enacted in its final form; and the committee strongly urges that, whatever is done with respect to such exemptions, [this] provision … be retained. This sentiment was reiterated by a committee member on the Senate floor shortly before passage of the Senate version: The thought of the Senate committee … was that any quasi-judicial agency in exercising quasi-judicial functions or rule-making functions should be absolutely independent of, say, a Cabinet officer. The purpose of the committee was that in the event a quasi-judicial agency which is now independent should be placed under a Cabinet officer, notwithstanding that fact the Cabinet officer should in no way interfere with the absolute independence of the quasi-judicial junctions or the rule-making functions of such agency. President Truman submitted seven different reorganization plans to Congress under the 1945 act: three each in 1946 and 1947, and one in 1948. In response to six of the seven submissions, the House passed resolutions of disapproval. Of these six plans, only three were also disapproved by the Senate and thereby rejected. Such outcomes illustrate the extent to which reorganization authority requiring a two-house veto for disapproval of a plan was more favorable to Administration initiatives than authority with a one-house veto might have been. Had the 1945 act had a one-house veto procedure, it appears that six, rather than three, of Truman's seven plans might have been rejected. The disapproved plans included the following: Reorganization Plan No. 1 of 1946. Among other effects, this plan would have consolidated national housing functions and agencies, and centralized their administration. The plan was opposed by the housing industry. In addition, the plan proposed a national structure that differed from housing policy legislation that was then working its way through Congress. Truman's Reorganization Plan No. 3 of 1947, which the Senate allowed to go into effect the following year, reorganized housing agencies and functions in a way that was more acceptable to interested parties. Reorganization Plan No. 2 of 1947 and Reorganization Plan No. 1 of 1948. Both of these plans would have transferred the U.S. Employment Service to the Department of Labor. The service had been transferred from the Federal Security Agency to the Labor Department under the wartime authority; these plans would have kept it there. The proposed transfer would have strengthened the Department of Labor, which was perceived to favor the interests of organized labor. The plans were opposed by congressional Republicans, who were in the majority in both houses during the 80 th Congress (1947-1948), as well as many conservative Democrats. The Reorganization Act of 1945 expired at the end of March 1948. The Reorganization Act of 1949 was enacted soon after the start of President Truman's second term. The passage of this law followed the release of the recommendations of the Commission on Organization of the Executive Branch, which was also known as the Hoover Commission, after its chairman, former President Herbert Hoover. Among other things, the commission supported reactivation of presidential reorganization authority. This support reflected the sentiments of the chairman, who had sought the power during his own presidency (see above). President Truman generally endorsed the work of the commission, and he used reorganization authority to implement some of its recommendations. The Hoover Commission had been established by public law on July 7, 1947. The 80 th Congress (1947-1948), which enacted this statute, was led by Republicans, and many of its Members favored containing and shrinking the plethora of federal government agencies that had emerged during the New Deal and World War II. The Senate report on the legislation establishing the commission, for example, expressed this point of view: During the past 16 years, national and international events have necessitated a constantly expanding emergency government. In the wake of the prolonged economic distress of the 1930's and the 4 years of direct participation in World War II, the number of principal components of the Federal Government have multiplied from 521, in 1932, to 2,369, in 1947. The annual pay roll of the executive branch of the Government today approximates 6¼ billion dollars which is 1½ billion dollars more than the Government spent for all purposes in 1933. The executive branch now employs more people than all the State, city, and county governments combined. In this sprawling organization called the United States Government, functions and services criss-cross and overlap to a degree which has astounded every student of governmental operation. For example, there are no less than 29 agencies lending Government funds, 34 engaged in the acquisition of land, 16 engaged in wildlife preservation, 10 in Government construction, 9 in credit and finance, 12 in home and community planning, 10 in materials and construction, 28 in welfare matters, 4 in bank examinations, 14 in forestry matters, and 65 in gathering statistics.... And all the evidence points towards still further expansion, aimlessly, pointlessly, pleasing no one and frustrating sincere efforts to serve the people. The first meeting of the Hoover Commission was held in late September 1947. The bipartisan commission, which included 12 members from both the government and the private sector, was charged with studying and investigating "the present organization and methods of operation" of all organizational units of the executive branch "to determine what changes therein are necessary … to accomplish the purposes" of the act. These purposes included promoting "economy, efficiency, and improved service in the transaction of the public business" in these organizations by: (1) limiting expenditures to the lowest amount consistent with the efficient performance of essential services, activities, and functions; (2) eliminating duplication and overlapping of services, activities, and functions; (3) consolidating services, activities, and functions of a similar nature; (4) abolishing services, activities, and functions not necessary to the efficient conduct of government; and (5) defining and limiting executive functions, services, and activities. The commission carried out its research via 34 working groups, each charged with examining a particular organizational or policy area. Work began in the fall of 1947 and continued through 1948. Some saw the commission as a mechanism for strengthening the ability of the President to manage the large federal bureaucracy by centralizing authorities within the departments and agencies and building the President's management capacity—the mission embodied in the first three purposes enumerated above. Others viewed it as a mechanism for assessing the role of the federal government and recommending abolition of those functions that would better be carried out by the private sector—a mission derived from the latter two purposes above. Hoover appears to have favored both approaches to the commission's work, and the groundwork of the commission during 1947 and 1948 was geared toward accomplishing both of these missions. Studies of the commission's work have suggested that Hoover and other Republican members hoped that the commission's recommendations might provide the basis for significant government reform, in terms of both its management and its scope, under an anticipated Republican President. Such reform might have, for example, abolished some of the government functions that were established under the New Deal. After President Truman's reelection, the work of the commission apparently was retailored to focus less on reassessing the purposes of government and more on recommending organizational and managerial improvements that would be more acceptable to the Truman Administration. It has also been argued that the content and tone of the commission's recommendations were moderated by other factors, including the views of the Republican presidential nominee, Thomas E. Dewey; disagreements among commission members; the relationship between President Truman and former President Hoover; and Truman Administration influence. By January 1949, the reelection of President Truman, Democratic majorities in both houses, and the support of the Hoover Commission had laid the groundwork for renewing presidential reorganization authority, which had expired at the end of the previous March. Administration-drafted bills were introduced in both houses at the beginning of the Congress, and the legislation was actively considered over the following six months. The Administration sought to make the authority permanent, to eliminate exemptions of agencies, and to permit the creation of new departments. Although the recommendations of the Hoover Commission gained general public and congressional support, opposition to specific elements emerged. One recommended change that faced particularly strong opposition was a proposal to move the civil functions of the Army Corps of Engineers to the Department of the Interior. Whereas in the previous reorganization authority statute, Congress had arranged to protect certain agencies by exempting them and by prohibiting limitations on the judgment or discretion of independent agencies in carrying out quasi-judicial or quasi-legislative functions, legislative deliberations in 1949 yielded a different outcome. Congress elected to provide for disapproval by a vote of either house—a so-called one-house legislative veto—easing rejection of a plan that would reorganize a specific agency. With this procedural safeguard, the reorganization authority was enacted on June 20, 1949. The Reorganization Act of 1949 was similar in many respects to its 1945 predecessor; many of the provisions regarding plan contents and limitations remained the same, for example. It differed in several significant ways, however. Chief among these differences was the change in disapproval procedures and the lack of the exempted agencies provisions just discussed. In addition, the list of the six purposes of the authority no longer included a reference to a post-war transition. Instead, a new purpose that perhaps reflected the spirit embodied in the work of the Hoover Commission headed the list: "to promote the better execution of the laws, the more effective management of the executive branch of the Government and of its agencies and functions, and the expeditious administration of the public business." Yet another new provision incorporated a change that had been requested by the Administration: a reorganization plan could include the creation of a new department (although not through consolidation of two or more existing departments and their functions). Another goal of the Administration—permanent authority—was not achieved. Instead, the reorganization power was authorized for nearly four years, which was longer than previous periods. During this four-year period, President Truman submitted 41 reorganization plans to Congress. Unlike the bulk of the plans and executive orders submitted under previous reorganization statutes, most of these plans each dealt with a limited number of actions regarding one or two agencies. Many of these plans were designed either to implement recommendations of the Hoover Commission or to apply the principles set forth in the commission's reports. For example, a number of the reorganization plans pertained to the centralization of administrative authority over collegial boards and commissions in their chairs. Eleven of the 41 plans were disapproved by Congress. Two of these—one submitted in 1949 and the other in 1950—would have elevated the Federal Security Agency to department status. Other rejected plans included those that would have: vested in the Secretaries of the Treasury and Agriculture functions and powers that had instead been vested by law in subordinate officials in their respective departments; centralized administrative authority in the chairs of the Interstate Commerce Commission, the Federal Communications Commission, and the National Labor Relations Board; transferred the Reconstruction Finance Corporation to the Department of Commerce; vested appointment authority for local postmasters in the Postmaster General, under the civil service, rather than in the President, with the advice and consent of the Senate; abolished certain Bureau of Customs offices that had been filled through appointment by the President with the advice and consent of the Senate, and transferred their functions to Treasury department officials appointed by the Secretary of the Treasury under the civil service; and vested the appointment authority for U.S. marshals in the Attorney General, under the civil service, rather than in the President, with the advice and consent of the Senate. The last three of these disapproved changes would have converted politically appointed positions, over which Senators were thought to have some influence, into career positions. The Reorganization Act of 1949 was renewed eight times, in 1953, 1955, 1957, 1961, 1964, 1965, 1969, and 1971. In 1953, 1955, 1961, 1965, and 1969, Congress merely amended the bill to extend or reactivate the authority. In the three other cases, substantive changes were made in the act. During the 1953, 1955, and 1957 reauthorization debates, some Members pushed to ease the process by which Congress could disapprove a plan. They proposed amending the congressional veto provisions of the statute so that passage of a disapproval resolution would require a simple majority of the Members of either house who were present and voting, rather than a majority of the authorized membership of the chamber. These efforts were not successful in the first two instances, but the amendment was added in 1957. In 1959, the Administration of President Dwight D. Eisenhower sought another extension of the act through mid-1961. After some debate, the House passed a bill providing for such an extension. The Senate Committee on Government Operations also supported the extension. Senator Russell B. Long opposed it, however, and it was not taken up for debate in the Senate. Senator Long appeared to oppose automatic extensions of the delegation of authority, rather than the authority itself. He stated: Does the distinguished Senator … not believe it would be a good idea that, at least once in a while, the powers surrendered by Congress should come back to it and temporarily reside in Congress, at least long enough for us to know that we have not surrendered our power forever?… It seems to me that if no strong case is made for a reorganization plan, Congress should perhaps retain the powers in its own hands rather than surrender them. In this instance, if the President has no plan, Congress will be surrendering its powers unnecessarily. I am willing to give the President the power to reorganize the Government when that is necessary. Without the extension, the authority expired on June 1, 1959. Upon entering office in 1961, President John F. Kennedy requested a renewal of the 1949 authority. The bill was debated in each house without any strong opposition emerging. The statute was reauthorized through mid-1963. A further two-year extension was requested by the Kennedy Administration in early 1963. On June 4, 1963, the House passed the requested extension. The bill included an amendment, supported on the floor by Republicans and Southern Democrats, that prohibited the use of the authority to establish a new department. This amendment appears to have been a reaction to a controversial (and unsuccessful) 1962 effort by President Kennedy to establish a Department of Urban Affairs and Housing—first through legislation, and then by reorganization plan. The Senate did not act on the reorganization extension request until after Kennedy's November 22, 1963, assassination. Upon taking office, President Lyndon B. Johnson requested Senate consideration of the matter. The bill, which extended the authority to June 1, 1965, and included the House-passed prohibitions, was adopted by the Senate on June 19, 1964. As the June 1965 expiration approached, the Johnson Administration requested that the reorganization authority be made permanent. The Senate considered several different durations short of the Administration's request, and settled on an expiration date of December 31, 1968, just prior to the conclusion of the President's term. The House agreed to this approach, and the extension was signed into law on June 18, 1965, just weeks after the previous authorization had expired. Altogether, President Johnson submitted 17 plans to Congress. Among these were plans to transfer certain locomotive inspection functions to the Interstate Commerce Commission, to transfer the Community Relations Service from the Department of Commerce to the Department of Justice, and to transfer the responsibility for the preparations of plans and specifications for the construction of buildings and bridges at the National Zoo from the Board of Commissioners of the District of Columbia to the Smithsonian Institution. One of the 17 plans, to centralize certain executive and administrative functions of the U.S. Tariff Commission in its chair, was disapproved by Congress. Shortly after taking office, President Richard M. Nixon requested that Congress renew the authority for a two year period. Perhaps reflecting the relatively uncontroversial nature of the new President's request, a bill renewing the authority through April 1, 1971, was adopted by the Senate, without debate, and by the House, under suspension of the rules. The bill was enacted into law on March 27, 1969. As the 1971 expiration date approached, President Nixon requested an additional two year extension. Congress provided this extension, and also amended the statute to make several changes to the authority. First, the changes provided that not more than one plan could be transmitted to Congress within 30 consecutive days. In addition, no reorganization plan could deal with more than one logically consistent subject matter. The amended statute also made changes to the congressional veto procedures, extending the potential length of the period for committee consideration of a resolution of disapproval. In early 1973, the Nixon Administration transmitted to Congress draft legislation that would have extended the Reorganization Act of 1949 for an additional four years, until April 1, 1977. On June 14, 1973, Senator Charles H. Percy introduced legislation to the same end. In addition, this legislation would have established a process whereby Congress would have had an opportunity to review and comment on a proposed reorganization plan before its formal submission. Noting that a plan was not amendable once submitted, Senator Percy suggested that this process would allow potential problems with a plan to become known to the Administration and Congress while alterations might still be made. The bill also would have struck the restriction, added in 1971, that prevented more than one plan from being transmitted within a 30-day period. The provision requiring an itemization of expected savings from a reorganization would also have been deleted. Arguably, these latter two provisions would have made the process easier for the Administration. The bill was referred to the Senate Committee on Government Operations and saw no further action. Senator Robert C. Byrd also introduced legislation in 1973 that would have extended the authority. Unlike the Percy proposal, this bill would have extended the authority for only two years. Also, in contrast to the Percy proposal, Byrd's bill arguably would have made the process more difficult for the Administration. Perhaps most significantly, Byrd's legislation would have strengthened the role of Congress in the process by providing that a proposed reorganization plan would become effective through the adoption of a concurrent resolution of approval, rather than through the lack of a resolution of disapproval. The bill also would have required that the President, in his annual budget message, inform Congress of reorganization plans then under study or consideration. In addition, the President would have been required to give Congress at least 30 days advance notice of his intention to submit a plan. Like the Percy bill, this legislation was referred to the Senate Committee on Government Operations and saw no further action. In 1975, President Gerald R. Ford requested that Congress renew and extend the 1949 statute for another four-year period. No legislation to this effect appears to have been introduced. The reason or reasons that Members of Congress did not grant President Nixon and President Ford extensions in 1973 and 1975 do not appear to have been documented in the Congressional Record . However, Senator Byrd's remarks upon the introduction of his extension bill in 1973 may reflect the priorities of at least some Members during the Watergate and early Post-Watergate period. After delineating a series of bills he had introduced that were "aimed at regaining congressional power over the administrative arm of the Federal Government" and describing his extension legislation, Senator Byrd stated: I believe that my bill is a major step toward recovering some of the initiative the legislative branch has lost to the executive. It will aid in restoring to Congress its responsibility for discharging the duty of overseeing the conduct of the executive departments. It will strengthen the authority of the Congress over the administrative bureaucracy in the face of the increasing executive encroachment on Congress's constitutional authority. And it will … safeguard against ill-considered and hasty action by the executive and default approval by a busy or an apathetic Congress. Congressional control and oversight of the executive departments and agencies constitute one of our most important functions. It is the means by which the Congress is assured that its policies are being faithfully carried out, by which it may hold executive officers to an accounting for their stewardship, and by which it learns the effects of legislative policies and is thus able to make necessary statutory revisions. Between the first reauthorization of the 1949 act, at the beginning of the Dwight D. Eisenhower Administration in 1953, and its final expiration in 1973, during the second term of President Richard M. Nixon, 52 reorganization plans were submitted to Congress. Among the notable reorganizations implemented under the authority were the establishment of the following organizations: the Department of Health, Education and Welfare; the Office of Science and Technology Policy in the EOP; the Environmental Protection Agency; the National Oceanic and Atmospheric Administration in the Department of Commerce; and the Drug Enforcement Administration in the Department of Justice. Eight of the 52 submitted plans were disapproved by Congress. The disapproved plans included those that would have reorganized the research and development programs of the Department of Defense; provided the Federal Savings and Loan Insurance Corporation with its own management, independent of the Federal Home Loan Bank Board; transferred certain functions related to exchanges, sales, and other transactions concerning natural resources under the jurisdiction of the Secretary of Agriculture from the Secretary of the Interior to the Secretary of Agriculture; authorized the Securities and Exchange Commission to delegate its functions to a division of the commission, an individual commissioner, a hearing examiner, or an employee or employee board; authorized the Federal Communications Commission to delegate its functions to a division of the commission, an individual commissioner, a hearing examiner, or an employee or employee board; authorized the National Labor Relations Board to delegate its functions to a division of the board, an individual board member, a hearing examiner, or an employee or employee board; established a Department of Urban Affairs and Housing that would have included the functions of the Housing and Home Finance Agency, the Urban Renewal Administration, the Community Facilities Administration, and the Public Housing Administration, and would have included, as intact entities, the Federal Housing Administration and the Federal National Mortgage Association; and transferred certain executive and administrative functions from the U.S. Tariff Commission to its chair. Just as President Truman had drawn on the recommendations of the first Hoover Commission when developing his reorganization plans, subsequent Presidents also drew on the work of various later government reform committees and councils when developing their plans. Unlike the Hoover Commission, which was established by public law, these groups were established under executive authority, and they reported to the President. These advisory entities included the President's Advisory Committee on Government Organization (Eisenhower), the President's Task Force on Government Reorganization (Kennedy and Johnson), and the President's Advisory Council on Executive Organization (Nixon). During his 1976 run for President, Jimmy Carter's campaign described the federal government as "a horrible bureaucratic mess." It suggested that a Carter Administration would "give top priority to a drastic and thorough revision of the federal bureaucracy." The candidate himself indicated that, if elected, he would ask for "complete authorization to reorganize the Executive Branch of government, giving [him] as much authority as possible." This authority would be used toward "the elimination of unnecessary agencies and departments, regulations and paperwork." If elected, he pledged to "have a complete reorganization of the Executive Branch of government [and] make it efficient, economical, purposeful, simple, and manageable for a change." Soon after taking office, President Carter requested a four-year renewal of the Reorganization Act of 1949, with specified modifications. On February 4, 1977, he sent a message to Congress transmitting proposed legislation to this end, and briefly delivered remarks on the topic at the White House. Congress was largely amenable to the President's request, enacting a modified version within two months. The Senate Committee on Governmental Affairs held hearings in early February, and the House Committee on Government Operations held hearings in early March. After considerable debate in both chambers, a significantly modified version of the President's proposal was passed by late March. The President signed it into law on April 6, 1977. Perhaps the greatest conflict over the legislation concerned the procedures by which Congress would pass judgment on a plan. The chairman of the House Committee on Government Operations, Representative Jack Brooks, questioned the constitutionality of the legislative veto procedure, as had some Members of Congress over the course of its use. He favored legislation under which a President's plan would go into effect only upon affirmation by both houses of Congress. Ultimately, the authority enacted in 1977 continued to use a legislative veto. But the procedures were modified to require the mandatory introduction, in each chamber, of a resolution of disapproval upon the submission of a plan, as well as to facilitate the consideration of such resolutions. During the course of the legislative process, the bill was reconfigured from an amendment to the 1949 act to an entirely new statute, the "Reorganization Act of 1977." The new law used the same structure as the 1949 statute. In addition to the procedural changes just discussed, the 1977 statute differed from the final version of the 1949 act (as last amended in 1971) in a number of other ways, including the following: The President could amend a plan within 30 days, or withdraw a plan within 60 days, of its submission to Congress. The limitation to one plan submission during a 30-day period was changed to a limit of no more than three plans pending before Congress at one time. Congress conveyed its intent that the President provide an avenue for "broad citizen advice and participation in restructuring and reorganizing the executive branch." A prohibition on the abolition of any enforcement or statutory program was added. The prohibition against establishing, abolishing, transferring, or consolidating departments was expanded to prohibit also the abolition or consolidation of independent agencies. The President's transmittal message for a plan was to also include information concerning any estimated increase in expenditures as well as any expected management improvements. President Carter submitted 10 plans under the new statute, all of which went into effect. Among these were a plan to reorganize the federal personnel management system, including the creation of an Office of Personnel Management, a Merit Systems Protection Board, and a Federal Labor Relations Authority; the establishment of a Federal Emergency Management Agency, to which were transferred functions and entities from various parts of the government; and to reorganize international trade functions, centering policy coordination and negotiation in this area in a United States Trade Representative in the Executive Office of the President. As discussed above, under the new authority, the President was permitted, for the first time, to amend a plan within 30 days of its submission. President Carter did so for 6 of his 10 plans. In early 1979, the Carter Administration conveyed the President's intention to create a new Department of Natural Resources. The proposal reportedly faced congressional opposition, and no related reorganization plan was submitted. A 1981 Senate report on a bill to further extend reorganization authority recounted the episode this way: In February of 1979, then President Carter had announced his intention to submit a reorganization plan to establish a Department of Natural Resources that would absorb the Department of the Interior and would transfer the Forest Service from the Agriculture Department and the National Aeronautics and Space Administration from the Department of Commerce. The use of the reorganization plan process to establish the new Department was clearly a violation of the intent behind Section 905(a) of the Reorganization Act of 1977 which states that no reorganization plan may provide for or 'have the effect of creating a new executive department'. The Administration was candid in its belief that the proposal for a new Department of Natural Resources could not be passed if the normal legislative process was followed. By asserting that the President was merely changing the name and focus of the Department and not creating a new one, the Administration hoped to escape the prohibition in the Reorganization Act against such action. The authority provided under the Reorganization Act of 1977 expired on April 6, 1980. Congress passed a one-year extension of the authority with little discussion in committee or on the floor. President Carter's final reorganization plan was submitted on March 31, 1980, prior to the original deadline. The extension of the Reorganization Act of 1977 under President Jimmy Carter expired on April 7, 1981. During the early years of the presidency of Ronald W. Reagan, efforts were made to extend and modify the authority once again. In 1981, reorganization authority legislation supported by the Reagan Administration was passed in the Senate, but not acted upon in the House. Although this legislation was not enacted, some modifications of the 1977 language included in the bill later became part of the statute as it stands today. The 1981 bill also included provisions to prohibit the President from renaming an existing department, in response to President Carter's proposal to create a Department of Natural Resources from the Department of the Interior, discussed above; prohibit the creation of new agencies that were not part of an existing department or independent agency; require inclusion, in a plan, of specified, detailed implementation information; and extend the period during which the President could amend or withdraw a plan and the period of congressional consideration. The 1981 bill also would have created a different method for congressional consideration of proposed plans that did not become part of the current statute. As described in the committee report: [R]eorganization plans would become effective if any one of three conditions were satisfied during the 90 day period for Congressional review: (1) each House of Congress adopts a resolution approving the plan; (2) one House of Congress adopts an approving resolution while the other House fails to vote; or (3) neither House votes on an approving resolution. Although shifting the congressional mechanism used from a resolution of disapproval to a resolution of approval, it appears the process would have functioned much as the earlier one would have: with no congressional action, a plan would have taken effect; with negative action in either chamber, the plan would not have taken effect. In 1984, Congress enacted legislation amending the Chapter 9 of Title 5 of the U.S. Code , which embodied the 1977 Reorganization Act. In addition to adopting the 1981 modifications discussed above, the amendments altered the method by which a plan could take effect. This change responded to a 1983 ruling by the Supreme Court, in INS v. Chadha , that the legislative veto process (i.e., that a plan could be rejected by a resolution of one or both houses) was unconstitutional. Under the new authority, once the President submitted a reorganization plan, Congress was to consider, under an expedited procedure, a joint resolution approving the plan. The expedited procedure included limitations on the duration of committee consideration, the duration of floor debate, and amendments (although the President could amend or modify his plan during the first 60 days after submission). As a joint resolution, this vehicle would need to be approved by the President to have the force of law. Unlike the legislative veto, the burden of action was placed on the proponents of the plan, rather than its opponents. As is the case under the regular legislative process, the default would be the status quo. The process of reorganizing the government was thus made somewhat more difficult than it would have been under earlier versions of presidential reorganization authority. The amendments enacted by Congress extended the reorganization plan authority from November 1984 to December 31, 1984. However, the Senate adjourned sine die for the year the day following passage of the bill, and it did not reassemble until January 3, 1985, after the December 31, 1984, deadline for submission of plans had passed. Given the requirement that plans be submitted while Congress was in session, the Reagan Administration had virtually no opportunity to use the authority he had been given. Although the statutory deadline for submission of plans has passed, the dormant statute remains in the U.S. Code . The Court's ruling in INS v. Chadha raised concerns that the validity of existing reorganization plans, all of which had gone into effect under reorganization authority with legislative veto provisions, might be called into question. Consequently Congress passed legislation ratifying all of the reorganization plans that had gone into effect under the now-unconstitutional procedure. As part of the FY1986 budget request, submitted in early 1985, the Reagan Administration proposed a renewal of the 1984 authority. The document noted the long history of the statute, and that the President had not had the opportunity to use the authority that had been granted in the previous year. The request stated: "The President will propose renewal of that reorganization authority to December 31, 1988, to permit continued structural flexibility." The President's proposal was reiterated in the budget the following year. Legislation to extend reorganization authority was introduced early in that Congress (the 99 th , 1985-1986). The Senate Committee on Governmental Affairs held a hearing on the bill together with other legislative initiatives of the President related to governmental management. No further legislative action was taken. The budget documents for FY1988, released at the beginning of the 100 th Congress (1987-1988), restated the President's interest in a renewal of the authority. It appears that no legislation was introduced during this Congress, and the initiative did not appear in the budget submission for the following year. In the decades since this authority last expired, some presidential administrations have advocated its restoration, and some have not. It does not appear that President George H. W. Bush sought its extension, nor that such legislation was introduced during his Administration. Initial reports issued by the Clinton Administration's National Performance Review included the recommendation that the reorganization authority be reauthorized, but President Clinton did not directly request action by Congress. As discussed below, the George W. Bush Administration called for a renewal of presidential reorganization authority, and legislation introduced during the 108 th Congress (2003-2004) included provisions that would have renewed the authority in modified form. This legislation was not enacted. In his FY2003 budget proposal, President George W. Bush stated, "The Administration will seek to re-institute permanent reorganization authority for the President to permit expedited legislative approval of plans to reorganize the Executive Branch." In January 2003, the second National Commission on the Public Service released a report with a number of recommendations regarding federal government organization and management, including the re-establishment of reorganization authority. Early in the 108 th Congress, Representative Tom Davis, chairman of the House Committee on Government Reform, indicated that he planned to introduce legislation to re-establish reorganization authority. On April 3, 2003, the committee held a hearing on that topic, with testimony in support of that action by, among others, House Majority Leader Tom DeLay. On September 17, 2003, the House Committee on Government Reform, Subcommittee on Civil Service and Agency Organization held a hearing concerning the connection between federal personnel issues and government reorganization. As part of legislative activity that led to the enactment of the Intelligence Reform and Terrorism Prevention Act of 2004 during the 108 th Congress, the House passed provisions that would have renewed the President's reorganization authority in a modified form. It would have amended Chapter 9 of Title 5—that is, the most recent form of presidential reorganization authority—to make the following changes: the grant of reorganization authority would have been permanent, rather than subject to periodic congressional reauthorization; the President would have been permitted to submit reorganization plans under this authority only for intelligence-related units identified in the provision or "other elements of any other department or agency as may be designated by the President, or designated jointly by the National Intelligence Director and the head of the department or agency concerned, as an element of the intelligence community"; seven limitations on the President's authority under this chapter would have been eliminated, including the prohibition on the use of reorganization plans to create or rename executive departments, or to abolish or transfer an existing department or independent regulatory agency; the inclusion in submitted plans of provisions for the creation of new agencies would have been explicitly permitted; and a submitted plan could have included "the abolition of all or a part of the functions of an agency" without the formerly included limitation that "no enforcement function or statutory program shall be abolished by the plan." These provisions were removed in conference with the Senate, and they were not included in the bill as enacted. Between 1939 and 1984, more than 100 plans were submitted to Congress under various forms of presidential reorganization authority, and a majority of these went into effect. Many of the plans that went into effect reorganized the government in relatively minor ways. In some cases, however, the authority was used to make larger changes. For example, presidential reorganization authority was used in 1939, to transfer offices to the newly created Executive Office of the President and to consolidate human service offices and create the Federal Security Agency; in the mid-1940s, to help facilitate the organizational transition from wartime to peacetime; in the late 1940s and early 1950s to implement some of the administrative changes recommended by the Hoover Commissions, such as the consolidation of authority in the heads of departments and agencies; in 1953, to elevate the Federal Security Agency to department status with the establishment of the Department of Health, Education, and Welfare in 1953; in 1970, to establish the Environmental Protection Agency; and in 1978, to consolidate federal emergency management functions and create the Federal Emergency Management Agency. As the President's reorganization authority evolved from the 1930s onward, Congress continued to delegate authority to the President while establishing provisions that sought to protect congressional prerogatives. Although the specific terms varied under different versions of the authority, the statutory framework evolved to include four elements that defined the potential scope of the President's plans and the congressional role in passing judgment on such proposals. These were specification of the range of actions that could be undertaken under the authority, a series of limitations constraining the breadth of those actions, an authorization of limited duration, and some opportunity for Congress to consider, and potentially block, a plan before its effective date. As previously noted, a legislative proposal that would renew the President's reorganization authority was conveyed to Congress on February 16, 2012. The proposal would amend the expired provisions of the Reorganization Act of 1977, as amended in 1984, which are listed at 5 U.S.C. 901 et seq. (hereinafter "1984 statute"). It would reactivate the authority for two years from the date of enactment by amending Section 905(b) and Section 908(1), the two places in the law that specify deadlines that limit the period during which the authority can be used; define "efficiency-enhancing plan" as one that the Director of the Office of Management and Budget (OMB) determines is likely to result in a decrease in the number of agencies or cost savings in performing the functions that are the subject of the plan; require that all plans are efficiency-enhancing plans; allow the abolition or renaming of an existing department, or the creation of a new department (not permitted under the 1984 statute); allow the consolidation of two or more departments (not permitted under the 1984 statute); and allow the creation of a new agency that is not part of an existing agency (not permitted under the 1984 statute). Should this authority be granted, the President indicated that his first submitted plan would propose consolidation of six business and trade-related agencies into one: U.S. Department of Commerce's core business and trade functions, the Export Import Bank, the Overseas Private Investment Corporation, the Small Business Administration, the U.S. Trade and Development Agency, and the Office of the U.S. Trade Representative. It appears that this plan would also involve the relocation of some subunits and functions that are not directly linked with business and trade. The Administration has stated, for example, that the National Oceanic and Atmospheric Administration would be moved to the Department of the Interior. President Obama has requested a renewal of presidential reorganization authority, and a bill has been introduced in the Senate that would grant him this power in a modified form. Congress might approach the question of whether, and how, to delegate this authority to the President in various ways. First, Congress could simply elect not to renew the authority, either by not acting on the President's proposal, or by actively rejecting it. In the event that Congress elects to renew presidential reorganization authority, it might do so in a number of different ways. For example, it could renew the authority (1) without modifications, (2) with the requested amendments to the scope of the authority, (3) with a different set of amendments to the scope of the authority, (4) with changes to the nature of the expedited congressional procedures, or (5) with some combination of these. Each of these approaches is discussed in greater detail below. Presidential reorganization authority raises administrative, political, and institutional questions, including the following: Is government reorganization desirable? If reorganization is desirable, is the President better suited than Congress to undertake government reorganization? If the President is better suited to undertake reorganization, is the granted authority under a given proposal flexible and extensive enough to allow the President to make meaningful changes to government organizational arrangements? Are the limitations on plan contents sufficient to preclude organizational changes that might be deemed by Congress to be problematic from a policy or institutional point of view? Should organizations that exercise predominantly quasi-legislative or quasi-judicial (regulatory) functions be treated differently from those that exercise predominantly executive functions? What kind of input into the crafting of reorganization plans should be afforded to Congress? Do congressional procedures allow for a sufficient congressional check on the President's use of this authority? Should the President have the ability to reorganize any quarter of the executive branch as he sees fit, or should he be required to lay out his intentions for reorganization prior to obtaining the authority? To what degree should Congress prescribe the parameters of potential reorganizations? What limitations should be included in statute? What significance should be given to recommendations from congressional commissions, congressional committees, GAO, and other stakeholders? Answers to these questions, drawn from the history of reorganization authority, could provide a basis for evaluating the potential approaches discussed below. Congress might elect not to act on the President's request. In this case, present legal authorities would continue to define the range of potential changes to organizational arrangements. Reorganization activities could be accomplished through the enactment of legislation. For example, the President could transmit his proposal to consolidate six business- and trade-related agencies, and this proposal could be considered by Congress. Alternatively, agency heads could direct reorganization activities within their agencies, where the power to establish organizational arrangements is understood to be inherent or is specified in law. In addition, under Section 301 of Title 3 of the United States Code , the President could alter organizational arrangements by redelegating functions that Congress has vested in him. Advocates of this approach might argue that existing delegations of reorganization authority provide the Administration with sufficient flexibility to make minor adaptations to changing circumstances. They could argue that a renewal of presidential reorganization authority, which could facilitate larger scale government-wide changes, would be an unnecessary delegation of Congress's role in establishing and shaping the federal bureaucracy. Such an argument might point to the ability of Congress to carry out this role, as evident over the past decade in, for example, the establishment of the Department of Homeland Security, the reorganization of the intelligence community, the increase of autonomy for the Federal Emergency Management Agency within the Department of Homeland Security, the abolishment of the Office of Thrift Supervision, and the establishment of the Consumer Financial Protection Bureau. It could further be argued that Congress, through its committee system, is better suited to represent the broad array of interests that might be affected by alterations to the federal bureaucracy, and that reorganizations that take these interests into account are more likely to endure and not be impeded during the implementation phase. On the other hand, proponents of renewing the authority have argued that Congress has been ineffective in enacting legislation that improves federal organizational arrangements. For example, when introducing his initiative, President Obama stated: In 1984 … Congress stopped granting [presidential reorganization] authority. And when this process was left to follow the usual congressional pace and procedures, not surprisingly, it bogged down. So congressional committees fought to protect their turf and lobbyists fought to keep things the way they were because they were the only ones who could navigate the confusion. And because it's always easier to add than subtract in Washington, inertia prevented any real reform from happening. Layers kept getting added on and added on and added on. At a March 2012 hearing on renewal of the authority, Daniel I. Werfel, the Controller at OMB, acknowledged, however, that Congress was able to legislate a large scale reorganization in the aftermath of 9/11, while differentiating this accomplishment from potential reorganizations based on non-emergency needs: I think the important distinguishing factor about Department of Homeland Security reorganization is that that was in response to a crisis and a clear emerging need that was on the national consciousness to realign or clearly protect the homeland.... The fact that the DHS reorganization came together in response to a crisis, from our standpoint, is not sufficient evidence that the executive branch and Congress are ready to be transformative in government reorganization. Congressional committees might elect to conduct oversight of the federal bureaucracy's organizational arrangements, either government wide, or in select policy spheres, regardless of whether or not Congress renews presidential reorganization authority. In the past, when additional investigation and analysis of federal organization were indicated, Congress has sometimes established blue ribbon commissions. In the case of the first Hoover Commission, for example, the panel conducted its work in the run-up to the presidential election, and its recommendations were then available to the new Congress and the re-elected President (Truman). If Congress were to renew the authority without further amendment, it would renew the authority as it existed in 1984. Notably, the 1984 statute was never used. Although, as discussed above, the authority is similar to the version used by President Jimmy Carter from 1977 through 1980, it also differs from it in significant ways. Perhaps chief among these, the expedited congressional procedures are tailored to facilitate consideration of a joint resolution to approve submitted plans, rather than to disapprove submitted plans. In addition, the scope of the 1984 statute is more limited than that of the Carter-era authority: renaming of existing departments is not permitted and a plan could not create a new, freestanding agency. In addition, the current statute differs from the earlier version by requiring that the President's message include additional detailed information regarding implementation of a plan. It appears that under this potential approach to the reorganization authority question, President Obama would not be able to submit the plan he has described. This is because the plan, as described, would involve reconstituting and renaming a department and, arguably, establishing a new, freestanding organizational unit, both of which would be prohibited. Nonetheless, the Administration might be able to adapt the plan to fit the scope of authority provided in the current statute, were it renewed without the Administration's requested amendments. Because this course of action would be a continuation of the statute as it was last authorized by Congress, it might be seen as representing continuity. Many of the Members of the Congress who last considered and renewed this authority were also Members at the time the reorganization authority was last in use, during the Carter Administration (1977-1981). Presumably this experience would have informed the 1984 reauthorization. The reauthorization process appears to have been uncontroversial. It passed in the House, on April 10, 1984, by voice vote under suspension of the rules. It passed the Senate by voice vote on October 11, 1984, as the 98 th Congress was drawing to a close. The bill was signed into law on November 8, 1984. It could be argued, however, that because the 1984 law was never tried, its effectiveness in carrying out congressional purposes is unknown. Furthermore, the lack of controversy associated with its passage, particularly in the Senate, could be associated with the short duration of the authority. In fact, the Senate adjourned sine die for the year the day following passage of the bill, and it did not reassemble until January 3, 1985, which was after the deadline for submission of plans had passed. By the time the law was signed, the Senate was adjourned. Given the requirement that plans be submitted while Congress was in session, the Reagan Administration had virtually no opportunity to use the statute once it was enacted. Finally, although the passage of the 1984 reauthorization legislation might be seen as a ratification by the 98 th Congress of the terms of the reorganization authority it conferred, it does not necessarily follow that the current Congress would have the same views or priorities concerning the statute. A third possible approach to the question of presidential reorganization authority would be for Congress to enact the President's proposal. As previously described, this proposal, embodied in S. 2129 , as introduced during the 112 th Congress, would renew and amend the expired 1984 reorganization authority set forth in 5 U.S.C. Sections 901 et seq. The bill would alter the 1984 statute by: changing the deadline for submission of reorganization plans from December 31, 1984, to two years from enactment; requiring that each submitted plan be "efficiency-enhancing"—likely to result in a decreased number of agencies or cost saving related to targeted functions—as verified by the OMB director; allowing for the creation of a new executive department; the renaming of a department; the abolishment or transfer of a department, or all its functions; or the consolidation of two or more departments, or all their functions; and allowing for the creation of a new freestanding agency. These elements are discussed in more detail below. The proposed two-year extension is consistent with many of the past extensions of this authority. On other occasions, Congress delegated this authority to the President for longer periods of time. The 1949 act, for example, provided the authority for three years and nine months, until about two months after the end of the Truman Administration. The 1965 reauthorization extended the authority for approximately three and a half years, to nearly the end of the Johnson Administration. The 1977 act provided the authority for a period of three years from enactment. On the other hand, Congress has also sometimes authorized periods of significantly less than two years in duration, such as in 1964 (approximately 11 months), 1971 (approximately 15 months), and 1980 (one additional year). The last authorization appears to have been the shortest. The legislation, which was signed into law on November 8, 1984, specified that "a provision contained in a reorganization plan may take effect only if the plan is transmitted to Congress … on or before December 31, 1984," only 53 days later. S. 2129 would also amend the expired 1984 authority to require that each submitted plan be "efficiency-enhancing." The bill defines an efficiency-enhancing plan as one "that the Director of the Office of Management and Budget determines will result in, or is likely to result in—(A) a decrease in the number of agencies; or (B) cost savings in performing the functions that are the subject of that plan." These purposes would not be completely new, but would prioritize two current purposes and require verification that a submitted plan has addressed them in specified ways. The expired 1984 statute provides, among other purposes, that "it is the policy of the United States … to reduce expenditures and promote economy to the fullest extent consistent with the efficient operation of the Government [and] … to reduce the number of agencies by consolidating those having similar functions under a single head, and to abolish such agencies or functions thereof as may not be necessary for the efficient conduct of the Government." In furtherance of these purposes, under the 1984 statute, each reorganization plan is to be accompanied by a "declaration that, with respect to each reorganization included in the plan, [the President] has found that the reorganization is necessary to carry out" these purposes or any of the other four purposes identified in the statute. In addition, the plan is to be accompanied by a message that, among other things, "estimates any reduction or increase in expenditures (itemized so far as practicable) … which it is expected will be realized as a result of the reorganizations included in the plan." The proposed efficiency-enhancing standard in S. 2129 would prioritize these two purposes—a decrease in the number of agencies and cost savings in performing functions in the plan—over the other purposes in the 1984 statute, because one or the other would have to be addressed in any plan put forward. The amendment also would go beyond requiring the President to declare that a reorganization is necessary to carry out the purposes. Notably, such a declaration would indicate that such an action is necessary , but not that it is sufficient , to actually achieve the specified result. Seemingly, by requiring that the OMB Director make an official determination that one of the purposes associated with the efficiency-enhancing standard will be, or is likely to be achieved, it could be expected that the reorganization would be sufficient to deliver the promised results. It could be argued, on this basis, that this amendment to the 1984 statute would make the Administration more accountable for achieving reorganization outcomes that address at least one or two of the long-specified purposes in the current statute. It is also possible, however, that, because the statute has a general definition of "agency" that includes "an Executive agency or part thereof; and … an office or officer in the executive branch," a plan could reduce their number while not achieving a consolidation or reduction in the size of the federal government. For example, a plan could provide for the abolition of a department and its 17 subagencies (18 agencies total), while establishing 16 new independent agencies that would carry out the same functions. This would result in a decrease of two agencies while arguably increasing the spread of the government. Furthermore, assuming that the heads of these new organizations have administrative flexibility to structure their agencies, they would be able to create additional subunits—be they termed offices, bureaus, agencies, services, or some other entity—at a later time. Arguably, this would provide an incentive for reorganization plans to provide for only the broad structure of an agency, so as to reduce the "number of agencies," and to create additional structural features administratively at a later date. Similarly, because the term "cost savings" is not defined, disagreements might arise about the OMB Director's determination with regard to those associated with a particular plan. In addition, projections are not always met by actual achievements. During previous delegations of presidential reorganization authority, there were few instances in which reorganization plans resulted in documented cost savings. The amendments to the current reorganization authority that are part of S. 2129 would also allow for the creation of a new executive department; the renaming of a department; the abolition or transfer of a department, or all its functions; or the consolidation of two or more departments, or all their functions. Some of these powers have been available in at least one previous version of the reorganization authority, but none were available in the most recent version. The history of each of these is discussed below. The 1932 and 1933 presidential reorganization statutes did not explicitly allow for or prohibit the creation of a department, but it appears that it was understood to be beyond the scope of authorized actions, and no such reorganization was attempted. In fact, none of President Hoover's executive orders under the 1932 act would have established any new organization. This was also true of most of President Roosevelt's reorganizations under the 1933 authority; in most cases they transferred, consolidated, or abolished functions and subunits within and among existing departments and agencies. The 1939 and 1945 statutes, however, explicitly prohibited the establishment of new departments. As discussed above (" Reorganization Authority Proposal During the 75th Congress (1937-1938) (Roosevelt) "), the enactment of the 1939 authority followed an unsuccessful presidential request for broader reorganization authority during 1937 and 1938. Among the points of disagreement during those years was whether there should be created a new Department of Social Welfare and a new Department of Public Works. The language included in the 1939 and 1945 statutes suggests that those who favored the reorganization as a means of maintaining or decreasing the size of government prevailed in shaping the provisions. The Reorganization Act of 1949 did not continue the prohibition on the establishment of new departments. The prohibition was removed because Members observed that plans under previous acts had created large agencies that were, for all intents and purposes, like departments. Thus, the President was not prevented from creating large organizations, just from calling them departments. The frequently cited example of this was the Federal Security Agency. As the Senate report regarding reauthorization of the authority put it: The bill deletes the prohibitions … against creation of new executive departments by reorganization plan. At least one agency—the Federal Security Agency—has been established by plan which obviously is of departmental magnitude and importance and should have been designated as an executive department. No good purpose has been served by the old prohibition. The only successful use of this authority to establish a department resulted from President Eisenhower's first reorganization plan. Shortly after taking office in 1953, he submitted a plan that established the Department of Health, Education, and Welfare. Essentially, this action elevated the existing Federal Security Agency to department status. Notably, Congress endorsed this action by enacting a statute that moved up the effective date of the department's establishment. The 1964 extension of the Reorganization Act of 1949 reinstated the prohibition on the establishment of new departments. As noted above, this amendment appears to have been a reaction to a controversial (and unsuccessful) effort by President Kennedy, in 1962, to establish a Department of Urban Affairs and Housing—first through legislation, and then by reorganization plan. The legislative effort to create the department was defeated when the House Rules Committee did not adopt a rule for floor consideration of the measure, reportedly because of civil rights-related issues. The President subsequently submitted Reorganization Plan No. 2 of 1962, which also would have established a Department of Urban Affairs and Housing to carry out the functions of several existing agencies. Though the House adopted a resolution disapproving the plan, the President's efforts were seen by some as an abuse of the authority. This led to the reinstatement of the restriction, which continued to be part of subsequent reorganization authority statutes. As discussed above, enactment of the 1939 authority followed a period of disagreement about whether to establish two additional departments in the federal government. Just as the new authority did not permit a plan to establish a new department, it prevented the renaming of a department. This limitation was continued in the 1945 act, but was dropped in 1949. Subsequent versions of the statute remained free of this provision until the final amendments, in 1984. At this time the restriction was reinstated in response to an unsuccessful Carter initiative that would have constituted a controversial use of the statute. As discussed earlier in this report ("The Reorganization Act of 1977"), the Administration announced plans to submit a reorganization plan that would have had the effect of establishing a new Department of Natural Resources by renaming the Department of the Interior and transferring to it the Forest Service and the National Oceanic and Atmospheric Administration, among other entities. According to a Senate report: The Administration was candid in its belief that the proposal for a new Department of Natural Resources could not be passed if the normal legislative process was followed. By asserting that the President was merely changing the name and focus of the Department and not creating a new one, the Administration hoped to escape the prohibition in the Reorganization Act against such an action. The Obama Administration has been clear about its intention to establish a new department with a new name if granted reorganization authority. Nonetheless, questions might arise about other, similar actions that could be taken under this authority subsequent to the initial reorganization effort. This limitation has been part of all reorganization statutes thus far. The Obama Administration request to remove this limitation could allow the Administration to abolish the Department of Commerce, as such, as part of a possible reorganization of trade-related agencies. Because the reorganization authority has never been enacted without this limitation, however, it is unclear what administrative, political, or institutional impacts this change might have. Similar reorganization activities in the past, such as the division of the Department of Commerce and Labor into the Department of Commerce and the Department of Labor, and the division of the Department of Health, Education, and Welfare into the Department of Health and Human Services and the Department of Education, were accomplished by congressional action. The consolidation of two or more departments was not explicitly prohibited until the 1949 act. It could be argued, however, that such a reorganization would have been impermissible even under the pre-1949 authorities, because it could have been seen as an abolition of at least one, if not two departments—an action explicitly prohibited. As discussed above, the 1949 act removed the prohibition on the establishment of new departments. It appears that the new language in 1949 concerning consolidation of departments was intended to continue, and make clear, the prohibition on the creation of a new department in one particular way: by consolidating two existing departments. There does not appear to have been much discussion of this part of the change in the provision. One committee report stated simply that, "The new language … prohibiting consolidation of two or more executive departments by reorganization plan conforms to the belief of the President that the elimination of an executive department should only be effected by statute." It should be noted that, when the prohibition on creating a new department was added back into the statute in the 1964 amendments, as discussed above, the prohibition on consolidation remained. Both provisions were then part of all succeeding versions of the law. The latest expired version of reorganization authority stipulated that a "reorganization plan may not provide for, and a reorganization … may not have the effect of … creating a new agency which is not a component or part of an existing executive department or independent agency." It appears that this provision was first considered during deliberations of the Senate Committee on Governmental Affairs concerning legislation to extend reorganization authority in 1981. The legislation, including this provision, was adopted by the Senate, but not the House, later in 1981. The following Congress, the provision was enacted as part of the 1984 amendments. Because reorganization authority was not used after 1980, this provision's impact on the authority and its use cannot yet be assessed. If the limitation were to be deleted, as the Obama Administration has requested, the authority would be, in this respect, similar to that in use under the Carter Administration. The Senate and House committees of jurisdiction expressed different intentions with regard to this provision. The perspective of the Senate Committee on Governmental Affairs was captured in the 1981 report of extension legislation: Many experts believe there is a need to slow the growth of new independent agencies in the executive branch of government that are not part of an existing executive branch agency. New independent agencies tend to diffuse accountability for programs and policies. The larger the number of such agencies, the more difficult it is for the President to establish, coordinate and implement policies. Since new independent agencies will often report directly to the President and not through a cabinet secretary, their access and participation in the Administration's policy making process is more limited. From the perspective of the House Committee on Government Operations, as expressed in its 1983 report on extension legislation, the inclusion of this provision was intended to clarify pre-existing limitations with regard to the creation of new departments and agencies. Taken together with other limitations, the "requirements reflect the [House] Committee's desire that the creation of new entities in the Executive Branch be subject to the legislation process." If Congress were to renew the presidential reorganization authority as requested by the Obama Administration, without congressional amendment, it would make a delegation of authority that has precedent in the mid-20 th century in a form that has never been tried before. It appears that the statute would provide the President with a greater level of flexibility to establish and abolish departments than has ever been provided before. It could be argued that this power might be circumscribed, in part, by the prohibition on the establishment, by reorganization plan, of any free-standing agencies. To a lesser extent, the use of the power might be shaped by a requirement that the Administration self-certify that a plan is likely to result in a decreased number of agencies or cost saving related to targeted functions. As discussed above, however, such a determination of net changes in the number of agencies and the level of cost-savings could be complicated by definitional issues. The congressional procedures for consideration of a submitted plan would perhaps pose a greater constraint on the President's power under the Obama proposal. Although these specialized parliamentary procedures would be similar to those enacted in 1984, they were never before used in the context of this authority. Arguably, the President could face a greater legislative burden in gaining approval for his plans than did previous Presidents who had similar reorganization authority. As discussed above, should Congress elect to renew presidential reorganization authority, it might reauthorize it in its current form or it might reauthorize it with the amendments requested by the Obama Administration. Naturally, the options for renewing the statute that are available to Congress are not restricted to these two choices. Congress could opt to include any of a variety of other changes. Such changes might amend any of the statute's 12 sections, or add new sections altogether. As noted earlier in this report, each of the elements of reorganization authority is integral to its overall scope and effect; several of these bear particular mention because they establish the roles and authority of the President and Congress, respectively, in this context. These elements are the reorganization plan contents , the limitations on power , and the expedited parliamentary procedures . When combined, the provisions that define the potential scope of reorganization plan content and the provisions that further limit or prohibit certain reorganization plan content set the parameters of a reorganization that the President can propose. For example, the 1977 act allowed that a reorganization plan may provide for consolidating all or part of an agency with all or part of another agency. In the same act, the limitations section provides that a reorganization under this authority may not have the effect of consolidating two or more departments or two or more independent regulatory agencies. In this way, the general authority is modified under specific circumstances. The expedited parliamentary procedures merit close attention in the context of this authority because they define the role of Congress in facilitating or impeding the enactment of the plan developed by the President. The procedures also define steps the President must take during this process, and so prescribe the ease or difficulty, from his perspective, with which a plan might be enacted and implemented. Congress could elect to alter the scope of potential reorganizations by amending 5 U.S.C. 903, which establishes the range of actions that could be included in a reorganization plan. It states that a plan may provide for (1) the transfer of the whole or a part of an agency, or of the whole or a part of the functions thereof, to the jurisdiction and control of another agency; (2) the abolition of all or part of the functions of an agency, except that no enforcement function or statutory program shall be abolished by the plan; (3) the consolidation or coordination of the whole or a part of an agency, or of the whole or apart of the functions thereof, with the whole or a part of another agency or the functions thereof; (4) the consolidation or coordination of part of an agency or the functions thereof with another part of the same agency or the functions thereof; (5) the authorization of an officer to delegate any of his functions; or (6) the abolition of the whole or a part of an agency with agency or part does not have, or on the taking effect of the reorganization plan will not have, any functions. Congress could reduce the range of permissible actions that could be included in a plan by, for example, striking portions of these provisions. By eliminating paragraph 2, for example, a proposed plan could no longer provide for the abolition of functions. Alternatively, Congress could expand the range of permissible plan provisions. For example, paragraph 2 could be amended by striking the second clause so that "the abolition of all or a part of the functions of an agency" would be without qualification. This change was included in legislation proposed by the George W. Bush Administration. The Bush proposal also would have explicitly permitted the submitted plans to include provisions for the creation of new agencies by adding a seventh paragraph to that effect. Given that the Obama Administration has described, in general terms, the first reorganization that would be undertaken under renewed authority, Congress might elect to amend the statute to specify that only one plan could be submitted at a time. Such amendments might modify this section and/or the section on limitations to specify the range of agencies or functions that could be included in the plan. This approach might be seen by lawmakers as a middle ground between delegating broad authority to the President and not delegating to him any reorganization authority at all. Congress has employed a range of limitations in the various versions of reorganization authority. The present statute includes seven limitations on what may be included in a reorganization plan. A plan could not provide for (1) creating a new executive department or renaming an existing executive department, abolishing or transferring and executive department or independent regulatory agency, or all the functions thereof, or consolidating two or more executive departments or two or more independent regulatory agencies, or all the functions thereof; (2) continuing an agency beyond the period authorized by law for its existence or beyond the time when it would have terminated if the reorganization had not been made; (3) continuing a function beyond the period authorized by law for its exercise or beyond the time when it would have terminated if the reorganization had not been made; (4) authorizing an agency to exercise a function which is not expressly authorized by law at the time the plan is transmitted to Congress; (5) creating a new agency which is not a component or part of an existing executive department or independent agency; (6) increasing the term of an office beyond that provided by law for that office; or (7) dealing with more than one logically consistent subject matter. The Obama proposal, discussed above, would amend paragraph 1 to eliminate references to executive departments, and would strike paragraph 5, both of which would give the President additional flexibility to submit the plan he has outlined. Limitations could be reduced further than requested by the President to provide even more flexibility. For example, by striking paragraph 7, and eliminating prohibition on "dealing with more than one logically consistent subject matter" in plans, the President could submit more comprehensive plans to Congress. This might allow him to construct plans that would combine changes appealing to different constituencies in a way that would increase the likelihood that the plan would be ratified by Congress. Alternatively, Congress might elect to add limitations, thus putting further constraints on the President's exercise of reorganization authority. Some potential limitations were included in past versions of reorganization authority, but are no longer included. For example, the limitations section of the 1939 act enumerated 21 agencies that could not be the subject of most of the reorganization activities a plan might specify. It provided that no plan would provide "for the transfer, consolidation, or abolition of the whole or any part of such agency or of its head, or of all or any of the functions of such agency or of its head." Another provision, used in the 1945 act, limited reorganizations with regard to certain agency functions, rather than entire specified agencies. Under the act, no plan was to provide for "imposing … any greater limitation upon the exercise of independent judgment or discretion … in connection with carrying out [quasi-judicial or quasi-legislative] functions," than existed prior to the reorganization. A third provision, also adopted in 1945, exempted from alteration any organizational arrangements that had been enacted by Congress since the beginning of that year. President George W. Bush's proposal took a different approach to limitations. It would have repealed all seven existing limitations, and instead circumscribed the agencies that might be part of a plan. The agencies selected perhaps reflected the Administration's highest priority reorganization at the time. The new amended Section 905 would have provided that plans would be limited to the following organizations: the Office of the National Intelligence Director; the Central Intelligence Agency; the National Security Agency; the Defense Intelligence Agency; the National Geospatial-Intelligence Agency; the National Reconnaissance Office; other offices within the Department of Defense for the collection of specialized national intelligence through reconnaissance programs; the intelligence elements of the Army, the Navy, the Air Force, the Marine Corps, the Federal Bureau of Investigation, and the Department of Energy; the Bureau of Intelligence and Research of the Department of State; the Office of Intelligence Analysis of the Department of the Treasury; the elements of the Department of Homeland Security concerned with the analysis of intelligence information, including the Office of Intelligence of the Coast Guard; and such "other elements of any other department or agency as may be designated by the President, or designated jointly by the National Intelligence Director and the head of the department or agency concerned, as an element of the intelligence community." Should Congress grant the President renewed reorganization authority, lawmakers might choose to include expedited parliamentary procedures that are the same as those last authorized in 1984, or they may choose instead to modify these procedures in whole or in part. Conversely, Congress might reject the idea of including fast track procedures entirely, and instead decide to have Congress consider a joint resolution of approval or disapproval or a reorganization implementing bill under its regular parliamentary procedures, rather than special rules enacted in law. Broadly speaking, when considering what type of expedited legislative procedures might be enacted as part of reorganization authority, several structural questions might be considered by lawmakers. The first is whether to make the parliamentary vehicle for congressional consideration a joint resolution of approval or one of disapproval. Joint resolutions of approval arguably have the effect of tilting the balance of power to Congress and away from the President by requiring affirmative congressional action for any reorganization plan to go into force. Joint resolutions of disapproval, on the other hand, strengthen the hand of the President vis-a-vis Congress because they establish a situation in which a President's reorganization plan will go into force unless Congress is able to stop it, something which would likely require supermajority votes of the House and Senate to override presidential veto of a disapproval resolution. Another consideration to take into account relating to expedited procedures is whether to include mandatory pre-consultation requirements that the President must adhere to before submitting a reorganization plan to Congress. Some expedited procedure statutes, such as the Trade Act of 1974, do require the President to consult with Congress in various ways and on various questions before submitting a proposed implementing bill to the House and Senate. Should policymakers include such pre-consultation provisions, they could choose to make them broad or extremely prescriptive. Still another question is whether Congress should be permitted to amend a reorganization plan once it is submitted. Generally speaking, prior versions of expedited authority did not allow Congress to directly do this, although the most recent version of reorganization authority provided the President with a limited window to amend or withdraw his own reorganization plan once submitted. From a parliamentary standpoint, it should be noted that if a congressional amendment process is permitted in an expedited procedure either at the committee or floor stage of consideration, it is not possible to guarantee that Congress will be able to complete consideration of a legislative measure for presentment to the President. Government reorganization is often cast in terms of potential administrative benefits, such as improved program effectiveness, greater efficiency, reduced cost, and improved policy integration across related programs. Whenever Congress has delegated reorganization authority to the President in the past, it has clearly stated in the statutory provisions that the objective of reorganization is such administrative improvement. Congress has often required that reorganization plans submitted by the President certify that such improvements are at least part of the objective of the proposed reorganization. In more recent versions of the law, the President is required to articulate the plan's means of achieving such improvements. In addition to these administrative goals, reorganization efforts often have spoken or unspoken political goals and outcomes. The political nature of reorganization arises from the fact that it redistributes power and resources, and interests inside and outside the federal bureaucracy stand to gain or lose in this process. Depending on the scope and limitations of the authority available to the President, organizational units and functions might not only be moved, but could be abolished. Employees in the reorganized agencies will often be the most directly impacted, but outside interests, such as those who are regulated by, or receive benefits from, such agencies are affected as well. Congressional committees may also be impacted by a reorganization, directly through potential jurisdictional changes or indirectly through constituent groups. Although a government reorganization may have beneficial outcomes over time, it is axiomatic that it is disruptive, at least in the short term, to the functioning of the organizational systems involved. It is likely to upset existing power dynamics, rearrange relationships, create uncertainty and anxiety, and generally interrupt the flow of work. Proponents of a delegation to the President of broad reorganization authority might argue that the President can be more effective than Congress in conceptualizing, as well as implementing, government-wide reorganization. Some critics argue that Congress is often unable to develop consensus and pass meaningful reorganization legislation. Where such consensus is arrived at, critics might assert that political, rather than administrative reform concerns are primary in its crafting. Opponents of reauthorizing the President's reorganization authority might argue that Congress is better suited as a place for sorting out the competing demands and interests involved in broad reorganizations. They might argue that Congress, by representing a greater cross section of interests, provides a better forum in which to shape the federal government. Critics of presidential reorganization authority might also note that Congress has successfully reorganized the federal government, in large and small ways, through the legislative process. When Congress delegates reorganization authority to the President and establishes expedited procedures for the consideration of resulting plans, it cedes some of its institutional power to the President. The history of such delegations suggests that Congress has been selective about when and under what terms it does so. Among the factors that appear to influence this decision-making process are the perceived administrative need and expected benefits, the record of collaborative efforts between a particular Congress and a particular President, and other political contextual factors.
|
On January 13, 2012, President Barack Obama announced that he would ask Congress to reinstate so-called presidential reorganization authority, and his Administration conveyed a legislative proposal that would renew this authority to Congress on February 16, 2012. Bills based on the proposed language were subsequently introduced in the Senate (S. 2129) and the House (H.R. 4409) during the 112th Congress. Should this authority be granted, the President indicated that his first submitted plan would propose consolidation of six business and trade-related agencies into one: U.S. Department of Commerce's core business and trade functions, the Export Import Bank, the Overseas Private Investment Corporation, the Small Business Administration, the U.S. Trade and Development Agency, and the Office of the U.S. Trade Representative. It appears that this plan would also involve the relocation of some subunits and functions that are not directly linked with business and trade. The Administration has stated, for example, that the National Oceanic and Atmospheric Administration would be moved to the Department of the Interior. Between 1932 and 1981, Congress periodically delegated authority to the President that allowed him to develop plans for reorganization of portions of the federal government and to present those plans to Congress for consideration under special parliamentary procedures. Under these procedures, the President's plan would go into effect unless one or both houses of Congress passed a resolution rejecting the plan, a process referred to as a "legislative veto." This process favored the President's plan because, absent congressional action, the default was for the plan to go into effect. In contrast to the regular legislative process, the burden of action under these versions of presidential reorganization authority rested with opponents rather than supporters of the plan. In 1984, the mechanism was amended to require Congress to act affirmatively in order for a plan to go into force. This arguably shifted the balance of power to Congress. The authority expired at the end of 1984 and therefore has not been available to the President since then. Presidents used this presidential reorganization authority regularly, submitting more than 100 plans between 1932 and 1984. Presidents used the authority for a variety of purposes, from relatively minor reorganizations within individual agencies to the creation of large new organizations, including the Department of Health, Education, and Welfare; the Environmental Protection Agency; and the Federal Emergency Management Agency. The terms of the authority delegated to the President varied greatly over the century. During some periods, Congress delegated relatively broad authority to the President, while during others the authority was more circumscribed. Congress might approach the question of whether, and how, to delegate this authority to the President in various ways. First, Congress could simply elect not to renew the authority, either by not acting on the President's proposal or by actively rejecting it. In the event that Congress elects to renew presidential reorganization authority, it might do so in a number of different ways. For example, it could renew the authority without modifications, with the requested changes to the scope of the authority, with a different set of changes to the scope of the authority, with changes to the nature of the expedited congressional procedures, or with some combination of these.
|
On January 18, 2017, the Secretary of Health and Human Services (HHS) published a final rule that amends the federal regulations responsible for safeguarding the privacy of patient records maintained by substance use disorder treatment programs across the country. These regulations, known simply as Part 2 after their location in the Code of Federal Regulations, were first promulgated in 1975 and had not been revised substantively since 1987. According to the HHS Substance Abuse and Mental Health Services Administration (SAMHSA), which administers Part 2, the changes in the final rule are intended "to better align [Part 2] with advances in the U.S. health care delivery system while retaining important privacy protections." The Part 2 law and implementing regulations were written at a time when treatment for substance use disorders was offered primarily by specialty providers. Some individuals with substance use disorders, however, were reluctant to seek treatment because they feared that disclosure of information about their condition might lead to prosecution, discrimination by health insurers, or loss of employment, housing, or child custody. The aim of Part 2 was to encourage these individuals to get the treatment they needed by establishing strong privacy protections. Today, the health care system is embracing new models for delivering services—including accountable care organizations (ACOs) and patient-centered health homes—that rely on sharing patient information to coordinate and integrate care. There is also a focus on measuring performance and patient outcomes. These efforts, in turn, depend on use of electronic health records (EHRs) and the development of a health information technology (HIT) infrastructure to support the exchange and use of digital health information. Under Part 2, the disclosure of substance use disorder treatment records requires a patient's written consent, unless the type of disclosure falls under one of a handful of specific statutory exceptions. For example, Part 2 generally requires consent to release information about a patient's substance use disorder history and treatment regimens to clinicians at another facility, except in the case of a medical emergency. This contrasts with the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule, which permits clinicians to share patient information for treatment and payment purposes. Health care providers have become increasingly frustrated with the restrictions that Part 2 places on their ability to share the medical records of patients with substance use disorders. They argue that Part 2 makes it difficult for addiction treatment providers and general medicine providers to exchange information and coordinate patient care. Consider a patient who receives counseling and medications at an alcohol or drug treatment program. The records for this care are protected under Part 2. If the patient also receives treatment (including addiction treatment) at a primary care facility, the records for the care at that location are HIPAA-protected. Whereas the primary care facility is permitted under HIPAA to share the patient's information with the Part 2-covered alcohol and drug treatment program and any other health care facility providing care, the alcohol and drug treatment program generally needs the patient's consent under Part 2 to release information to another health care facility. Integrated health systems that handle patient records from multiple providers must separate Part 2 data from other medical information and manage patient consent preferences for its use and disclosure. Some health information exchanges (HIEs) exclude Part 2 data altogether because of the difficulty and expense of segregating the data and managing consent. Researchers, too, have expressed concern about access to Part 2 data. They were especially critical of a decision by the HHS Centers for Medicare & Medicaid Services (CMS) in late 2013 to begin withholding from research data sets any Medicare or Medicaid reimbursement claim that included a substance use disorder diagnosis or procedure code. CMS took this action to comply with Part 2. While the regulations permit disclosures for research purposes, subject to certain conditions, only substance use disorder program directors are allowed to authorize such disclosures. Third-party payers that receive Part 2 data, including CMS, are subject to the general prohibition on redisclosing the information. Researchers complained that they were losing access to an important data source at a particularly challenging time, as the nation expands its efforts to combat the abuse of prescription opioids and heroin. SAMHSA launched its effort to revise Part 2 in response to these concerns. Its stated goal in developing the final rule was to ensure that individuals with substance use disorders are able to participate in, and benefit from, the new systems of care without compromising their privacy. This report summarizes the changes that the final rule made to the Part 2 regulations and describes stakeholders' reactions to these revisions. The report begins with an overview and comparison of Part 2 and the HIPAA Privacy Rule. It concludes with some discussion of new HIT standards and applications for data segmentation and consent management that support the exchange of Part 2 data. Part 2 is much narrower in scope than the more familiar HIPAA Privacy Rule, which provides a baseline of privacy protections for health information maintained by payers and providers of health care—including substance use disorder treatment programs subject to Part 2—across the entire health care system. Part 2 also permits significantly fewer uses and disclosures of patient information without consent. Table 1 compares key provisions of the Privacy Rule and Part 2. The HIPAA Privacy Rule applies to identifiable health information maintained by health plans, health care clearinghouses, and health care providers. It also applies to the business associates of these HIPAA-covered entities, with whom such protected health information (PHI) is shared. Business associates provide specific services (e.g., claims processing, data management) for covered entities to help them operate as businesses and meet their responsibilities to patients and beneficiaries. The Privacy Rule describes multiple circumstances under which covered entities may use or disclose PHI. For example, PHI may be used or disclosed for the purposes of treatment, payment, and other routine health care operations—including case management, care coordination, and outcomes evaluation—with few restrictions. The rule also permits the use or disclosure of PHI for other specified purposes not directly connected to the treatment of the individual, such as public health and research. Covered entities must obtain a patient's written authorization for any use or disclosure that is not expressly permitted or required under the Privacy Rule. By comparison, Part 2 applies specifically to federally assisted substance use disorder treatment programs. Most of the nation's alcohol and drug treatment programs are covered, comprising more than 12,000 hospitals, outpatient treatment centers, and residential treatment facilities. While Part 2 does not apply to general medical facilities or practices, it does cover specialized substance use disorder treatment units (and staff) within such facilities. Part 2 restricts the use or disclosure of any patient information that directly identifies a patient as an alcohol or drug abuser, or that links the patient to an alcohol or drug treatment program. Medical information that does not link the patient to current or past substance abuse, or identify the patient as a participant of a Part 2 program, is not subject to the Part 2 requirements. While such information is not afforded Part 2 protection, it remains covered under the HIPAA Privacy Rule. Under Part 2, patient-identifying information may not be disclosed without a patient's written consent except pursuant to certain specified conditions in the following circumstances: (1) medical emergencies, (2) research, (3) program audits and evaluations, and (4) pursuant to a court order authorizing disclosure. Any information disclosed with the patient's consent must include a statement that prohibits further disclosure of identifying information unless the consent expressly permits such redisclosure, or it is permitted by Part 2. Substance use disorder treatment programs typically are subject to both sets of regulations—Part 2 and the HIPAA Privacy Rule—unless there is a conflict between the two. In that case, the program must comply with the regulations that are more protective of patient privacy, which generally means following the requirements under Part 2. The major provisions in the final rule are summarized below. Although SAMHSA's primary goal was to modify Part 2 to facilitate the sharing of patients' Part 2 data with other providers participating in clinically integrated health care networks, the agency's rulemaking options were constrained by the underlying statutory language. The Part 2 law is prescriptive, which limits SAMHSA's ability to make significant changes through rulemaking. The law defines the types of entities and information subject to its protections. It requires patient consent to disclose protected information, except in a handful of specified circumstances, and it establishes a strict prohibition on redisclosure. By contrast, the HHS Secretary was given broad discretionary authority under HIPAA to develop—and periodically amend—the Privacy Rule. HIPAA instructed the Secretary to submit to Congress detailed recommendations on the privacy of individually identifiable health information, and to promulgate privacy standards based on the recommendations. The law provided few details on the scope of the recommendations other than specifying that they must address (1) patient rights, (2) procedures for exercising such rights, and (3) the uses and disclosures of patient information that should be permitted or required. The final rule modifies the Part 2 requirement that consent forms include the amount and kind of information to be disclosed. It specifies that the form must now include "an explicit description of the substance use disorder information that may be disclosed." According to SAMHSA, the types of information that could be specified include diagnostic information, medications, lab tests, history of substance use, employment information, social supports, and claims or encounter data. Patients may select "all my substance use disorder information" as long as the consent form includes more specific types of disclosures from which to choose. Part 2 traditionally has required patient consent forms to identify "the name or title of the individual or the name of the organization to which the disclosure is made." Under the final rule, more options are available. A patient can now list any of the following in the "to whom" section of the consent form: the name of an individual; the name of an entity (e.g., hospital, clinic, physician practice) that has a "treating provider relationship" with the patient; the name of an entity with which the patient does not have a treating provider relationship and which is a third-party payer; and/or the name of an entity with which the patient does not have a treating provider relationship and which is not a third-party payer (e.g., ACO, health information exchange, research institution), plus either the name(s) of specific individual participants; the name(s) of an entity participant(s) with which the patient has a treating provider relationship; or a general designation of individual or entity participants, or class of participants, with which the patient has a treating provider relationship (e.g., "all my past, present, and future treating providers"). Thus, a patient may now consent to disclose Part 2 data to an organization such as a health information exchange (HIE) that does not have a treating provider relationship with the patient, but which acts as an intermediary. Pursuant to the patient's general designation, the intermediary may further disclose the information, but only to providers that it can verify have a treating provider relationship with the patient. The final rule also creates the right to an accounting of disclosures. Patients who provide consent using the general designation are entitled, upon written request, to receive from the intermediary a list of entities to which their information has been disclosed within the past two years. The final rule modifies the written statement prohibiting redisclosure that accompanies Part 2 disclosures made with a patient's consent. The modified language states that the prohibition on redisclosure applies only to information that identifies, directly or indirectly, an individual as having or having had a substance use disorder. That includes not only clinical information, such as diagnoses, treatments, and referrals, but also the origin of the data (such as a treatment clinic) if it reveals that the individual has a substance use disorder. The final rule modifies the regulatory language so that it aligns with the statutory definition of medical emergency. The revised language states that patient-identifying information may be disclosed to medical personnel "to the extent necessary to meet a bona fide medical emergency in which the patient's prior informed consent cannot be obtained." The final rule continues to require a Part 2 program, immediately following disclosure, to document specific information related to the medical emergency. The final rule revises the existing security language by specifying that Part 2 programs and other lawful holders of patient-identifying information must adopt policies and procedures to protect both paper and electronic records "against unauthorized uses and disclosures" and "against reasonably anticipated threats or hazards" to the security of such information. The policies and procedures for electronic records must address creating, receiving, and transmitting such records; destroying records and sanitizing the electronic media on which such records are stored; and rendering patient identifying information nonidentifiable, among other things. The final rule eases the restrictions on disclosures for research purposes by allowing a Part 2 program or other lawful holder of Part 2 information —not just Part 2 program directors—to disclose the information to qualified researchers, provided the researchers (1) have obtained approval from an Institutional Review Board (IRB) or equivalent privacy board under the HIPAA Privacy Rule and/or the Common Rule; (2) agree to be fully bound by Part 2; and (3) if necessary, resist in judicial proceedings any efforts to obtain access to the data except as permitted under Part 2. The final rule also permits researchers using Part 2 data to link to data sets in federal and nonfederal data repositories, provided that the linkage has been reviewed and approved by an IRB. Part 2 permits the disclosure of patient-identifying information to certain qualified persons who are conducting a program audit or evaluation, provided that certain safeguards are met. The final rule revises and expands the existing language so that ACOs and other CMS-regulated entities are able to access Part 2 data to perform necessary audit and evaluation activities, including financial and quality assurance reviews. Part 2 permits the disclosure of patient-identifying information to a QSO, subject to a written agreement. The final rule adds population health management to the list of examples of services that may be provided by a QSO. SAMHSA defines population health management as "increasing desired health outcomes and conditions through monitoring and identifying individual patients within a group." It emphasizes that disclosures for population health management under a QSO agreement must be limited to the specific offices or units responsible for carrying out these activities. The agency does not consider care coordination or medical management to be population health management because they both include a patient treatment component. SAMHSA decided not to address electronic prescribing and state PDMPs in its Part 2 rulemaking. This is a notable omission given the potential importance of PDMPs in combatting the abuse and diversion of controlled prescription drugs such as opioid painkillers. PDMPs collect, monitor, and analyze prescribing and dispensing data submitted electronically by pharmacies and other drug dispensers. Because of the prohibition on redisclosure, a pharmacy that receives an e-prescription from a Part 2 program must obtain patient consent to transmit the information to a PDMP. Patient consent is also required for the PDMP to redisclose that information to others with access to the PDMP. While recognizing the importance of PDMPs, SAMHSA concluded that these issues are not yet ripe for rulemaking in part because pharmacy data systems currently do not have the ability to manage patient consent or segregate Part 2 data from other prescription information. SAMHSA also published a supplemental final rule in January 2018 that makes additional changes to Part 2 to permit third parties in lawful possession of Part 2 data to disclose the information to their contractors, subcontractors, and legal representatives. The agency finalized two sets of circumstances under which such disclosures would be permissible. First, if a patient consents to disclosure of his or her Part 2 records for payment and/or health care operations activities, the recipient of the information (i.e., lawful holder) is able to further disclose the information to its contractors, subcontractors, or legal representatives to carry out such activities on its behalf. Any entity that receives data from a lawful holder in this way would itself become a lawful holder and be subject to the Part 2 requirements. SAMHSA includes a list of permissible payment and health care operations activities, which is similar to the HIPAA Privacy Rule's definition of these terms, in the preamble of the rule to provide illustrative examples of these types of activities. Second, the final rule allows an individual and entity to whom Part 2 data are disclosed for a Medicare, Medicaid, or State Children's Health Insurance Program (CHIP) audit or evaluation to further disclose the information to its contractors, subcontractors, or legal representatives to carry out the audit or evaluation. Groups that advocate for the privacy of individuals with substance use disorders generally are satisfied with the final rule because it retains Part 2's confidentiality protections. But organizations that represent payers and providers of health care have criticized the final rule, claiming that on balance it does little to improve information sharing. The Legal Action Center, a nonprofit law and policy organization representing people with substance use disorders, HIV/AIDS, or criminal records, notes that while the final rule has introduced flexibility to the consent process by providing more options for designating the types of individuals and entities permitted to receive protected information, the core consent requirements under Part 2 remain intact and in other respects have been strengthened. The center applauds the new provision that allows patients to indicate on the consent form the specific types of information that may be disclosed. It also credits SAMHSA for not attempting to loosen the prohibition on redisclosure or to create any new exceptions to the consent requirement. The Partnership to Amend 42 C.F.R. Part 2 (the Partnership)—a coalition of national organizations representing health care payers and providers committed to aligning Part 2 with the HIPAA Privacy Rule—has been critical of the final rule. Though the Partnership acknowledges SAMHSA's efforts to broaden the consent options in an attempt to facilitate the use and disclosure of Part 2 data for research, population health management, and care coordination, it believes more needs to be done to enable Part 2 data to be shared. The Partnership recognizes, however, that SAMHSA's rulemaking options are limited by the underlying statute—as discussed earlier—and thus more fundamental changes to Part 2 may require new legislation to amend the law. Representatives of the behavioral health provider and medical informatics communities support the final rule's general consent provisions that permit disclosure of Part 2 data to intermediaries such as HIEs and ACOs. But they are critical of the language that will require such intermediaries to have the IT capability to (1) limit access to Part 2 data to providers involved in the patient's care (i.e., those with a "treating provider relationship") and (2) be able to track which providers have received Part 2 data so that an accounting of such disclosures within the past two years can be provided to the patient upon request. They argue that these requirements are administratively and technologically burdensome and provide little if any additional privacy protections. A provision in the 21 st Century Cures Act requires the HHS Secretary, not later than one year after first finalizing regulations to update Part 2, to convene stakeholders to determine the final rule's effects on patient care, health outcomes, and patient privacy. On January 31, 2018, SAMHSA held a listening session to implement this requirement. In tandem with its Part 2 rulemaking activities, SAMHSA has worked closely with federal and nonfederal partners to develop HIT standards and applications that support the use and disclosure of information protected by Part 2. These efforts are briefly described below. To facilitate the electronic exchange of Part 2 data, each patient's consent preferences specifying the type of information that may be shared, and the individuals or entities with whom the information may be shared, must be carefully managed. Patient consent has to travel with the data in order to control access. In addition, a mechanism is required for segregating the data in a medical record to capture a patient's preferences. Data segmentation allows a patient's record to be broken down into multiple categories, allowing certain protected data elements to be removed (redacted) if a patient has not consented to their disclosure. In recent years, SAMHSA has worked with the HHS Office of the National Coordinator for Health Information Technology (ONC) on its Data Segmentation for Privacy (DS4P) initiative. Through DS4P, federal and nonfederal stakeholders developed internationally accepted standards and guidelines for segmenting medical data and managing patient consent. Based on the DS4P standards, SAMHSA designed Consent2Share, an open-source online tool for data segmentation and consent management. Consent2Share integrates with existing EHR systems and HIE networks to manage the exchange of health information among providers. Consent2Share provides a patient portal where individuals can learn about and manage their consent options. They can complete and electronically sign consent forms if they wish to permit the disclosure of protected information, whether it is protected under Part 2 or applicable state health privacy laws. Using Consent2Share, patients can indicate the individuals and/or entities with whom they want to share information and select from a list of protected information the specific types of data that are allowed to be disclosed. Prior to the exchange of patient information, Consent2Share receives a patient's record from an EHR or HIE, confirms that the patient has consented to share information with the intended recipient, and applies the patient's consent choices—for example, redacting some or all of the Part 2 data unless the patient has consented to its disclosure—before sending the modified record to the recipient. In 2015, SAMHSA launched the OTP Service Continuity Pilot (SCP) project to implement electronic health information exchange among OTPs in a way that is compliant with Part 2 and state law and minimizes disruptions in treatment. It is critical that individuals receiving behavioral therapy and medications—methadone or buprenorphine—for their opioid addiction at an OTP have consistent, uninterrupted access to treatment. However, OTP patients may experience treatment disruptions when natural disasters or other unanticipated events temporarily close the OTP and force them to seek treatment at another facility. Patients also may have difficulty maintaining treatment continuity during vacations and business travel, or when they relocate. SAMHSA selected Arizona Health-e Connection (AzHeC), which operates the statewide HIE, to run the SCP project. AzHeC is working with three Arizona-based behavioral health organizations, each of which operates OTPs connected to the HIE. Under the SCP, AzHeC has successfully integrated Consent2Share with the Arizona HIE. This enables Consent2Share to apply patient consent preferences to clinical documents handled by the HIE. Each time a patient receives counseling and medication treatment at an OTP, the facility records dosing and other treatment information in the patient's electronic medical record and sends an updated clinical summary document to the HIE. If the patient visits a different OTP, he or she can log into Consent2Share and modify the consent settings, giving the facility access to treatment information. When the facility contacts the HIE to request a copy of the patient's clinical summary document, Consent2Share applies the patient's consent preferences to the document and redacts any data that the requesting provider is not allowed to see.
|
On January 18, 2017, the Secretary of Health and Human Services (HHS) published a final rule to amend the federal regulations known as "Part 2" that protect the privacy of patient records maintained by alcohol and drug treatment programs across the country. Part 2 was developed in the 1970s to allay the concerns of individuals with substance use disorders who were afraid to get treatment for fear that their medical information would be released, leading to discrimination and even prosecution. Health care providers participating in new health care delivery models such as accountable care organizations (ACOs), which rely on sharing medical information to coordinate and integrate patient care, complain that Part 2 restricts their ability to access important medical data. Disclosure of Part 2 Data Disclosure of Part 2-covered data generally requires a patient's written consent unless the type of disclosure falls under one of a handful of statutory exceptions. Consent is needed for a clinician to release patient information to another health care facility to improve the coordination of care. This requirement contrasts with the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule, which applies more broadly to medical information throughout the health care system, and which permits health care providers to share patient data with few restrictions. Alcohol and drug treatment programs typically are subject to both Part 2 and the Privacy Rule unless there is a conflict between the two. In that case, the program must comply with the regulations that are more protective of privacy, which generally means following Part 2. Changes in the Final Rule The final rule was developed by the HHS Substance Abuse and Mental Health Services Administration (SAMHSA). According to SAMHSA, the changes in the final rule are intended primarily to facilitate the sharing of Part 2 data among providers participating in clinically integrated health care networks that include addiction treatment programs. The final rule introduced flexibility to the Part 2 consent process. It provided patients with more options for designating the types of individuals and entities that may receive protected information. A patient may now consent to disclose Part 2 data to an organization such as an ACO or health information exchange (HIE) that does not have a direct treatment relationship with the patient, but which acts as an intermediary. The intermediary may then disclose the information to some or all of the providers who treat the patient, pursuant to the patient's consent preferences. Groups that advocate for the privacy of individuals with substance use disorders generally are satisfied with the final rule because it retains Part 2's core confidentiality protections. But the reaction of many health care provider organizations has been mixed. While applauding the changes that permit disclosure of Part 2 data to intermediaries such as ACOs and HIEs, providers are critical of other changes that they claim are administratively and technologically burdensome and provide little if any additional privacy protections. Exchange of Part 2 Data To facilitate the electronic exchange of Part 2 data, each patient's consent preferences specifying the type of information that may be shared, and the individuals or entities with whom the information may be shared, must be carefully managed. To control access, patient consent must travel with the data. In addition, the data in a medical record must be segregated to capture a patient's preferences. Data segmentation allows a patient's record to be separated into multiple categories, so that certain protected data elements can be removed (redacted) if a patient has not consented to their disclosure. SAMHSA has worked with its federal and nonfederal partners to develop Consent2Share, an online tool for data segmentation and consent management. Consent2Share integrates with electronic health record systems and HIEs to support the exchange of Part 2 and other sensitive health data.
|
Congress enacted the Health Insurance Portability and Accountability Act of 1996 (HIPAA) to improve portability and continuity of health insurance coverage. The HIPAA Privacy Rule, issued by HHS to implement section 264 of HIPAA (42 U.S.C. § 1320d-2), regulates the use and disclosure of protected health information. On September 4, 2005, Health and Human Services Secretary Leavitt declared a federal public health emergency for Louisiana, Alabama, Mississippi, Florida, and Texas. To allow health care providers in affected areas to care for patients without violating requirements of HIPAA, Medicare, Medicaid, and the State Children's Health Insurance Program, the HHS Secretary waived certain provisions. Specifically with respect to the HIPAA Privacy Rule, the Secretary waived the imposition of sanctions and penalties arising from noncompliance with the following provisions: (1) requirements to obtain a patient's agreement to speak with family members or friends or to honor a patient's request to opt out of a facility directory (45 C.F.R.164.510); (2) the requirement to distribute a notice of privacy practices (45 C.F.R.164.520); and (3) the patient's right to request privacy restrictions or confidential communications (45 C.F.R.164.522). In the first Hurricane Katrina bulletin issued by HHS (HIPAA Privacy and Disclosures in Emergency Situations), the Department emphasized that the HIPAA Privacy Rule "allows patient information to be shared to assist in disaster relief efforts, and to assist patients in receiving the care they need." The bulletin states that under the rule, health care providers can share patient information to provide treatment and seek payment for health care services; to identify, locate, and notify family members, guardians, or anyone responsible for the individual's care of the individual's location, general condition, or death; with anyone as necessary to prevent or lessen a serious and imminent threat to the health and safety of a person or the public, consistent with applicable law and the provider's standards of ethical conduct. In addition, health care facilities maintaining a patient directory can tell people who call or ask about individuals whether the individual is at the facility, their location in the facility, and general condition. On September 9, HHS issued Hurricane Katrina Bulletin #2. Because the medical and prescription records of many evacuees were lost or inaccessible, and because health plans and health care providers were working with other industry segments to gather and provide this information, Bulletin #2 provides guidance on how the HIPAA Privacy Rule applies to these activities and describes the HHS Office for Civil Rights' enforcement approach in light of these emergency circumstances. Bulletin #2 discusses the use and disclosure of prescription and medical information by entities managing information on behalf of covered entities ("business associates"). In general, business associates are permitted to make disclosures "to the extent permitted by their business associate agreements with the covered entities, as provided in the Privacy Rule." The bulletin provides that covered entities or their business associates may provide health information on evacuees to another party for that party to manage the health information and share it as needed for providing health care to the evacuees. Where a covered entity provides protected health information to another for this purpose, the Privacy Rule requires the covered entity to enter into a business associate agreement with this party. If the business associate, rather than the covered entity itself, is providing this information to another party that is acting as its agent, the covered entity's business associate must enter into an agreement to protect health information with this party. Sample business associate agreement provisions are attached to the bulletin. On the subject of enforcement, HHS noted that Section 1176(b) of the Social Security Act provides the agency may not impose a civil money penalty where the failure to comply is based on reasonable cause and is not due to willful neglect, and the failure to comply is cured within a 30-day period. HHS noted its authority to extend the period within which a covered entity may cure the noncompliance "based on the nature and extent of the failure to comply." HHS, in determining whether reasonable cause exists for a covered entity's failure to meet requirements and in determining the period within which noncompliance must be cured, announced that it "will consider the emergency circumstances arising from Hurricane Katrina, along with good faith efforts by covered entities, its business associates and their agents, both to protect the privacy of health information and to appropriately execute the agreements required by the Privacy Rule as soon as practicable." Shortly after Hurricane Katrina, the federal government began a pilot test of KatrinaHealth.org , an electronic health record (EHR) online system, sharing prescription drug information for most of the hurricane evacuees with health care professionals. The launch of KatrinaHealth.org was possible in part because of plans already made and actions taken by the Administration, the Congress, foundations, and the private sector to implement electronic health records (EHRs) as part of the national health information infrastructure. President Bush and the Departments of Health and Human Services, Defense, and Veterans Affairs (HHS) have focused on the importance of transforming health care delivery through the improved use of health information technology (HIT). Philanthropies such as California Health Care Foundation, Robert Wood Johnson, the Markle Foundation, and others have provided funding, leadership, and expertise to this effort. In the private sector, the medical and nursing informatics, and the medical and nursing professional societies, have also been involved. Electronic health records are controversial among many privacy advocates and citizens who are concerned about information security and the potential for the exploitation of personal medical information by hackers, companies, or the government, and the sharing of health information without the patients' knowledge. Privacy advocates, in general, support the development of an interoperable national health information network built on the concepts of patient control, privacy, and participation. The Department of Health and Human Services has formed agreements with two organizations to plan and promote the widespread use of electronic health records in the Gulf Coast region as it rebuilds. The agreements supplement recently announced contracts to certify electronic health records, develop interoperability standards, evaluate variations among privacy and security requirements across the country, and create prototypes for a nationwide health information network. The Southern Governors Association will form the Gulf Coast Health Information Task Force, which will bring together local and national resources to help area health-care providers convert to electronic medical records. The Louisiana Department of Health and Hospitals will develop a prototype of health information sharing and electronic health record support that can be replicated in the region. The effort will not be connected with http://katrinahealth.org/ , which is not expected to be a long-term undertaking. On September 22, 2005, KatrinaHealth.org [ http://www.katrinahealth.org ], a secure online service, was launched to enable authorized healthcare providers to electronically access medication and dosage information for evacuees from Hurricane Katrina to renew prescriptions, prescribe new medications, and coordinate care. The website KatrinaHealth.org was available for a 90-day period. KatrinaHealth.org was a completely new, secure online service created in three weeks to help deliver quality care and avoid medical errors. The data contain records from 150 zip codes in areas hit by Katrina. At its launch, prescription drug records on over 800,000 people from the region could be searched by health care professionals. The information was compiled and made accessible by private companies, public agencies, and national organizations, including medical software companies; pharmacy benefit managers; chain pharmacies; local, state, and federal agencies; and a national foundation. The effort to create KatrinaHealth.org was facilitated by the Office of the National Coordinator for Health Information, Department of Health and Human Services. With the assistance of federal, state, and local governments, KatrinaHealth.org was operated by private organizations, such as the Markle Foundation. Under ordinary circumstances, HIPAA privacy rules would require formal, written "business associate agreements" among KatrinaHealth.org participants before they could exchange medical information. Reportedly, many of the participants had such agreements or were able to obtain them rapidly. In addition, HHS's second bulletin clarified that considering the emergency circumstances, organizations that did not comply with the business associate requirements would not be penalized as long as they showed good faith efforts to protect the privacy of health information and to appropriately execute the agreements required by the Privacy Rule as soon as practicable. The data or prescription information for KatrinaHealth.org was obtained from a variety of government and commercial sources. Sources include more than 150 private and public organizations' electronic databases from commercial pharmacies, government health insurance programs such as Medicaid, and private insurers such as Blue Cross and Blue Shield Association of America, and pharmacy benefits managers in the states affected by the storm. Key data and resources were contributed by the American Medical Association (AMA), Gold Standard, the Markle Foundation, RxHub and SureScripts. Data contributors also include the Medicaid programs of Louisiana and Mississippi; chain pharmacies (Albertsons, CVS, Kmart, Rite Aid, Target, Walgreens, Wal-Mart, Winn Dixie); and Pharmacy Benefit Managers (RxHub, Caremark, Express Scripts, Medco Health Solutions)). Federal agencies involved include the U.S. Departments of Commerce, Defense, Health and Human Services, Homeland Security, and Veterans Affairs. The information in KatrinaHealth.org did not exist in a central database, rather access was provided to a mix of data sets. Some of the information from chain pharmacies was aggregated while other available information was not. Licensed doctors and pharmacists, anywhere in the United States, treating evacuees from Louisiana, Mississippi, and Alabama, were eligible to use KatrinaHealth. Patients were not permitted access to the prescription information at the online site. Authorized clinicians and pharmacists using the system could view evacuees' prescription histories online, obtain available patient allergy information and other alerts, view drug interaction reports and alerts, see therapeutic duplication reports and alerts, and query clinical pharmacology drug information. The system was only accessible to authorized health care professionals and pharmacists, who provided treatment or supported the provision of treatment to evacuees. To ensure that only authorized physicians used KatrinaHealth.org, the AMA provided physician credentialing and authentication services. The AMA validated the identity of health care providers, a key step in ensuring patient confidentiality and security. The National Community Pharmacists Association (NCPA) authenticated and provided access for independent pharmacy owners. SureScripts provided these services for chain pharmacies on behalf of the National Association of Chain Drug Stores (NACDS). When treating an evacuee, an authorized user of KatrinaHealth.org was prompted to enter the evacuee's first name, last name, date of birth, pre-Katrina residence zip code and gender. If the evacuee's information was available in KatrinaHealth.org, the health provider would link to the following information: quantity and day supply; the pharmacy that filled the script (if available); the provider that wrote the script; and drug information, such as indication and dosage, administration and interactions. Tools to prevent unauthorized access, and audit logs of system access and records access were maintained and reviewed. The site provided "Read Only" access and information in the system could not be modified or other wise changed. The developers acknowledged that KatrinaHealth.org did not contain information on every Katrina evacuee from Louisiana, Mississippi, and Alabama; that the information on each evacuee's prescription history might be incomplete; and that the data might contain errors or omissions or duplication. Users of KatrinaHealth were encouraged to review the data with the patient. According to the developers, privacy and security concerns were central to the design of KatrinaHealth.org. Only authorized users could access the site. Highly sensitive personal information was filtered out to comply with state privacy laws. Medication information about certain sensitive health care conditions (HIV/AIDS, mental health issues, and substance abuse or chemical dependencies) was not available. Health privacy advocates argued that evacuees should have had the option to opt out of the site and that the site should not become permanent. In June 2006, The Markle Foundation released a report titled "Lessons From KatrinaHealth." The report provides recommendations to ensure that medical records can be accessed and prescriptions provided quickly in a future disaster. The recommendations include engaging in advance planning, taking advantage of existing resources, addressing system and electronic health record design issues, integrating emergency systems, creating systems that are simple to access, improving communication strategies, and overcoming policy barriers to working together.
|
Shortly after Hurricane Katrina, the federal government began a pilot test of KatrinaHealth.org, an online electronic health record (EHR) system that shared prescription drug information for hurricane evacuees with health care professionals. The website was available for a 90-day period. To allow health care providers in affected areas to care for patients without violating the Health Insurance Portability and Accountability Act (HIPAA), Health and Human Services (HHS) Secretary Leavitt waived certain provisions of the HIPAA Privacy Rule and issued guidance to clarify situations where the HIPAA privacy rule allows information sharing to assist in disaster relief efforts and with patient care. This report discusses HHS's waiver of certain provisions of the HIPAA privacy rule and guidance issued by HHS with respect to the use and disclosure of protected health information under the HIPAA Privacy Rule in response to Hurricane Katrina. It also briefly discusses the development of electronic health records (EHRs) and provides a brief overview of KatrinaHealth.org. This report will be updated.
|
Traditionally accepted principles of international law state that the sovereign powers of a nation include the power to exclude alien persons and property. However, in most cases, so as to be mutually beneficial to commerce, nations usually do not fully exercise this power of exclusion. Sometimes a nation writes the restraints into its domestic law. For example, Clause XXX of the Magna Carta has the following provision: All merchants, if they were not openly prohibited before, shall have their safe and sure Conduct to depart out of England, to come into England, to tarry in, and go through England, as well by land as by water, to buy and sell without any manner of (evil tolts) by the old and rightful Customers, except in time of war; and if they be of a Land making War against Us, and be found in our Realm at the beginning of the wars, they shall be attached without harm of body or goods, until it be known unto Us, or our Chief Justice, how our Merchants be entered therein the Land making War against Us; and if our merchants be well entreated there, theirs shall be likewise with Us. Treaties and other forms of bilateral and multicultural agreements have also restricted foreign persons and property. For example, the Greek city-states formed agreements which allowed the reciprocal entry of and ownership of property of foreigners from other contracting states. The United States has through the years accepted both kinds of restraint. The American colonies were formed to realize profits for their English and Continental investors. After the War of Independence, the new government moved quickly to resolve the outstanding foreign claims so as to assure creditworthiness and to provide a favorable climate for foreign investment. The Jay Treaty, for example, stated that the new United States government would compensate the British for any property which had been seized or destroyed and for unpaid debts caused by the Revolution. In his Report on Manufactures in 1791, Alexander Hamilton urged the new nation to keep investment open to foreigners. It is not impossible that there may be persons disposed to look with a jealous eye on the introduction of foreign capital, as if it were an instrument to deprive our own citizens of the profits of our own industry; but, perhaps, there never could be a more unreasonable jealousy. Instead of being viewed as a rival, it ought to be considered as a most valuable auxiliary, conducing to put in motion a greater quantity of productive labor, and a greater portion of useful enterprise, than could exist without it. Hamilton's ideas prevailed. During the 18 th and 19 th centuries, foreign capital contributed enormously to the nation's development. As the nation grew, its roads, bridges, canals, banks, and finally railroads were largely financed by state bonds sold overseas. The Erie Canal, the first American canal to achieve commercial success, was made possible by the first state bonds to be quoted on the London market, in 1817. Europe was eager for investments such as these, and a group of Anglo-American banking houses were established in London—led by Baring Brothers—which specialized in American finance. They bought up entire issues for resale in England. In their eagerness for foreign capital, American states and private enterprises sent their agents to Europe. Generals and congressmen turned to bond selling.... By the middle of the 19 th century, foreigners held half of the federal and state and one-quarter of the municipal debts. The 1849 California Gold Rush sparked even more foreign investment. It is also interesting to note that American real estate was quite popular with foreign investors. Europeans acquired substantial holdings in such states as New York, Maine, Florida, West Virginia, and Iowa. The state of Texas granted an English company 3 million acres in payment for building the state capitol building in Austin. Some of the titled Europeans, including the German Baron von Richthofen and the British Earl of Dunraven, attempted to create baronial estates in the West. At the turn of the century, with the invention of the automobile and the increasing importance of oil, foreign oil companies, such as Royal Dutch Shell, began buying American properties. However, World War I made a drastic change in the influx of foreign capital into the United States. The creditor countries of Europe sold many of their American holdings in order to supply their wartime needs. In just a few years, the United States shifted from a debtor to a creditor nation, a position which it retained for a number of years. Throughout the nation's history, there has been criticism of foreign investment in the United States. When the first and second banks of the United States were created in 1791 and 1816, their organic statutes barred the election of aliens as directors. The Know-Nothing Party advocated discriminatory taxation of foreign capital as early as the 1850s. The Alien Land Law of 1887 prohibited aliens from owning land in federal territories. During the 20 th century Congress passed a number of statutes aimed at restricting foreign investment in certain industries such as shipping, aviation, and communications. Nevertheless, by the early 1970s foreign investment in the United States began to rise dramatically, and since then there has been frequent congressional debate as to whether there should be more restriction on investment by foreign citizens in American businesses. Federal constitutional provisions may be interpreted as legal validation of federal statutes restricting investments by foreigners; other constitutional provisions have to be adhered to by the states in imposing additional restrictions on foreign investment. The federal government is a government of limited powers. There is no express constitutional provision permitting the regulation of foreign investment in the United States. Thus, other federal powers mentioned in the Constitution must be looked at to justify such regulation. Three constitutional bases for such legislation are the federal powers over immigration and naturalization, the federal power to regulate interstate and foreign commerce, and the power to provide for the national defense. Congress has the exclusive power to establish naturalization and citizenship requirements and to admit and expel aliens. That the government of the United States, through the action of the legislative department, can exclude aliens from its territory is a proposition which we do not think open to controversy. Jurisdiction over its own territory to that extent is an incident of every independent nation. It is a part of its independence. If it could not exclude aliens, it would be to that extent subject to the control of another power.... The United States, in their relation to foreign countries and their subjects or citizens, are one nation, invested with powers which belong to independent nations, the exercise of which can be invoked for the maintenance of its absolute independence and security throughout its entire territory. Congress has also been held to have the power to regulate the conduct of alien residents and to prescribe the conditions for their admission and residency. Thus, it is arguable that Congress can condition entry and residency of an alien upon his or her not acquiring investments in the United States. Although this might be an extreme condition to apply, no federal case appears to suggest limits to Congress's ability to place substantive conditions upon entry and residency of aliens. Congress also has the exclusive power to "regulate Commerce with foreign Nations, and among the several States." The Commerce Clause would appear to give Congress the power to restrict the use of instrumentalities of interstate commerce to transact the sale or exchange of property to a foreign citizen or to the representative of a foreign citizen. Finally, Congress's power to "raise and support Armies" would also appear to be a constitutional basis for restricting foreign investment in the United States. If it is determined that foreign investments impair national preparedness in the event of an emergency, it appears that prohibition of foreign investments could on this basis be construed as constitutional. Further, it should be noted that the federal government has exclusive authority over foreign relations. In the case Zschernig v. Miller , the Supreme Court held unconstitutional an Oregon statute which provided for the escheat to the state of property which would otherwise pass to a nonresident alien unless the laws of the foreign nation had reciprocal rights for United States citizens. The Oregon statute required the local probate courts to inquire into: the type of governments that obtain in particular foreign nations—whether aliens under their law have enforceable rights, whether the so-called "rights" are merely dispensations turning upon the whim or caprice of government officials, whether the representation of consuls, ambassadors, and other representatives of foreign nations is credible or made in good faith, whether there is the actual administration in the particular foreign system of law any element of confiscation. The Court found the Oregon statute to be unconstitutional because it infringed upon the exclusively federal authority over foreign relations. On the other hand, it has been stated that: The imposition of any significant investment controls would likely violate both the spirit and the letter of more than forty bilateral treaties regulating trade and investment relations, many of which laws have been signed within the last ten years, as well as derogating our commitment to the OECD Code of Liberalization of Capital Movements. The treaties mentioned in the above quotation are Treaties of Friendship, Commerce, and Navigation which grant foreign countries the right to enter, trade, invest, or establish and operate businesses in the other signatory country. Thus, any foreign investment statute would need to take into account those Friendship, Commerce, and Navigation Treaties to which the United States is a signatory. Further, treaties such as the North American Free Trade Agreement (NAFTA) among the United States, Canada, and Mexico provide for foreign investment opportunities. Chapter 11 of NAFTA requires each party to "accord to investors of another Party treatment no less favorable than it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments." Other constitutional provisions may be interpreted to protect foreigners from certain acts of state and local governments. Because the Due Process and Equal Protection Clauses of the Fourteenth Amendment to the United States Constitution apply to persons instead of to citizens , these provisions guarantee that states cannot abridge the rights of foreign nationals within the United States. The Supreme Court has in the past voided state laws which establish classifications in government actions solely on the basis of citizenship. In doing so, the Court has stated that a classification based solely upon citizenship or nationality is inherently suspect and subject to strict scrutiny. For example, in Graham v. Richardson the Court held that state laws which denied welfare benefits to resident aliens who had not resided in the United States for a required number of years were unconstitutional because they deprived these persons of equal protection of the laws. Under traditional equal protection principles, a State retains broad discretion to classify as long as its classification has a reasonable basis [citations omitted]. This is so in "the area of economics and social welfare" [citations omitted]. But the Court's decisions have established that classifications based on alienage, like those based on nationality or race, are inherently suspect and subject to close judicial scrutiny. Aliens as a class are a prime example of a "discrete and insular" minority [citations omitted] for whom such heightened judicial solicitude is appropriate. Accordingly, it was said in Takahashi , 334 U.S. at 420, that "the power of a state to apply its laws exclusively to its alien inhabitants as a class is confined within narrow limits." As mentioned in the Takahashi case in the above quotation, a state must be careful in applying state laws exclusively to aliens. This case challenged a California statute which barred the issuance of commercial fishing licenses to persons ineligible for citizenship. The Supreme Court held that this statute violated the Fourteenth Amendment's Equal Protection Clause and the federal laws concerning citizenship. Citizenship has also been rejected as a legitimate classification concerning membership in a state bar, complete bans on employment of aliens in the state civil service system, and the granting of educational benefits to aliens. Yet, the Supreme Court has limited the application of these protections in other cases, one concerning a New York statute limiting appointment to the state police force to United States citizens, and another concerning a New York statute forbidding certification of a non-citizen as a public school teacher unless the person had evidenced intent to become a citizen. Therefore, there appears to be an exception to the general rule that a classification based on citizenship is subject to strict judicial scrutiny in situations where the classification relates to an essential governmental, political, or constitutional function. In such situations the less strict, rational basis test may be applied. From this discussion it may be concluded that state laws restricting investments by at least resident aliens may come under strict judicial scrutiny. Yet, it must be remembered that, in contrast to the states, the federal government has broad authority over naturalization and immigration. For reasons long recognized as valid, the responsibility for regulating the relationship between the United States and our alien visitors has been committed to the political branches of the Federal Government. Since decisions in these matters may implicate our relations with foreign powers, and since a wide variety of classifications must be defined in the light of changing political and economic circumstances, such decisions are frequently of a character appropriate to either the Legislature or the Executive than to the Judiciary. The Supreme Court has held, for example, that aliens can be denied Medicare coverage and that the federal government can deny a visa to a Marxist invited to speak on world communism. The power of Congress to exclude aliens from the United States and to prescribe the terms and conditions on which they enter is virtually absolute and is an attribute of the sovereignty of the United States. Four major federal statutes which have an impact upon foreign investment in the United States are information-gathering and disclosure statutes, instead of actual restriction statutes. One of these statutes is the International Investment and Trade in Services Survey Act of 1976. Congress intended this act: to provide clear and unambiguous authority for the President to collect information on international investment and United States foreign trade in services, whether directly or by affiliates, including related information necessary for assessing the impact of such investment and trade, to authorize the collection and use of information on direct investments owned or controlled directly or indirectly by foreign governments or persons, and to provide analyses of such information to the Congress, the executive agencies, and the general public. The President by executive order delegated responsibility under this act for studying direct investment to the Commerce Department and portfolio investment to the Treasury Department. The act directs the President to conduct a benchmark survey of foreign direct investment in the United States every five years. Amendments to the act in 1990 direct the President to publish for the use of the general public and federal agencies periodic information concerning foreign investment, including information on ownership by foreign governments of United States affiliates of business enterprises the ownership or control of which by foreign persons is more than 50% of the voting securities or other evidence of ownership of these enterprises, as well as business enterprises the ownership or control of which by foreign persons is 50% or less of the voting securities or other evidence of ownership of these enterprises. The 1990 Amendments also provide that the President may request a report from the Bureau of Economic Analysis (BEA) of the Department of Commerce of the best available information on the extent of foreign direct investment in a given industry. Another federal statute having an impact upon foreign investment in the United States is the Foreign Direct Investment and International Financial Data Improvements Act of 1990. The purpose of this act is: to allow the Department of Commerce's Bureau of Economic Analysis (BEA) access to information collected by the Bureau of the Census (Census). This access will improve the accuracy and analysis of BEA's reports to the public and to Congress on foreign direct investment in the United States. This act, among other requirements, adds chapter 10 to title 13 of the United States Code to provide that the Bureau of the Census shall exchange with the Bureau of Economic Analysis of the Department of Commerce any information that is collected under the census provisions and under the International Investment and Trade in Services Survey Act that pertains to a business enterprise operating in the United States if the Secretary of Commerce determines that the information is appropriate to augment and improve the quality of the data collected under the Survey Act. The Data Improvements Act of 1990 also requires that other reports be prepared by the Secretary of Commerce and the Comptroller General and submitted to congressional committees. The Bureau of the Census may provide business data to the Bureau of Economic Analysis and the Bureau of Labor Statistics (BLS) if the information is required for an authorized statistical purpose and the provision is the subject of a written agreement with that Designated Statistical Agency or its successors. The third of these information-gathering and disclosure statutes is the Agricultural Foreign Investment Disclosure Act of 1978. This act has the following two major requirements: (1) any foreign person who acquires or transfers any interest, other than a security interest, in agricultural land must submit a report to the Secretary of Agriculture not later than 90 days after the date of the acquisition or transfer; (2) any foreign person who holds any interest, other than a security interest, in agricultural land on the day before the effective date of this act must submit a report to the Secretary of Agriculture not later than 180 days after the effective date of the act. The fourth statute is also a disclosure statute. It is known as the Domestic and Foreign Investment Improved Disclosure Act of 1977 and is a requirement added to the Foreign Corrupt Practices Act of 1977. This provision amended Section 13(d) of the Securities Exchange Act of 1934 to require that anyone who acquires 5% or more of the equity securities of a company registered with the Securities and Exchange Commission must disclose certain specified information, including citizenship and residence. Hearings indicate that this statute is directed at foreign investors in order to improve the ability of the federal government to monitor foreign investment in the United States. All of the statutes discussed above are information-gathering and disclosure in nature. There are not across-the-board, blanket restrictions on foreign investment in the United States. Instead, over the years Congress has believed that certain industries which could affect national security should have limits on foreign investment. These industries include the maritime industry, the aircraft industry, banking, resources and power, and the various businesses which are parties to government contracts. Laws that have provisions concerning barriers to foreign investment in the maritime industry are dispersed throughout Title 46 of the United States Code. In the area of merchant shipping, there are restrictions on foreign ownership of ships which are eligible for documentation in the United States. Any vessel of at least five tons that is not registered under the laws of a foreign country is eligible for documentation if it is owned by: (1) a United States citizen; (2) an association, trust, joint venture, or other entity, all of whose members are United States citizens and that is capable of holding title to a vessel under the laws of the United States or of a state; (3) a partnership whose general partners are United States citizens and whose controlling interest is owned by United States citizens; (4) a corporation established under federal or state laws whose chief executive officer and chairman of its board of directors are United States citizens and no more of its directors are noncitizens than a minority of the number necessary to constitute a quorum; (5) the United States government; or (6) a state government. Statutory restrictions bar a considerable amount of foreign investment in the aircraft industry. It is unlawful for any person to operate any aircraft unless it is registered. An aircraft is eligible for registration only if it is: (1) not registered under the laws of a foreign country and is owned by a citizen of the United States, a citizen of a foreign country lawfully admitted for permanent residence in the United States, or a corporation not a citizen of the United States when the corporation is organized and doing business under the laws of the United States or a state and the aircraft is based and primarily used in the United States; or (2) an aircraft of the United States Government or a state, the District of Columbia, a territory or possession, or a political subdivision of a state, territory, or possession. A citizen of the United States is defined as: (a) an individual who is a citizen of the United States, (b) a partnership of which each member is a United States citizen, or (c) a corporation or association organized under the laws of the United States or of any state, the District of Columbia, territory, or possession of the United States, of which the president and two-thirds or more of the board of directors and other managing officers are United States citizens, which is under the actual control of United States citizens and in which at least 75% of the voting interest is owned or controlled by persons who are citizens of the United States. Foreign aircraft which are not a part of the armed forces of a foreign nation may be navigated in the United States by airmen holding certificates or licenses issued or rendered valid by the United States or by the nation in which the aircraft is registered if the foreign nation grants a similar privilege concerning United States aircraft. Aircraft operators may be subject to restrictions based on citizenship. It is unlawful for a person to operate an aircraft without an airman certificate. The Administrator of the Federal Aviation Administration may restrict or prohibit issuing an airman certificate to an alien or make issuing the certificate to an alien dependent upon a reciprocal agreement with the government of a foreign country. The Secretary of Transportation is authorized to provide insurance and reinsurance against loss or damage arising from the risk of operation of aircraft. Citizenship requirements may be important in obtaining this insurance. For example, some air cargoes may be insured only if they are owned by citizens or residents of the United States. All valuable mineral deposits in lands belonging to the United States that are open to exploration and purchase may be purchased by United States citizens and by those who have declared their intention to become United States citizens. Proof of citizenship may consist, in the case of an individual, of his affidavit; in the case of an association of unincorporated persons, of the affidavit of their authorized agent or upon information and belief; and in the case of a corporation organized under the laws of the United States, a state, or territory, by the filing of a certified copy of their charter or certificate of incorporation. Deposits of coal, phosphate, sodium, potassium, oil, oil shale, gilsonite, or gas and lands containing these deposits owned by the United States, including within national forests and in incorporated cities, towns, villages, and national parks and monuments, shall be subject to disposition in the approved manner to United States citizens, associations of United States citizens, or any corporation organized under United States, state, or territorial laws. Citizens of another country whose laws, customs, or regulations deny similar privileges to citizens or corporations of the United States shall not by stock ownership, stock holding, or stock control own any interest in any lease concerning these mineral lands. The leasing of oil, natural gas, and other mineral deposits is allowed in the submerged lands of the Continental Shelf. Regulations require that only United States citizens, resident aliens, domestic corporations, or associations of one or more of these groups may obtain these leases. Licenses for the construction, operation, or maintenance of facilities for the development, transmission, and utilization of power on land and water over which the federal government has control may be issued only to United States citizens and domestic corporations. A license for nuclear facilities cannot be acquired by a foreign citizen or by a corporation believed to be controlled by a foreign citizen or government. There appear to be few federal restrictions on the ownership of land by foreign individuals or by foreign corporations. However, such past acts as the Homestead Act required American citizenship in order to make claims on these lands. Today, the Desert Land Act requires citizenship or a declared intention of citizenship in order to make claims. Also, the Secretary of the Interior continues to require American citizenship or a declared intention of citizenship for authorizing permits for grazing on public lands, and, as discussed above, the Agricultural Foreign Investment Disclosure Act requires the disclosure to the Secretary of Agriculture by foreigners of agricultural land purchases in the United States. Further, public lands improved at the expense of funds from a reclamation project can be sold only to United States citizens. Federal statutes restrict foreign ownership and operation of mass communications media in the United States. Radio station licenses shall not be granted to or held by any foreign government or representative of a foreign government. No broadcast or common carrier or aeronautical en route or aeronautical fixed radio station license shall be granted to or held by any alien or the representative of any alien, any corporation organized under the laws of a foreign government, any corporation of which more than one-fifth of the capital stock is owned or voted by aliens or their representatives or by a foreign government or representative or by any corporation organized under the laws of a foreign country, or by any corporation directly or indirectly controlled by any other corporation of which any officer or more than one-fourth of the capital stock is owned or voted by aliens, their representatives, or by a foreign government or representative, or by any corporation organized under the laws of a foreign country if the public interest will be served by the refusal or revocation of the license. There does not appear to be a federal statute prohibiting the investment by foreign citizens in United States newspapers and magazines. However, the Foreign Agents Registration Act requires that agents of foreign principals must register with the Attorney General of the United States, that informational materials for or in the interests of a foreign principal must be labeled to show the relationship between the agent and the foreign principal, and that the agent must file two copies of the printed propaganda with the Justice Department. The statute defines foreign principal to include (1) foreign governments and foreign political parties; (2) persons outside the United States unless it is determined that the person is an individual and a citizen of and domiciled within the United States or that the person is not an individual and is organized under or created by the laws of the United States or a state and has its principal place of business within the United States; and (3) a business organized under the laws of or having its principal place of business in a foreign country. However, agent of a foreign principal does not include any news or press service or association which is a corporation organized under United States or state law or any newspaper, magazine, periodical, or other publication having on file with the United States Postal Service required information so long as it is at least 80% beneficially owned by United States citizens, its officers and directors are all United States citizens, and the news or service or association, newspaper, magazine, periodical, or other publication is not owned, controlled, subsidized, or financed and none of its policies is determined by a foreign principal or its agent. The Bank Holding Company Act (BHCA) regulates as a bank holding company (BHC) any company that controls a United States bank; i.e., a bank chartered by a state or the federal government to do banking in the United States (as distinguished from a foreign bank—a bank chartered by a foreign government and doing business in the United States pursuant to the terms of the International Banking Act of 1978 ). "Control" of a bank or BHC is defined in terms of: (1) acquiring a 25% share or more of any class of voting securities of a bank or a BHC; (2) controlling the election of a majority of the directors or trustees of the bank or BHC; or (3) having been determined by the Board of Governors of the Federal Reserve System (FRB) to be exercising a controlling influence over the management or policies of the bank or BHC. The BHCA is administered by the FRB, which must solicit the "views and recommendations" of the Comptroller of the Currency for national bank acquisitions and the appropriate state bank supervisor for state-chartered bank acquisitions. The BHCA presumes that "any company which owns, controls, or has power to vote less than 5 per centum of any class of voting securities of a given bank or [bank holding] company does not have control over that bank or company." Before any company may take any action which would cause that company to become a BHC or before any BHC may acquire a 5% share or more of the voting stock of any U.S. bank or BHC, it must seek approval from the FRB. FRB's implementing regulation makes this requirement applicable to "foreign banking organizations." The BHCA generally subjects BHCs to activity restrictions that essentially confine their portfolios to banking and financial services. Under the BHCA, subject to specified, limited exceptions, any company which controls a bank may engage only in banking or managing or controlling banks and subsidiaries; specified, limited non-banking activities; and activities that are financial in nature or incidental to such financial activity as determined by the FRB and the Secretary of the Treasury. Permissible banking activities are found in Section 4(k) of the BHCA. A list of permissible non-banking activities for BHCs is found at 12 C.F.R. Section 225.28. A further list of permissible non-banking activities for BHCs which have qualified as Financial Holding Companies under Section 4(l)(1) of the BHCA is found at 12 C.F.R. Section 225.86. In addition, the FRB has promulgated individual orders under the BHCA determining that particular activities are "so closely related to banking as to be a proper incident thereto." The BHCA's Section 2(h)(2) states that a foreign company that acquires stock of a U.S. bank or BHC is not subject to BHCA activities restrictions if: (1) it is organized as a bank holding company under foreign law and is principally engaged in the banking business outside of the United States. A further provision states that nothing in the preceding provision authorizes such a foreign company to hold more than 5% of the outstanding shares of any class of voting securities of a company engaged in banking, securities, insurance, or other financial activities, as defined by the Federal Reserve Board, in the United States. There is also authority for the Federal Reserve Board to provide a foreign company which acquires the stock of a U.S. bank or BHC an exemption from the activities restrictions if the Federal Reserve Board determines "by regulation or order ... under circumstances and subject to the conditions set forth in the regulation or order, [that] the exemption would not be substantially at variance with purposes of [the BHCA] ... and would be in the public interest." Corporations which are controlled or owned by foreign citizens can conduct business with the federal government on generally the same basis as domestic corporations which are owned completely by United States citizens. However, some federal statutes restrict purchases of products by federal agencies to those manufactured in the United States. For example, American materials may be required for public use. Only unmanufactured articles, materials, and supplies that have been mined or produced in the United states, and only manufactured articles, materials, and supplies that have been manufactured in the United States substantially all from articles, materials, or supplies mined, produced, or manufactured in the United States, shall be acquired for public use unless the head of the department or independent establishment concerned determines their acquisition to be inconsistent with the public interest or their cost to be unreasonable. Every contract for the construction or repair of a public building or public work shall have a provision that the contractor or supplier shall use only unmanufactured articles or materials mined or produced in the United States. Some exceptions should be noted. For example, the Trade Agreements Act of 1979 gives the President the authority to waive application of foreign citizen restrictions on the products of our trading partners. However, this does not authorize the waiver of any small business or minority preference. No entity controlled by a foreign government is allowed to merge with, acquire, or take over a company engaged in interstate commerce in the United States which is performing a Department of Defense (DOD) contract or a Department of Energy (DOE) contract under a national security program that cannot be performed satisfactorily unless that company is given access to information in a proscribed category of information. Such a merger, acquisition or takeover is also not allowed to occur if the company engaged in interstate commerce in the United States was during the previous fiscal year awarded Department of Defense prime contracts in an aggregate amount exceeding $500 million or Department of Energy prime contracts under national security programs exceeding $500 million. This limitation shall not apply if the merger, acquisition, or takeover is not suspended or prohibited under the statutes carried out by the Committee on Foreign Investment in the United States, as discussed below. The Investment Company Act of 1940 requires registration with the Securities and Exchange Commission (SEC) of an investment company which does business in the United States. Only investment companies organized or created under the laws of the United States or a state are allowed to sell their own securities in interstate commerce in connection with a public offering unless the SEC finds that it is legally and practically feasible to enforce the federal securities laws against the investment company and that the exemption from registration is consistent with the public interest and the protection of investors. The Trust Indenture Act of 1939 prohibits the sale in interstate commerce of certain securities which have not been registered under the Securities Act of 1933 unless the securities have been issued under an indenture. There must be at least one or more trustees under the indenture, at least one of whom shall be a corporation organized and doing business under the laws of the United States, a state, territory, or the District of Columbia or a corporation or other person permitted to act as trustee by the SEC which is authorized to exercise corporate trust powers and is subject to supervision or examination by federal, state, territorial, or District of Columbia authority. The Committee on Foreign Investment in the United States (CFIUS) is a multi-member board headed by the Secretary of the Treasury. CFIUS may review any "covered transaction," defined as any merger, acquisition, or takeover by or with a foreign person which could result in foreign control of any person engaged in interstate commerce in the United States, for its possible impact upon national security. Factors to be considered in determining the impact upon national security are numerous and include domestic production needed for projected national defense requirements, the capability and capacity of domestic industries to meet national defense requirements, the control of domestic industries and commercial activity by foreign citizens as it affects the capability and capacity of the United States to meet the requirements of national security, and the potential effects of the proposed or pending transaction on United States international technological leadership in areas affecting United States national security. If the Committee determines that the acquiring party is an entity controlled by a foreign government, the Committee shall conduct an investigation of the transaction as a national security investigation.
|
Foreign investment in the United States is a matter of congressional concern. It is believed by some that the United States has an unusually liberal policy which allows foreigners to invest in virtually all American businesses and real estate and that these foreign investments undermine the American economy by making it vulnerable to foreign influence and domination. These critics argue that there is even foreign domination of some key defense-related industries and that the ability of the country to protect itself in a time of national emergency could greatly suffer. These critics further argue that extensive foreign investment in this country drives up prices which Americans have to pay for investments and, even more importantly, for houses and farmland in areas where there is a significant amount of foreign ownership. However, others argue that the United States should welcome foreign investment because the influx of foreign money contributes to the creation of jobs in this country. Some also believe that the United States should be a kind of sanctuary for foreign money because of the political and economic instability which characterizes much of the rest of the world. It is also argued that, in this age of globalization of the world's economy, United States restrictions on foreign investment will only impair this nation's economy and cause us to appear isolationist. This report takes a look at some of the major federal statutes which presently restrict investment by foreigners. The report first gives a brief history of foreign investment in the United States. It then reviews constitutional justifications and constitutional limitations which exist concerning federal statutory restrictions on foreign ownership of property. After that follows a discussion of some of the major federal statutes which limit foreign investment in the United States. Some of these statutes will be looked at in detail, but a detailed treatment of such other laws as the tax laws, the antitrust laws, and the immigration laws is beyond the scope of this report. The report will be updated as needed.
|
Because of questions about the security of sensitive personal information, this report provides an overview of federal information security and data breach notification laws that are applicable to certain entities that collect, maintain, own, possess, or license sensitive personal information. Information security laws are designed to protect personally identifiable information or sensitive personal information from compromise, and from unauthorized disclosure, acquisition, access, or other situations where unauthorized persons have access or potential access to personally identifiable information for unauthorized purposes. Data breach notification laws typically require covered entities to implement a breach notification policy, and include requirements for incident reporting and handling and external breach notification. A data breach occurs when there is a loss or theft of, or other unauthorized access to, data containing sensitive personal information that results in the potential compromise of the confidentiality or integrity of data. Data breach notification laws typically cover "personally identifiable information" or "individually identifiable information." No single federal law or regulation governs the security of all types of sensitive personal information. Determining which federal law, regulation, and guidance is applicable depends in part on the entity or sector that collected the information, and the type of information collected and regulated. Under federal law certain sectors are legally obligated to protect certain types of sensitive personal information. These obligations were created, in large part, when federal privacy legislation was enacted in the credit, financial services, health care, government, securities, and Internet sectors. Federal regulations were issued to require certain entities to implement information security programs and provide breach notice to affected persons. For example, there are federal information security requirements applicable to all federal government agencies (FISMA) and a federal information security law applicable to a sole federal department (Veterans Affairs). In the private sector, different laws apply to private sector entities engaged in different businesses. This is what is commonly referred to as a sectoral approach to the protection of personal information. Some critics say that current laws focus too closely on industry-specific uses of information, like credit reports or medical data, rather than on protecting the privacy of individuals. Others believe the sectoral approach to the protection of personal information reflects not only variations in the types of information collected (e.g., government, private sector, health, financial, etc.), but also differences in the regulatory framework for particular sectors. Others advocate a national standard for entities that maintain personal information in order to harmonize legal obligations. Others distinguish between private data held by the government and private data held by others, and advocate a higher duty of care for governments with respect to sensitive personal information in the U.S. public sector and to data breaches. In the absence of a comprehensive federal data breach notification law, the majority of states have passed bills or introduced legislation to require businesses and/or government agencies to notify persons affected by breaches involving their sensitive personal information, and in some cases to implement information security programs to protect the security, confidentiality, and integrity of data. As of December 9, 2009, 45 states, the District of Columbia, Puerto Rico, and the Virgin Islands have enacted legislation requiring notification of security breaches involving personal information. Several states have reportedly considered legislation to hold retailers liable for third party companies' costs arising from data breaches (California, Connecticut, Illinois, Massachusetts, Minnesota, New Jersey, Texas, and Wisconsin). Many states provide a safe harbor for an entity that is regulated by state or federal law and maintains procedures pursuant to such laws, rules, regulations, or guidelines. Reportedly 29 states impose similar duties for the public and private sectors, 14 states do not, and Oklahoma's law applies only to the public sector. Numerous data breaches and computer intrusions have been disclosed by the nation's largest data brokers, retailers, educational institutions, government agencies, health care entities, financial institutions, and Internet businesses. The Privacy Rights Clearinghouse chronicles and reports that over 345 million records containing sensitive personal information were involved in security breaches in the U.S. since January 2005. From February 2005 to December 2006, 100 million personal records were reportedly lost or exposed. In 2006 the personal data of 26.5 million veterans was breached when a VA employee's hard drive was stolen from his home. In 2007 the retailer TJX Companies revealed that 46.2 million credit and debit cards may have been compromised during the breach of its computer network by unauthorized individuals. In 2008 the Hannaford supermarket chain revealed that approximately 4 million debit and credit card numbers were compromised when Hannaford's computer systems were illegally accessed while the cards were being authorized for purchase. There were 1,800 reported cases of fraud connected to the computer intrusion. In 2009, personal information from Health Net on almost half a million Connecticut residents, and 1.5 million patients nationally (including patients in Arizona, New Jersey, and New York) was breached. The information had been compressed, but not encrypted. Data breaches involving sensitive personal information may result in identity theft and financial crimes (e.g., credit card fraud, phone or utilities fraud, bank fraud, mortgage fraud, employment-related fraud, government documents or benefits fraud, loan fraud, and health-care fraud). Identity theft involves the misuse of any identifying information, which could include name, SSN, account number, password, or other information linked to an individual, to commit a violation of federal or state law. According to the Federal Trade Commission, identity theft is the most common complaint from consumers in all 50 states, and accounts for over 35% of the total number of complaints the Identity Theft Data Clearinghouse received for calendar years 2004, 2005, and 2006. In calendar year 2006, of the 674,354 complaints received, 246,035 or 36% were identity theft complaints. With continued media reports of data security breaches, concerns about new cases of identity theft are widespread. These public disclosures have heightened interest in the security of sensitive personal information; security of computer systems; applicability of federal laws to the protection of sensitive personal information; adequacy of enforcement tools available to law enforcement officials and federal regulators; business and regulation of data brokers; liability of retailers, credit card issuers, payment processors, banks, and furnishers of credit reports for costs arising from data breaches; remedies available to individuals whose personal information was accessed without authorization; prosecution of identity theft crimes related to data breaches; and criminal liability of persons responsible for unauthorized access to computer systems. The following report describes information security and data breach notification requirements included in the Privacy Act, the Federal Information Security Management Act, Office of Management and Budget Guidance, the Veterans Affairs Information Security Act, the Health Insurance Portability and Accountability Act, the Health Information Technology for Economic and Clinical Health Act, the Gramm-Leach-Bliley Act, the Federal Trade Commission Act, and the Fair Credit Reporting Act. In August 2009, the Department of Health and Human Services (HHS) issued interim final breach notification regulations to implement Section 13402 of the Health Information Technology for Economic and Clinical Health (HITECH) Act ( P.L. 111-5 ), that apply to breaches of protected health information occurring on or after September 23, 2009. Also in 2009, the Federal Trade Commission issued a final rule pursuant to Section 13407 of the HITECH Act requiring certain Web-based businesses to notify consumers when the security of their electronic health information is breached. The FTC rule applies to both vendors of personal health records—which provide online repositories that people can use to keep track of their health information—and entities that offer third-party applications for personal health records. The Privacy Act is the principal law governing the federal government's information privacy program. Other relevant federal laws include the Computer Matching and Privacy Protection Act of 1988, and Section 208 of the E-Government Act of 2002 which requires agencies to conduct privacy impact assessments on new information technology systems and electronic information collections. The Privacy Act of 1974 governs the collection, use, and dissemination of a "record" about an "individual" maintained by federal agencies in a "system of records." The act defines a "record" as any item, collection, or grouping of information about an individual that is maintained by an agency and contains his or her name or another personal identifier. In order for an agency record to be protected by the Privacy Act, it must be retrieved by individual name or individual identifier. The Privacy Act also applies to systems of records created by government contractors. The Privacy Act does not apply to private databases. The Privacy Act prohibits the disclosure of any record maintained in a system of records to any person or agency without the written consent of the record subject, unless the disclosure falls within one of twelve statutory exceptions. The act allows most individuals to seek access to records about themselves, and requires that personal information in agency files be accurate, complete, relevant, and timely. The subject of a record may challenge the accuracy of information. The Privacy Act requires that when agencies establish or modify a system of records, they publish a "system-of-records notice" in the Federal Register. Each agency that maintains a system of records is required to "establish appropriate administrative, technical, and physical safeguards to insure the security and confidentiality of records and to protect against any anticipated threats or hazards to their security or integrity which could result in substantial harm, embarrassment, inconvenience, or unfairness to any individual ... " The Privacy Act provides legal remedies that permit an individual to seek enforcement of the rights granted under the act. The individual may bring a civil suit against the agency whenever an agency fails to compy with the act "in such a way as to have an adverse effect on an individual." The court may order the agency to amend the individual's record, enjoin the agency from withholding the individual's records, and may award actual damages of $1,000 or more to the individual for intentional or wilful violations. Courts may also assess attorneys fees and costs. The act also contains criminal penalties; federal employees who fail to comply with the act's provisions may be subjected to criminal penalties. The Office of Management and Budget (OMB) is required to prescribe guidelines and regulations for the use by agencies in implementing the act, and provide assistance to and oversight of the implementation of the act. FISMA is the principal law governing the federal government's information security program. Title III of the E-Government Act of 2002, the Federal Information Security Management Act of 2002 (FISMA), requires federal government agencies to provide information security protections for agency information and information systems. Agencies are required to develop, document, and implement an agency wide program "providing information security protections commensurate with the risk and magnitude of the harm resulting from unauthorized access, use, disclosure, disruption, modification, or destruction of (i) information collected or maintained by or on behalf of the agency; and (ii) information systems used or operated by an agency or by a contractor of an agency or other organization on behalf of an agency." The agency's information security plan also must include procedures for detecting, reporting, and responding to security incidents; notifying and consulting with the Federal information security incident center and with law enforcement agencies and relevant Offices of Inspector General. The National Institute of Standards and Technology (NIST) is responsible for developing standards and guidelines for providing adequate information security for all agency operations and assets, except for national security systems. Agencies are required to comply with the information security standards developed by NIST. Agencies must also conduct, annually, an independent evaluation of their security programs. The evaluations are forwarded to the Director of the Office of Management and Budget, for an annual report to Congress. The Director's authorities do not include national security systems. Agency heads are responsible for compliance with FISMA's requirements and related information security policies, procedures, standards, and guidelines, and for ensuring that senior agency officials provide information security. The authority to ensure compliance is delegated to the agency Chief Information Officer (CIO). FISMA also assigns specific policy and oversight responsibilities to the Office of Management and Budget (OMB). In response to recommendations from the President's Identity Theft Task Force, the Office of Management and Budget issued guidance in May 2007 for federal agencies on "Safeguarding Against and Responding to the Breach of Personally Identifiable Information." The OMB Memorandum M-07-16 requires all federal agencies to implement a breach notification policy to safeguard "personally identifiable information" by August 22, 2007 to apply to both electronic systems and paper documents. To formulate their policy, agencies are directed to review existing privacy and security requirements, and include requirements for incident reporting and handling and external breach notification. In addition, agencies are required to develop policies concerning the responsibilities of individuals authorized to access personally identifiable information. Attachment 1 of the OMB memorandum, Safeguarding Against the Breach of Personally Identifiable Information, reemphasizes agencies' responsibilities under existing law (e.g., the Privacy Act and FISMA), executive orders, regulations, and policy to safeguard personally identifiable information and train employees. Two new privacy requirements and five new security requirements are established. To implement the new privacy requirements, agencies are required to review current holdings of all personally identifiable information to ensure that they are accurate, relevant, timely, and complete, and reduced to the minimum necessary amount. Within 120 days, agencies must establish a plan to eliminate the unnecessary collection and use of social security numbers within eighteen months. Agencies must implement the following five new security requirements (applicable to all federal information): encrypt all data on mobile computers/devices carrying agency data; employ two-factor authentication for remote access; use a "time-out" function for remote access and mobile devices; log and verify all computer-readable data extracts from databases holding sensitive information; and ensure that individuals and supervisors with authorized access to personally identifiable information annually sign a document describing their responsibilities. Attachment 2 of the OMB Memorandum, Incident Reporting and Handling Requirements, applies to the breach of personally identifiable information in electronic or paper format. Agencies are required to report all incidents involving personally identifiable information within one hour of discovery/detection; and publish a "routine use" under the Privacy Act applying to the disclosure of information to appropriate persons in the event of a data breach. Attachment 3, External Breach Notification, identifies the factors agencies should consider in determining when notification outside the agency should be given and the nature of the notification. Notification may not be necessary for encrypted information. Each agency is directed to establish an agency response team. Agencies must assess the likely risk of harm caused by the breach and the level of risk. Agencies should provide notification without unreasonable delay following the detection of a breach, but are permitted to delay notification for law enforcement, national security purposes, or agency needs. Attachment 3 also includes specifics as to the content of the notice, criteria for determining the method of notification, and the types of notice that may be used. Attachment 4, Rules and Consequences Policy, directs each agency to develop and implement a policy outlining rules of behavior and identifying consequences and corrective actions available for failure to follow these rules. Supervisors may be subject to disciplinary action for failure to take appropriate action upon discovering the breach or failure to take required steps to prevent a breach from occurring. Rules of behavior and corrective actions should address the failure to implement and maintain security controls for personally identifiable information; exceeding authorized access to, or disclosure to unauthorized persons of, personally identifiable information; failure to report any known or suspected loss of control or unauthorized disclosure of personally identifiable information; and for managers, failure to adequately instruct, train, or supervise employees in their responsibilities. Consequences may include reprimand, suspension, removal, or other actions in accordance with applicable law and agency policy. Title IX of P.L. 109-461 , the Veterans Affairs Information Security Act, requires the Veterans Administration (VA) to implement agency-wide information security procedures to protect the VA's "sensitive personal information" (SPI) and VA information systems. P.L. 109-461 was enacted to respond to the May 2006 breach of the personal data of 26.5 million veterans caused by the theft of a VA employee's hard drive from his home. Pursuant to P.L. 109-461 , the VA's information security program is to provide for the development and maintenance of cost effective security controls to protect VA information, in any medium or format, and VA information systems. The information security program is required to include the following elements: periodic assessments of the risk and magnitude of harm that could result from the unauthorized access, use, disclosure, disruption, modification, or destruction of VA information and information systems; policies and procedures based on risk assessments that cost-effectively reduce security risks and ensure information security; implementation of security controls to protect the confidentiality, integrity, and availability of VA information and information systems; plans for security for networks, facilities, systems, or groups of information systems; annual security awareness training for employees and contractors and users of VA information and information systems; periodic testing of security controls; a process for remedial actions; procedures of detecting, reporting, and responding to security incidents; and plans and procedures to ensure continuity of operations. Additionally, the VA Secretary is directed to comply with FISMA, and other security requirements issued by NIST and OMB. The law also establishes specific information security responsibilities for the VA Secretary, information technology and information security officials, VA information owners, other key officials, users of VA information systems, and the VA Inspector General. P.L. 109-461 requires that in the event of a "data breach" of sensitive personal information processed or maintained by the VA Secretary, the Secretary must ensure that as soon as possible after discovery that either a non-VA entity or the VA's Inspector General conduct an independent risk analysis of the data breach to determine the level of risk associated with the data breach for the potential misuse of any sensitive personal information. Based upon the risk analysis, if the Secretary determines that a reasonable risk exists of the potential misuse of sensitive personal information, the Secretary must provide credit protection services in accordance with regulations issued by the VA Secretary. The VA Secretary is required to report to the Veterans Committees the findings of the independent risk analysis for each data breach, the Secretary's determination regarding the risk for potential misuse of sensitive personal data, and the provision of credit protection services. If the breach involved the sensitive data of DOD civilian or enlisted personnel the Secretary must also report to the Armed Services Committees. In addition, quarterly reports are to be submitted by the VA Secretary to the Veterans Committees of Congress on any data breach of sensitive personal information processed or maintained by the VA during that quarter. With respect to the breach of SPI that the VA Secretary determines to be significant, notice must be provided promptly following the discovery of such data breach to the Veterans Committees, and if the breach involved the SPI of DOD civilian or enlisted personnel also to the Armed Service Committees. P.L. 109-461 also requires the VA to include data security requirements in all contracts with private-sector service providers that require access to sensitive personal information. All contracts involving access to sensitive personal information must include a prohibition of the disclosure of such information unless the disclosure is lawful and expressly authorized under the contract; and the condition that the contractor or subcontractor notify the Secretary of any data breach of such information. In addition, each contract must provide for liquidated damages to be paid by the contractor to the Secretary in the event of a data breach with respect to any sensitive personal information, and that money shall be made available exclusively for the purpose of providing credit protection services. P.L. 109-461 requires the Secretary of the VA within 180 days of enactment (by June 22, 2007) to issue interim regulations concerning notification, data mining, fraud alerts, data breach analysis, credit monitoring, identity theft insurance, and credit protection services. Interim final regulations were issued by the VA Deputy Secretary on June 22, 2007 to address data breach security regarding sensitive personal information processed or maintained by the VA. The final regulations, issued April 2008, adopted the interim rule without change. The regulations do not supercede the requirements imposed by other laws such as the Privacy Act, the Health Insurance Portability and Accountability Act, the Fair Credit Reporting Act, and their implementing rules. Other federal laws, such as the Health Insurance Portability and Accountability Act and the Gramm-Leach-Bliley Act, require private sector covered entities to maintain administrative, technical, and physical safeguards to ensure the confidentiality, integrity, and availability of personal information. Part C of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), requires "the development of a health information system through the establishment of standards and requirements for the electronic transmission of certain health information." These "Administrative Simplification" provisions require the Secretary of Health and Human Services to adopt national standards to: facilitate the electronic exchange of information for certain financial and administrative transactions; establish code sets for data elements; protect the privacy of individually identifiable health information; maintain administrative, technical, and physical safeguards for the security of health information; provide unique health identifiers; and to adopt procedures for the use of electronic signatures. HIPAA covered entities—health plans, health care clearinghouses, and health care providers who transmit financial and administrative transactions electronically—are required to comply with the national standards and regulations promulgated pursuant to Part C. Under HIPAA, the Secretary is required to impose a civil monetary penalty on any person failing to comply with the Administrative Simplification provisions in Part C. The maximum civil money penalty (i.e., the fine) for a violation of an administrative simplification provision is $100 per violation and up to $25,000 for all violations of an identical requirement or prohibition during a calendar year. HIPAA also establishes criminal penalties for any person who knowingly and in violation of the Administrative Simplification provisions of HIPAA uses a unique health identifier, or obtains or discloses individually identifiable health information. Enhanced criminal penalties may be imposed if the offense is committed under false pretenses, with intent to sell the information or reap other personal gain. The penalties include (1) a fine of not more than $50,000 and/or imprisonment of not more than one year; (2) if the offense is under false pretenses, a fine of not more than $100,000 and/or imprisonment of not more than five years; and (3) if the offense is with intent to sell, transfer, or use individually identifiable health information for commercial advantage, personal gain, or malicious harm, a fine of not more than $250,000 and/or imprisonment of not more than 10 years. These penalties do not affect other penalties imposed by other federal programs. HIPAA also addressed the privacy of individually identifiable health information and required adoption of a national privacy standard. HHS issued final Standards for Privacy of Individually Identifiable Health Information, known as the Privacy Rule, on April 14, 2003. The HIPAA Privacy Rule is applicable to health plans, health care clearinghouses, and health care providers who transmit financial and administrative transactions electronically. The rule regulates protected health information that is "individually identifiable health information" transmitted by or maintained in electronic, paper, or any other medium. The definition of PHI excludes individually identifiable health information contained in certain education records and employment records held by a covered entity in its role as employer. The HIPAA Privacy Rule limits the circumstances under which an individual's protected health information may be used or disclosed by covered entities. A covered entity is permitted to use or disclose protected health information without patient authorization for treatment, payment, or health care operations. For other purposes, a covered entity may only use or disclose PHI with patient authorization subject to certain exceptions. Exceptions permit the use or disclosure of PHI without patient authorization or prior agreement for public health, judicial, law enforcement, and other specialized purposes. In certain situations that would otherwise require authorization, a covered entity may use or disclose PHI without authorization provided that the individual is given the opportunity to object or agree prior to the use or disclosure. The HIPAA Privacy Rule also provides for accounting of certain disclosures; requires covered entities to make reasonable efforts to disclose only the minimum information necessary; requires most covered entities to provide a notice of their privacy practices; establishes individual rights to review and obtain copies of protected health information; requires covered entities to safeguard protected health information from inappropriate use or disclosure; and gives individuals the right to request changes to inaccurate or incomplete protected health information. The HIPAA Privacy Rule requires a covered entity to maintain reasonable and appropriate administrative, technical, and physical safeguards to prevent use or disclosure of protected health information in violation of the Privacy Rule. The Office of Civil Rights (OCR) in HHS enforces the Privacy Rule. Regulations governing security standards under HIPAA require health care covered entities to maintain administrative, technical, and physical safeguards to ensure the confidentiality, integrity, and availability of electronic "protected health information" ; to protect against any reasonably anticipated threats or hazards to the security or integrity of such information, as well as protect against any unauthorized uses or disclosures of such information. The Centers for Medicare and Medicaid Services (CMS) has been delegated authority to enforce the HIPAA Security Standard. The Security Rule applies only to protected health information in electronic form (EPHI), and requires a covered entity to ensure the confidentiality, integrity, and availability of all EPHI the covered entity creates, receives, maintains, or transmits. Covered entities must protect against any reasonably anticipated threats or hazards to the security or integrity of such information, and any reasonably anticipated uses or disclosures of such information that are not permitted or required under the Privacy Rule; and ensure compliance by its workforce. The Security Rule allows covered entities to consider such factors as the cost of a particular security measure, the size of the covered entity involved, the complexity of the approach, the technical infrastructure and other security capabilities in place, and the nature and scope of potential security risks. The Security Rule establishes "standards" that covered entities must meet, accompanied by implementation specifications for each standard. The Security Rule identifies three categories of standards: administrative, physical, and technical. The Security Rule requires covered entities to enter into agreements with business associates who create, receive, maintain or transmit EPHI on their behalf. Under such agreements, the business associate must: implement administrative, physical and technical safeguards that reasonably and appropriately protect the confidentiality, integrity and availability of the covered entity's electronic protected health information; ensure that its agents and subcontractors to whom it provides the information do the same; and report to the covered entity any security incident of which it becomes aware. The contract must also authorize termination if the covered entity determines that the business associate has violated a material term. A covered entity is not liable for violations by the business associate unless the covered entity knew that the business associate was engaged in a practice or pattern of activity that violated HIPAA, and the covered entity failed to take corrective action. The Health Information Technology for Economic and Clinical Health Act (HITECH Act) was enacted as Title XIII of Division A (§§ 13001-13424) and Title IV of Division B (§§ 4001-4302) of the American Recovery and Reinvestment Act of 2009 (ARRA) and signed into law on February 17, 2009, by President Obama. As part of this new law, sweeping changes to the health information privacy regime were enacted. Most of the provisions in Subtitle D (Privacy) of Title XIII of ARRA are additional requirements supplementing the HIPAA Privacy and Security Rules, but a few provisions deal specifically with EHRs. Subtitle D (Privacy) of Title XIII of ARRA extended application of certain provisions of the HIPAA Privacy and Security Rules to the business associates of HIPAA-covered entities making those business associates subject to civil and criminal liability for violations; established new limits on the use of protected health information for marketing and fundraising purposes; provided new enforcement authority for state attorneys general to bring suit in federal district court to enforce HIPAA violations; increased civil and criminal penalties for HIPAA violations; required covered entities and business associates to notify the public or HHS of data breaches (regardless of whether actual harm has occurred); changed certain use and disclosure rules for protected health information; and created additional individual rights. The HITECH Act extended the application of the HIPAA Security Rule's provisions on administrative, physical, and technical safeguards and documentation requirements to business associates of covered entities, making those business associates subject to civil and criminal liability for violations of the HIPAA Security Rule. Under the HIPAA Security Rule, only covered entities can be held civilly or criminally liable for violations. While business associates are still not technically considered covered entities under HIPAA, they will be subject to the same civil and criminal penalties as a covered entity for Security Rule violations after February 17, 2010. The HITECH Act also requires existing business associate agreements to incorporate the new security requirements added by the HITECH Act. The Secretary is also directed to issue annual guidance on the most effective and appropriate technical safeguards. The guidance issued by HHS specifies encryption and destruction as the technologies and methodologies for rendering protected health information unusable, unreadable, or indecipherable to unauthorized individuals. Covered entities and business associates, as well as entities covered by the FTC regulations, that secure information as specified by the guidance are relieved from providing notifications following the breach of such information. Prior to the enactment of the HITECH Act, neither the HIPAA Privacy nor Security Rule required covered entities or business associates to notify individuals when the security or privacy of their PHI had been compromised. Furthermore, vendors of personal health records (PHRs) were also under no obligation to notify affected individuals or the public after a breach of privacy or security. The HITECH Act imposed such notification requirements on covered entities and business associates. A similar requirement was also imposed on vendors of PHR's. The HITECH Act requires covered entities, business associates, and vendors of PHR's to notify affected individuals in the event of a "breach" of "unsecured protected health information." A "breach" is defined as the "unauthorized acquisition, access, use, or disclosure of protected health information which compromises the security or privacy of such information, except where an unauthorized person to whom such information is disclosed would not reasonably have been able to retain such information." A vendor of PHR is defined as "an entity, other than a covered entity ... that offers or maintains a personal health record." The term "unsecured protected health information" means "protected health information that is not secured through the use of a technology or methodology specified by the Secretary in guidance." The HITECH Act required the HHS Secretary to issue guidance by April 17, 2009, and annually thereafter specifying the technologies and methodologies that render protected health information unusable, unreadable, or indecipherable to unauthorized individuals. The HITECH Act also provides a default definition if such guidance is not issued. Under the default definition, PHI is unsecured if it is not secured by a technology standard that renders protected health information unusable, unreadable, or indecipherable to unauthorized individuals and that is developed or endorsed by a standards developing organization that is accredited by the American National Standards Institute. On April 17, 2009, guidance on the meaning of "unsecured protected health information " was issued by HHS. The guidance became effective upon issuance; however, the comment period remained open until May 17, 2009. It identified two methods for rendering PHI unusable, unreadable, or indecipherable to unauthorized individuals: encryption and destruction (paper and electronic form). Pursuant to this guidance, "if PHI is rendered unusable, unreadable, or indecipherable to unauthorized individuals by one or more of the methods identified in this guidance, then such information is not 'unsecured' PHI. Thus, because the breach notification requirements apply only to breaches of unsecured PHI, this guidance provides the means by which covered entities and their business associates are to determine whether a breach has occurred [and the extent] to which the notification obligations under the Act and its implementing regulations apply." Section 13402 of the HITECH Act requires a covered entity to notify affected individuals when it discovers that their unsecured PHI has been, or is reasonably believed to have been, breached. This requirement applies to covered entities that access, maintain, retain, modify, record, store, destroy, or otherwise hold, use, or disclose unsecured protected health information. The scope of notification is dependant upon the number of individuals whose unsecured PHI was compromised. Generally, only written notice need be provided if less than 500 individuals are involved. For larger breaches, notice through prominent media outlets may be required. In all cases, the Secretary of HHS must be notified, although breaches involving less than 500 people may be reported on an annual basis. The Secretary of HHS is directed to display on the department's website a list of covered entities with breaches involving more than 500 individuals. Generally, notice must be given without unreasonable delay, but no later than 60 days after the breach is discovered. If a delay is not reasonable, a covered entity may still have violated this provision even if notice was given within 60 days. In an enforcement action of this provision, the covered entity has the burden of proving that any delay was reasonable. Delayed notification is permitted for law enforcement purposes if a law enforcement official determines that notice would impede a criminal investigation or cause damage to national security. To the extent possible, notification of a breach must include a description of what occurred; the types of information involved in the breach; steps individuals should take in response to the breach; what the covered entity is doing to investigate, mitigate, and protect against further harm; and contact information to obtain additional information. No later than February 17, 2010, and annually thereafter, the Secretary is required to submit a report to Congress containing information on the number and nature of breaches for which notice was provided, and actions taken in response to such breaches. The Secretary is also directed to issue interim final regulations, no later than 180 days after enactment, to implement the breach notification requirement. This breach notification requirement will apply to breaches that are discovered 30 days after these regulations are promulgated. The Breach Notification Interim Final Regulation was issued August 24, 2009, addressing notification to individuals, the media, and the Secretary, by a business associate; law enforcement delay; and administrative requirements and burdens of proof. Section 13407 of the HITECH Act includes a breach notification requirement for PHR vendors (such as Google Health or Microsoft Vault), service providers to PHR vendors, and PHR servicers that are not covered entities or business associates that sunsets "if Congress enacts new legislation." Under this breach notification requirement, these entities are required to notify citizens and residents of the United States whose unsecured "PHR identifiable health information" has been, or is believed to have been, breached. PHR vendors, service providers to PHR vendors, and PHR servicers are also required to notify the federal government, although in this case the governing agency is the Federal Trade Commission (FTC) and not HHS. The HITECH Act defines several terms specific to the PHR breach notification requirement. A "breach of security" is defined as the unauthorized acquisition of an individual's PHR identifiable health information. PHR identifiable health information is defined as individually identifiable health information, and includes information provided by or on behalf of the individual, and information that can reasonably be used to identify the individual. The requirements regarding the scope, timing, and content of these notifications are identical to the requirements applicable to breaches of PHI under § 13402 of the HITECH Act. Violations of these requirements shall be considered unfair and deceptive trade practices in violation of the Federal Trade Commission Act. The HITECH Act also directed the FTC to issue regulations implementing these requirements by August 18, 2009. A Health Breach Notification Rule was promulgated by the FTC on August 25, 2009. It would apply to breaches that are discovered after September 18, 2009, by vendors of PHRs, PHR-related entities, and third party service providers—irrespective of any jurisdictional tests in the FTC Act—that maintain information on U.S. citizens or residents. The rule contains provisions discussing timeliness, methods of notification, content, and enforcement of the breach notification requirements. Title V of the Gramm-Leach-Bliley Act of 1999 (GLBA) requires financial institutions to provide customers with notice of their privacy policies, and requires financial institutions to safeguard the security and confidentiality of customer information, to protect against any anticipated threats or hazards to the security or integrity of such records; and to protect against unauthorized access to or use of such records or information which could result in substantial harm or inconvenience to any customer. Financial institutions are defined as businesses that are engaged in certain "financial activities" described in Section 4(k) of the BankHolding Company Act of 1956 and accompanying regulations. Such activities include traditional banking, lending, and insurance functions, along with other financial activities. Financial institutions are prohibited from disclosing "nonpublic personal information" to non-affiliated third parties without providing customers with a notice of privacy practices and an opportunity to opt-out of the disclosure. A number of statutory exceptions are provided to this disclosure rule, including that financial institutions are permitted to disclose nonpublic personal information to a non-affiliated third party to perform services for or functions on behalf of the financial institution. Regulations implementing GLBA's privacy requirements published by the federal banking regulators govern the treatment of nonpublic personal information about consumers by financial institutions, require a financial institution in specified circumstances to provide notice to customers about its privacy policies and practices, describe the conditions under which a financial institution may disclose nonpublic personal information about consumers to nonaffiliated third parties, and provide a method for consumers to prevent a financial institution from disclosing that information to most nonaffiliated third parties by "opting out" of that disclosure, subject to exceptions. This rule implements GLBA's requirements for entities under FTC jurisdiction. The Safeguards Rule applies to all businesses, regardless of size, that are "significantly engaged" in providing financial products or services. These include, for example, check-cashing businesses, payday lenders, mortgage brokers, nonbank lenders, real estate appraisers, and professional tax preparers. The Safeguards Rule also applies to companies like credit reporting agencies and ATM operators that receive information about the customers of other financial institutions. The rule requires financial institutions to have an information security plan that "contains administrative, technical, and physical safeguards" to "insure the security and confidentiality of customer information: protect against any anticipated threats or hazards to the security or integrity of such information; and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer." Using its authority under the Safeguards Rule, the Commission has brought a number of enforcement actions to address the failure to provide reasonable and appropriate security to protect consumer information. Section 501(b) of GLBA requires the banking agencies to establish standards for financial institutions relating to administrative, technical, and physical safeguards to ensure the security, confidentiality, and integrity of customer information, protect against any anticipated threats or hazards to the security or integrity of such information, and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. Interagency Guidance issued by the federal banking regulators applies to customer information which is defined as "any record containing nonpublic personal information ... about a customer, whether in paper, electronic, or other form, that is maintained by or on behalf of" a financial institution." The security guidelines direct each financial institution to assess the risks of reasonably foreseeable threats that could result in unauthorized disclosure, misuse, alteration, or destruction of customer information and customer information systems, the likelihood and potential damage of threats, and the sufficiency of policies, procedures, customer information systems, and other controls. Following the assessment of risks, the security guidelines require a financial institution to manage and control the risk through the design of a program to address the identified risks, train staff to implement the program, regularly test the key controls, systems, and procedures of the information security program, and develop and maintain appropriate measures to dispose of customer information. The security guidelines also direct every financial institution to require its service providers by contract to implement appropriate measures designed to protect against unauthorized access to or use of customer information that could result in substantial harm or inconvenience to any customer. Each financial institution is required to monitor, evaluate, and adjust its information security program as necessary. Finally, each financial institution is required to report to its board at least annually on its information security program, compliance with the security guidelines, and issues such as risk assessment, risk management and control decisions, service provider arrangements, results of testing, security breaches or violations and management's responses, and recommendations for changes in the information security program. The security guidelines recommend implementation of a risk-based response program, including customer notification procedures, to address unauthorized access to or use of customer information maintained by a financial institution or its service provider that could result in substantial harm or inconvenience to any customer, and require disclosure of a data security breach if the covered entity concludes that "misuse of its information about a customer has occurred or is reasonably possible." Pursuant to the guidance, substantial harm or inconvenience is most likely to result from improper access to "sensitive customer information." At a minimum, an institution's response program should contain procedures for: assessing the nature and scope of an incident and identifying what customer information systems and types of customer information have been accessed or misused; notifying its primary federal regulator when the institution becomes aware of an incident involving unauthorized access to or use of sensitive customer information; consistent with the Agency's Suspicious Activity Report ("SAR") regulations, notifying appropriate law enforcement authorities; taking appropriate steps to contain and control the incident to prevent further unauthorized access to or use of customer information (e.g., by monitoring, freezing, or closing affected accounts and preserving records and other evidence); and notifying customers when warranted. The security guidelines note that financial institutions have an affirmative duty to protect their customers' information against unauthorized access or use, and that customer notification of a security breach involving the customer's's information is a key part of that duty. The guidelines prohibit institutions from forgoing or delaying customer notification because of embarrassment or inconvenience. The guidelines provide that when a financial institution becomes aware of an incident of unauthorized access to sensitive customer information, the institution should conduct a reasonable investigation to promptly determine the likelihood that the information has been or will be misused. If the institution determines that misuse has occurred or is reasonably possible, it should notify the affected customer as soon as possible. Customer notice may be delayed if an appropriate law enforcement agency determines that notification will interfere with a criminal investigation and provides the institution with a written request for the delay. The institution should notify its customers as soon as notification will no longer interfere with the investigation. If a financial institution can determine which customers' information has been improperly accessed, it may limit notification to those customers whose information it determines has been misused or is reasonably likely to be misused. In situations where the institution determines that a group of files has been accessed improperly, but is unable to identify which specific customers' information has been accessed, and the institution determines that misuse of the information is reasonably possible, it should notify all customers in the group. The guidelines also address what information should be included in the notice sent to the financial institution's customers. The Federal Trade Commission (FTC), an independent agency of the U.S. government, was established by the Federal Trade Commission Act of 1914 (FTCA). Its principal mission is the promotion of consumer protection and the elimination and prevention of anticompetitive business practices. The Commission's jurisdiction extends to a variety of entities and individuals operating in commerce. The FTC has taken a multi-faceted approach to protecting the privacy and security of consumers' personal information. Its enforcement tools include laws and regulations such as the Safeguards Rule issued under the Gramm-Leach-Bliley Act, which requires financial institutions to take reasonable measures to protect customer data, and the Disposal Rule under the FACT Act which requires companies to dispose of credit report data in accord with a set of practices designed to prevent others from using that data without authorization. Section 5 of the FTC Act prohibits "unfair or deceptive acts or practices in or affecting commerce." Unfair practices are practices that cause or are likely to cause consumers substantial injury that is neither reasonably avoidable by consumers not offset any countervailing benefit to consumers or competition. A representation, omission, or practice is deceptive if (1) it is likely to mislead consumers acting reasonably under the circumstances; and (2) it is material—likely to affect consumers' conduct or decisions with respect to the product at issue. The Commission has used Section 5 to challenge deceptive claims companies have made about the privacy and security of their customers' personal information. In deceptive security claims cases the FTC alleged that the companies had made promises to take reasonable steps to protect sensitive consumer information, and that they did not implement reasonable and appropriate measures to protect the sensitive personal information obtained from customers against unauthorized access. In unfair practices cases, the FTC has alleged that a company's failure to employ reasonable and appropriate security measures to protect consumers' personal information caused or was likely to cause substantial injury to consumers that was not offset by countervailing benefits to consumers or competition and was not reasonably avoidable by consumers. In cases where the FTC did not have authority to assess civil money penalties, the FTC entered into consent orders requiring the defendants to implement information security programs (e.g., B.J.'s Wholesale Club, DSW, Inc., and Card Systems). In a recent case where violations of the Federal Trade Commission Act and the Fair Credit Reporting Act were alleged, the largest civil money penalty ever by the FTC ($10 million) was assessed. The Fair Credit Reporting Act of 1970 (FCRA) regulates credit bureaus, entities or individuals who uses credit reports, and businesses that furnish information to credit bureaus. "[A] major purpose of the Act is the privacy of a consumer's credit-related data." Consumer reporting agencies, also known as credit bureaus, have particular responsibilities with respect to ensuring that a consumer's information is used only for purposes that are permissible under the act, for ensuring that "reasonable procedures" are employed (including making reasonable efforts to verify the identity of each new prospective user of consumer report information and the uses certified by each prospective user prior to furnishing such user a consumer report) to ensure that consumer reports are supplied only to those with a permissible purpose, and for correcting information in a consumer's report that may be incorrect or the result of fraud. Permissible purposes include decisions involving credit, insurance, or employment. A consumer reporting agency is also permitted to provide reports to persons having "a legitimate business need" for the information in connection with a consumer-oriented transaction. The Act and its requirements only apply to entities that fall within the definition of a "consumer reporting agency," and only to products that fall within the definition of a "consumer report." The Fair and Accurate Transactions Act ("FACT Act") amended FCRA, adding requirements designed to prevent identity theft and assist identity theft victims. The FACT Act also included a provision requiring financial regulatory agencies and the FTC to promulgate a coordinated rule designed to prevent unauthorized access to consumer report information by requiring reasonable procedures for the proper disposal of such information. The Federal Trade Commission enforces the FCRA. A violation under the FCRA is deemed to be an unfair or deceptive act or practice in violation of section 5(a) of the FTC Act. There are various penalties for violating the FCRA, the applicability of a particular provision depends on such factors as who brings the action and the degree of the violator's noncompliance. For example, the Act imposes liability for both willful noncompliance and negligent noncompliance. The monetary penalties include actual damages sustained by a consumer, plus costs and attorneys fees. In the case of willful violations, the court may also award punitive damages to a consumer. Any person who procures a consumer report under false pretenses, or knowingly without a permissible purpose, is liable for $1000 or actual damages (whichever is greater) to both the consumer and to the consumer reporting agency. Also, the Act governs enforcement actions brought by the Commission, other agencies, and the states, and provides for various monetary and injunctive penalties. For those who knowingly violate the FCRA, the monetary penalties include up to $2500 per violation in a civil action brought by the Commission. The payment card industry has also issued security standards and reporting requirements for organizations that handle bank cards. The Payment Card Industry Data Security Standard (PCI DSS) is an industry regulation developed by VISA, MasterCard, and other bank card distributors. It requires organizations that handle bank cards to conform to security standards and follow certain leveled requirements for testing and reporting. The core of the PCI DSS is a group of principles and accompanying requirements designed to build and maintain a secure network, protect cardholder data, maintain a vulnerability management program, implement strong access control measures, monitor and test networks, and maintain an information security policy. PCI DSS went into effect December 31, 2006. On October 1, 2008, the PCI Security Standards Council (PCI SSC) announced general availability of version 1.2 of the PCI DSS that does not introduce any new major requirements to the existing standard, but does change some practices. Entities that fail to comply with PCI DSS face fines and increases in the rates that the credit card companies charge for transactions, and potentially can have their authorization to process payment cards revoked. Legislation has been passed in the Texas House mandating compliance with the PCI DSS standard.
|
The following report describes information security and data breach notification requirements included in the Privacy Act, the Federal Information Security Management Act, Office of Management and Budget Guidance, the Veterans Affairs Information Security Act, the Health Insurance Portability and Accountability Act, the Health Information Technology for Economic and Clinical Health Act, the Gramm-Leach-Bliley Act, the Federal Trade Commission Act, and the Fair Credit Reporting Act. Also included in this report is a brief summary of the Payment Card Industry Data Security Standard (PCI DSS), an industry regulation developed by VISA, MasterCard, and other bank card distributors. Information security laws are designed to protect personally identifiable information from compromise, unauthorized disclosure, unauthorized acquisition, unauthorized access, or other situations where unauthorized persons have access or potential access to such information for unauthorized purposes. Data breach notification laws typically require covered entities to implement a breach notification policy, and include requirements for incident reporting and handling and external breach notification. Expectations of many are that efforts to enact data security legislation will continue in 2010. In the first session of the 111th Congress the House passed H.R. 2221 (Rush and Stearns), the Data Accountability and Trust Act, which would apply only to businesses engaged in interstate commerce, and require data security programs and notification of breaches to affected consumers. The Senate Judiciary Committee approved S. 139 (Feinstein), the Data Breach Notification Act, which would apply to any agency, or business engaged in interstate commerce; and S. 1490 (Leahy), the Personal Data Privacy and Security Act of 2009, which would apply to business entities engaged in interstate commerce and require data security programs and notification to individuals affected by a security breach. S. 1490 also includes data accuracy requirements for data brokers, and requirements concerning government acccess to and use of commercial data. For related reports, see the Current Legislative Issues Web page for "Privacy and Data Security" available at http://www.crs.gov/Pages/subissue.aspx?cliid=2105&parentid=14. This report will be updated.
|
Figure 1. Map of Costa RicaSource: Map Resources. Adapted by CRS Graphics. Costa Rica is a politically stable Central American country of 4.3 million people with a relatively well-developed economy. The country gained its independence from Spain in 1821 as a part of the Central American Union, and became a sovereign nation following the union's dissolution in 1838. Costa Rica has enjoyed continuous civilian democratic rule since the end of a 1948 civil war, the longest period of unbroken democracy in Latin America. The civil war led to the creation of a new constitution, the abolition of the military, and the foundation of one of the first welfare states in the region. Although Costa Rica pursued state-led development throughout much of the 20 th century, over the past several decades, it has implemented market-oriented economic policies designed to attract foreign direct investment (FDI), develop the country's export sector, and diversify what was once a predominantly agricultural economy. The World Bank now classifies Costa Rica as an upper-middle-income country with a 2008 per capita income of $6,060. Public fatigue with politics has grown in recent years as a result of corruption scandals that have implicated three former presidents from the two traditional ruling parties: Rafael Angel Calderón (1990-1994) and Miguel Angel Rodríguez (1998-2002) of the center-right Social Christian Unity Party (PUSC) and José María Figueres (1994-1998) of the traditionally center-left National Liberation Party (PLN). This disillusionment has contributed to a rise in voter abstention, from just 19% in 1994 to 35% in 2006. It has also contributed to a fragmentation of Costa Rica's political party system. The PUSC has collapsed and newer parties—such as the conservative Libertarian Movement (ML) and the center-left Citizen Action Party (PAC)—have grown considerably. Oscar Arias, a former president (1986-1990) and Nobel-laureate, was elected president in February 2006. Arias won 41% of the vote to narrowly defeat his closest rival, the PAC's Ottón Solís, who had served as Minister for National Planning and Economic Policy during Arias' first administration. Throughout his term, President Arias has advanced so-called "third-way" policies, embracing his party's traditional support for social welfare programs while rejecting state-led development in favor of market-oriented economic policies. Arias also has pursued an active foreign policy. Although Arias' PLN is the largest of the nine parties represented in the unicameral National Assembly, it holds just 25 of the 57 seats, which has made cross-party alliances necessary to pass legislation. President Arias has maintained the market-friendly economic policies that Costa Rican administrations from both traditional governing parties have pursued since the 1980s. Between 2006 and 2008, economic growth averaged 6.5%, fueled in large part by export growth and increased investment. Export earnings grew over 36% between 2005 and 2008 to $9.7 billion while FDI grew over 134% to $2 billion during the same time period. Much of the FDI has been invested in high technology sectors, often located in free trade zones. High-tech products—such as integrated circuits and medical equipment—now account for 45% of Costa Rican exports. Arias also has pursued a number of free trade agreements (FTAs) during his current term. He won ratification of CAFTA-DR through a national referendum in 2007 and secured its implementation in January 2009 despite strong opposition from the PAC and labor unions. Additionally, he concluded an agreement with Panama, has completed FTA negotiations with China and Singapore, and is engaged in ongoing FTA talks with the European Union along with the other member nations of the Central American Integration System (SICA). Arias has sought to complement Costa Rica's considerable economic growth with moderate social welfare programs. He has doubled welfare pensions, created new centers for primary healthcare services, and increased education funding. President Arias also introduced Avancemos , a conditional cash transfer program that provides monthly stipends to the families of 140,000 poor students as long as the children remain in school and receive annual medical care. Avancemos is modeled after successful social protection programs that have been implemented elsewhere in Latin America, such as Oportunidades in Mexico and Bolsa Familia in Brazil, and is designed to alleviate poverty in the near-term while fostering long-term reductions in the poverty rate through increased educational attainment. Costa Rica now invests the equivalent of 17.3% of its gross domestic product (GDP) in public health, education, and social welfare, the highest percentage of any nation in Central America and the fifth highest in all of Latin America. These social investments, combined with substantial economic growth, have provided Costa Rica's citizens with a relatively high standard of living. According to the United Nations' 2009 Human Development Report, Costa Rica has the highest level of human development in Central America with a life expectancy at birth of 79 years and an adult literacy rate of 96%. Economic and social conditions have deteriorated recently, however, as a result of the global financial crisis and U.S. recession. The Costa Rican economy grew by just 2.6% in 2008 and experienced its first contraction in 27 years in 2009. GDP contracted by 1.3% as investment, export demand, and tourism declined. Likewise, the poverty rate climbed nearly two points over the course of 2008 and 2009 to 18.5%, and unemployment increased almost three points in 2009 alone to 7.8%. President Arias has sought to counter the economic downturn with a $2.5 billion (8% of GDP) economic stimulus and social protection plan known as Plan Escudo . Among other provisions, the plan recapitalizes state banks, provides support to small and medium-sized enterprises, increases labor flexibility, invests in infrastructure projects, provides grants to workers in the worst-affected sectors, and increases the number of students eligible for the Avancemos program. The majority of Plan Escudo is financed through new loans from international financial institutions. Analysts assert that Costa Rica's economy showed signs of recovery in late 2009, and expect the country to rebound in 2010 with GDP growth of 3.3%. President Arias has pursued an active foreign policy throughout his term. He established diplomatic ties with China in 2007, ending Costa Rica's 60-year relationship with Taiwan. Arias also established formal ties with the Palestinians, recognizing Palestine as an independent state in February 2008. Costa Rica had previously moved its embassy in Israel from Jerusalem to Tel Aviv. In March 2009, Arias reestablished diplomatic relations with Cuba, 48 years after Costa Rica suspended ties with the nation. Costa Rica was one of the last countries in Latin America to reestablish ties with Cuba. Arias also has sought to reassume the leadership role that he held in Latin America during his first administration when he received the Nobel Peace Prize (1987) for his efforts to end the conflicts in Central America. Following the June 2009 ouster of Honduran President Manuel Zelaya, Arias offered to mediate between the parties involved. The so-called "San José Accord" that Arias proposed provided the framework for several rounds of negotiations to end the political crisis in Honduras, though it ultimately failed to restore Zelaya to office. Arias has seized on the Honduran crisis to reiterate his long-held belief that Latin America possesses a dangerous combination of powerful militaries and fragile democracies. He maintains that countries in the region should focus their resources on economic development and democratic institutions rather than military expenditures. Elections for the presidency and all 57 seats in the unicameral National Assembly were held in Costa Rica on February 7, 2010. Former Vice President and Minister of Justice Laura Chinchilla (2006-2008) of the ruling PLN was elected president with 46.9% of the vote, well above the 40% needed to avoid a second-round runoff. Chinchilla easily defeated her closest competitors Ottón Solís of the center-left PAC and Otto Guevara of the right-wing ML, who took 25.1% and 20.9% of the vote, respectively. In legislative elections, Chinchilla's PLN won a plurality with 23 seats. The PAC will be the principal opposition party with 12 seats, followed by the ML with 9 seats, the PUSC with 6 seats, and several smaller parties with a combined 7 seats. According to many analysts, Chinchilla benefitted the fragmentation of Costa Rica's political party system. They assert that Costa Ricans view the PLN as the country's only credible governing party due to the PUSC's effective collapse as a result of corruption scandals, the PAC's lack of direction after failing to block CAFTA-DR, and the ML's recent history outside the mainstream of Costa Rican politics. Consequently, Chinchilla won by over 20 points despite a considerable decline in public support for the Arias Administration and late polling that showed Guevara forcing Chinchilla into a close second-round runoff vote. Chinchilla is closely tied to President Arias' centrist faction of the PLN and is expected to largely continue the Arias Administration's policies. She will likely maintain Costa Rica's market-oriented economic policies, pushing for ratification of pending free trade agreements with China and Singapore, while strengthening the country's social welfare programs. Throughout much of the electoral campaign, Chinchilla focused on improving public security. Among other policies, she proposed increasing the size of the police force, improving protection and support for victims and witnesses, and increasing government security spending by as much as 50% (currently 0.6% of GDP). Moreover, analysts expect Chinchilla to implement policies designed to meet President Arias' goal of making Costa Rica carbon neutral by 2021 and take socially conservative stands on issues such as abortion, homosexual marriage, and church-state relations. Costa Rica's unicameral National Assembly will present Chinchilla with considerable challenges in implementing her policy agenda. Chinchilla's PLN will control just 23 of the 57 seats, making cross-party alliances necessary to pass any legislation. The PLN will likely form ad hoc alliances with varying parties dependent on the issue. Even if Chinchilla and the PLN are able to cobble together a working majority, however, a group of 10 members of the National Assembly may appeal the constitutionality of any bill to the Supreme Court and significantly slow legislative progress. Successive Costa Rican administrations have sought to address extensive deforestation and environmental degradation that resulted from decades of logging and agricultural expansion. The country's strong conservation system and innovative policies have done much to restore Costa Rica's environment and ecotourism has provided a significant source of economic growth. Costa Rica's efforts also have led many observers to recognize it as a world leader in environmental protection and have enabled the country to play an outsized role in the formulation of global environmental policies. Despite these accomplishments, some maintain that there are a number of environmental problems that must still be addressed by the country. Although observers have long admired the country's tropical forests, it is only relatively recently that Costa Rica has placed much emphasis on environmental protection. Approximately 75% of Costa Rican territory was forest covered in the 1940s, however, just 21% remained covered in 1987 as a result of logging and agricultural expansion. Alarmed at the pace of deforestation and the extent of environmental degradation, the Costa Rican government began implementing a variety of conservation programs. Among these programs is the National System of Conservation Areas (SINAC), which was founded in the 1960s but has been significantly expanded in recent decades. SINAC now provides formal protection for over 26% of Costa Rica's land and 16.5% of its waters. Costa Rica has built upon the success of SINAC with a number of innovative environmental protection policies. Since 1997, Costa Rica has imposed a 3.5% "carbon tax" on fossil fuels. A portion of the funds generated by the tax are directed to the so-called "Payment for Environmental Services" (PSA) program, which pays private property owners to practice sustainable development and forest conservation. Some 11% of Costa Rica's national territory is protected by the program. Costa Rica also imposes a tax on water pollution to penalize homes and businesses that dump sewage, agricultural chemicals, and other pollutants into waterways. In 2009, the government expected the water pollution tax to generate some $8 million, which was to be used to improve the water treatment system, monitor pollution, and promote environmentally-friendly practices. Moreover, Costa Rica generates 76% of its energy from hydro, geo-thermal, and wind power, and President Arias has opposed exploitation of the country's discovered oil reserves in order to maintain incentives to further develop alternative energies. The country's environmental policies have been relatively successful, both in ecological and economic terms. Costa Rica has experienced a substantial increase in forest conservation and reforestation. Since 1997, the percentage of the nation covered by forest has expanded an average of 0.66% annually, and over 50% of Costa Rican territory now falls under forest cover. This has provided crucial habitat, as Costa Rica is home to a disproportionately high percentage of the earth's biological diversity with 5% of the planet's plant and animal species. Environmental protection has also been a significant source of economic growth for Costa Rica, which is now one of the world's premier destinations for ecotourism. More than one million people visit Costa Rica's environmental attractions each year, generating $1.1 billion in foreign exchange. Costa Rica's domestic success has allowed it to play an outsized role in formulating global environmental policies. In the lead up to the 2009 United Nations Climate Change Conference in Copenhagen, Denmark, President Arias asserted that developed nations, which "achieved their development poisoning the environment," should be most responsible for reducing global greenhouse gasses. He proposed that such countries cut their carbon emissions by 45%. Arias also pushed for technological exchange, financial assistance for mitigation and adaptation programs, and "debt-for-nature" swaps. Nonetheless, Arias has asserted that developing nations must reduce their green house gas emissions as well. In 2008, Costa Rica announced its intention to become carbon-neutral by 2021, the first developing nation to make such a pledge. Additionally, Costa Rica has sought to export its successful environmental policies—such as the PSA program—to other developing nations. Despite its considerable achievements and global recognition, some observers assert there are still a number of environmental problems that Costa Rica must address. According to a recent SINAC study, Costa Rica lacks adequate protection for coastal and marine biological diversity. The study of 35 sites of ecological importance found that less than 10% of the areas examined are currently protected. Another recent study, conducted by the country's state universities with support from private and public institutions, highlighted a number of other environmental problems in Costa Rica, including continued water pollution, overexploitation of marine resources, and a notable decline in the rate of reforestation. The U.N. Ozone Secretariat has also highlighted environmental shortcomings in Costa Rica, noting that the country has led Latin America in per capita importation of ozone depleting substances since 2004. Relations between the United States and Costa Rica traditionally have been strong as a result of common commitments to democracy, free trade, and human rights. U.S. intervention in Central America during the 1980s, however, slightly strained the relationship. President Arias responded to the various conflicts in the region by crafting a peace plan during his first administration, which excluded the involvement of extra-regional powers. As a result of his efforts, Arias was awarded the Nobel Peace Prize in 1987. U.S. policy in Iraq also strained relations between Costa Rica and the United States. Although then President Pacheco (2002-2006) supported the U.S. invasion, Costa Rica's Constitutional Court ruled that listing the country as a member of the "coalition of the willing" violated the country's constitutionally mandated neutrality. President Arias has questioned the priorities of the United States for spending substantial funds in Iraq while allocating comparatively little to assist allies in Central America. Current relations between the United States and Costa Rica could be characterized as friendly. Costa Rica finally implemented CAFTA-DR in January 2009. The agreement will likely strengthen Costa-Rica's already significant trade relationship with the United States. Vice President Biden visited Costa Rica during his first trip to Central America, leading the Arias Administration to describe the meeting as "a clear recognition of the trajectory of Costa Rica as the United States' strategic partner in the region." Additionally, President Arias criticized the anti-Americanism of some of his fellow Latin American leaders at the Fifth Summit of the Americas, and the United States strongly supported President Arias' role as mediator in the political crisis in Honduras. For more than a decade, Costa Rica has not been a large recipient of U.S. assistance as a result of its relatively high level of development; however, this is likely to change somewhat as a result of the "Mérida Initiative" and its successor program, the Central America Regional Security Initiative (CARSI). The Peace Corps has been operating in Costa Rica since 1963 and generally has been the largest source of U.S. assistance to the country since the U.S. Agency for International Development mission closed in 1996. In recent years, Costa Rica has also received U.S. assistance through the "International Narcotics Control and Law Enforcement" (INCLE), "International Military Education and Training" (IMET), and "Foreign Military Financing" (FMF) accounts. Costa Rica received $364,000 in regular U.S. assistance in FY2009 and is scheduled to receive an estimated $705,000 in FY2010. The Obama Administration has requested $750,000 for Costa Rica for FY2011. In 2007, Costa Rica signed one of the largest ever debt-for-nature swaps with the U.S. government. Authorized by the Tropical Forest Conservation Act of 1998 ( P.L. 105-214 ), the agreement reduced Costa Rica's debt payments by $26 million over 16 years. In exchange, the Costa Rican Central Bank agreed to use the funds to support grants to non-governmental organizations and other groups committed to protecting and restoring the country's tropical forests. In order to fund the agreement, the U.S. government contributed $12.6 million and Conservation International and the Nature Conservancy contributed a combined donation of more than $2.5 million. Costa Rica historically has not experienced significant problems as a result of the regional drug trade, however, crime and violence have surged in recent years as Colombian and Mexican cartels have increased their operations throughout Central America. Costa Rica's murder rate nearly doubled between 2004 and 2008, from 6 per 100,000 to 11 per 100,000 residents. Although Costa Rica's murder rate remains significantly lower than those of the "northern triangle" countries of Guatemala, El Salvador, and Honduras, the surge in organized crime has presented the Costa Rican government with a considerable security challenge. In October 2007, the United States and Mexico announced the Mérida Initiative, a multi-year proposal to provide U.S. assistance to Mexico and Central America aimed at combating drug trafficking and organized crime. Congress appropriated some $165 million for Central America under the Mérida Initiative—a portion of which was to go to Costa Rica—through the FY2008 Supplemental Appropriations Act ( P.L. 110-252 ) and the F2009 Omnibus Appropriations Act ( P.L. 111-8 ). The FY2010 Consolidated Appropriations Act ( P.L. 111-117 ) split Central America from the Mérida Initiative, and appropriated $83 million under a new Central America Regional Security Initiative (CARSI). The Obama Administration has requested $100 million for CARSI in FY2011. Costa Rica received an initial $1.1 million in Mérida/CARSI funds in June 2009, after Costa Rica and the United States signed a letter of agreement implementing the initiative. The initial funds were to be used to finance the Central American Fingerprint Exchange, improved policing and equipment, improved prison management, maritime interdiction support, border assistance and inspection equipment, and a number of regional training programs. President Arias has praised the security initiative as a "step in the right direction," but maintains that the U.S. funding of the program in Central America—and Costa Rica in particular—is "insufficient." Although Costa Rica has no military, it receives IMET assistance to train its public security forces. These funds have been used to improve the counterdrug, rule of law, and military operations capabilities of the Costa Rican Coast Guard and law enforcement services. Costa Rica was prohibited from receiving IMET assistance in FY2004, FY2005, and FY2006 as a result of its refusal to sign an Article 98 agreement exempting U.S. personnel from the jurisdiction of the International Criminal Court. In October 2006, President Bush waived FY2006 IMET restrictions for a number of countries—including Costa Rica—and signed the John Warner National Defense Authorization Act for Fiscal Year 2007 into law ( P.L. 109-364 ), a provision of which ended Article 98 sanctions on IMET funds. Costa Rica began receiving IMET funds again in FY2007. In January 2009, Security Minister Janina del Vecchio revealed that Costa Rica would once again send police officers to the Western Hemisphere Institute for Security Cooperation (WHINSEC, formerly known as the School of the Americas) in Fort Benning, GA. The decision to resume training came just a year and a half after President Arias, following a meeting with opponents of WHINSEC, announced that Costa Rica would withdraw its students from the school. WHINSEC, which has trained tens of thousands of military and police personnel from throughout Latin America—including 2,600 Costa Ricans, has been criticized for the human rights abuses committed by some of its graduates. Supporters of the school maintain that WHINSEC emphasizes democratic values and respect for human rights, develops camaraderie between U.S. military officers and military and police personnel from other countries in the hemisphere, and is crucial to developing military partners capable of effective combined operations. A provision of the Omnibus Appropriations Act of 2009 ( P.L. 111-8 ) directs the Department of State to provide a report of the names, ranks, countries of origin, and years of attendance of all students and instructors at WHINSEC for fiscal years 2005, 2006, and 2007. The Latin American Military Training Review Act ( H.R. 2567 , McGovern), which was introduced in the House in May 2009, would suspend all operations at WHINSEC, establish a joint congressional task force to assess the types of training that are appropriate to provide Latin American militaries, and establish a commission to investigate activities at WHINSEC and its predecessor. In August 2004, the United States Trade Representative (USTR) and the trade ministers from the Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua signed the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR). CAFTA-DR liberalizes trade in goods, services, government procurement, intellectual property, and investment, immediately providing duty-free status to a number of commercial and farm goods while phasing out tariffs on other trade over five to twenty years. Prior to the agreement, the countries of Central America all had tariff-free access to the U.S. market on approximately three-quarters of their products through the Caribbean Basin Trade Partnership Act ( P.L. 106-200 , Title II). The CAFTA-DR agreement makes the arrangement permanent and reciprocal. Although CAFTA-DR is a regional agreement under which all parties are subject to the same obligations and commitments, each country defines its own market access schedule with the United States. Following the August 2004 signature of CAFTA-DR, the agreement had to be approved by the legislatures of all of the countries involved. In Costa Rica, a qualified congressional majority (38 of 57 legislators) was needed to ratify the agreement. Although Costa Rican leaders across the political spectrum support liberalized trade, there has been intense internal debate concerning the benefits of CAFTA-DR. While the Arias Administration was able to create a cross-party alliance of 38 deputies, the PAC opponents of the agreement were able to block ratification through various delaying tactics. In order to avoid missing the ratification deadline, President Arias asked the TSE for a binding referendum on CAFTA-DR. The referendum was held in October 2007 and reflected the polarization of the issue among the Costa Rican electorate. Trade unions, students, a variety of social movements, and the PAC opposed the ratification of CAFTA-DR, while business groups and each of the other major political parties were in favor of the agreement. The referendum campaign was often contentious. Just two weeks before the vote, Arias' Second Vice President was forced to resign after authoring a memorandum recommending that the Administration link the anti-CAFTA-DR forces to Presidents Castro of Cuba and Chávez of Venezuela and play up the possible consequences of a failed referendum. Then, days before the referendum, Costa Rican media published statements by members of the Bush Administration saying it was unlikely that the United States would renegotiate the agreement or maintain the unilateral trade preferences Costa Rica received under the Caribbean Basin Initiative should the country vote against CAFTA-DR. In the end, 51.6% of Costa Ricans voted in favor of CAFTA-DR while 48.4% voted against the agreement. Referendum turnout was just over 60%, well above the 40% minimum necessary for it to be binding. After the approval of CAFTA-DR by referendum, the Costa Rican legislature still had to pass 13 laws in order to implement the agreement. These included a variety of intellectual property law reforms, an opening of the insurance and telecommunications sectors, reform of the criminal code, an anti-corruption law, and a law protecting agents of foreign firms. Costa Rica's consensus-seeking tradition and the ability of PAC legislators to challenge the constitutionality of the proposed legislation in the Constitutional Chamber slowed the implementation of CAFTA-DR significantly. As of the original February 2008 deadline for implementation, Costa Rica had only passed five of the necessary reforms. Then, prior to the extended deadline of October 2008, the Constitutional Chamber ruled that the intellectual property legislation was unconstitutional as a result of the Arias Administration's failure to meet with indigenous and tribal groups about the bill before sending it to the legislature. After obtaining a second extension, Costa Rica passed all of the necessary reforms and implemented CAFTA-DR on January 1, 2009. Prior to the implementation of CAFTA-DR, the United States was already Costa Rica's largest trading partner as the destination of about 36% of Costa Rican exports and the origin of about 38% of its imports. Despite the global financial crisis and U.S. recession, U.S. trade with Costa Rica increased by over 7% in 2009. U.S. exports to Costa Rica amounted to about $4.7 billion and U.S. imports from Costa Rica amounted to about $5.6 billion. Electrical and heavy machinery and oil accounted for the majority of the exports while machinery parts, medical instruments, and fruit accounted for the majority of the imports.
|
Costa Rica is a politically stable Central American nation with a relatively well-developed economy. Former president (1986-1990) and Nobel-laureate Oscar Arias of the historically center-left National Liberation Party was elected President in 2006. Throughout his term, Arias has advanced so-called "third-way" policies, embracing his party's traditional support for social welfare programs while rejecting state-led development in favor of market-oriented economic policies. Considerable economic growth and social protection programs have provided Costa Rica's citizens with a relatively high standard of living, however, conditions have deteriorated recently as a result of the global financial crisis and U.S. recession. Although Costa Rica's economy contracted and poverty increased in 2009, analysts believe President Arias' ambitious fiscal stimulus and social protection plan and improving global economic conditions should aid recovery in 2010. On February 7, 2010, former Vice President Laura Chinchilla (2006-2008) of the ruling National Liberation Party was elected president, easily defeating her competitors. Chinchilla, who is closely tied to President Arias and the centrist faction of her party, will be Costa Rica's first female president. Throughout the campaign, Chinchilla pledged to maintain the Arias Administration's economic and social welfare policies while improving public security. She will need to form cross-party alliances to implement her policy agenda, however, as her party will lack a majority in Costa Rica's unicameral National Assembly. Chinchilla and the new legislature are scheduled to take office in May 2010. Successive Costa Rican administrations have sought to address extensive deforestation and environmental degradation that resulted from decades of logging and agricultural expansion. The country's strong conservation system and innovative policies have done much to restore Costa Rica's environment and ecotourism has provided a significant source of economic growth. Costa Rica's efforts also have led many observers to recognize it as a world leader in environmental protection and have enabled the country to play an outsized role in the formulation of global environmental policies. Nonetheless, some maintain that a number of environmental problems in Costa Rica remain unaddressed. The United States and Costa Rica have long enjoyed close relations as a result of the countries' shared commitments to strengthening democracy, improving human rights, and advancing free trade. The countries have also maintained strong commercial ties, which are likely to become even more extensive as a result of President Arias' efforts to secure ratification and implementation of CAFTA-DR. On April 28, 2009, the House of Representatives passed H.Res. 76 (Burton), which mourns the loss of life in Costa Rica and Guatemala that resulted from natural disasters that occurred in January 2009. The resolution also expresses the senses of the House, that the U.S. government should continue providing technical assistance relating to disaster preparedness to Central American governments. This report examines recent political and economic developments in Costa Rica as well as issues in U.S.-Costa Rica relations. For additional information, see CRS Report RL31870, The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), by [author name scrubbed] and CRS Report R40135, Mérida Initiative for Mexico and Central America: Funding and Policy Issues, by [author name scrubbed].
|
In 2002, the Medical Device User Fee and Modernization Act (MDUFMA, also called MDUFA I) gave the Food and Drug Administration (FDA) the authority to collect fees from the medical device industry. User fees and annual discretionary appropriations from Congress fund the review of medical devices by the FDA. Medical devices are a wide range of products that are used to diagnose, treat, monitor, or prevent a disease or condition in a patient. FDA describes medical devices as ranging "from simple tongue depressors and bedpans to complex programmable pacemakers with micro-chip technology and laser surgical devices." Medical devices also include in vitro diagnostic products, reagents, test kits, and certain electronic radiation-emitting products with medical applications, such as diagnostic ultrasound products, x-ray machines, and medical lasers. Manufacturers of moderate and high risk medical devices must obtain FDA approval or clearance before marketing their device in the United States. The Center for Devices and Radiological Health (CDRH) has primary responsibility within FDA for medical device premarket review. The primary purpose of user fees is to support the FDA's medical device premarket review program and to help reduce the time it takes the agency to review and make decisions on marketing applications. Between 1983 and 2002, multiple government reports indicated that FDA had insufficient resources for its medical devices premarket review program. Lengthy review times affect the industry, which waits to market its products, and patients, who wait to use these products. The user fee law provides revenue for FDA. In exchange for the fees, FDA and industry negotiate performance goals for the premarket review of medical devices. The medical device user fee program was modeled after the Prescription Drug User Fee Act (PDUFA). Like the prescription drug and animal drug user fee programs, the medical device user fee program has been authorized in five-year increments. FDA's medical device user fee authorities were last reauthorized through September 30, 2017, by the Medical Device User Fee Amendments of 2012 (MDUFA III). MDUFA III was enacted as Title II of Food and Drug Administration Safety and Innovation Act (FDASIA, P.L. 112-144 ), which became law on July 9, 2012. FDASIA also reauthorized PDUFA, created new user fee programs for generic and biosimilar drug approvals, and modified FDA authority to regulate medical products. Because of the importance of user fees to FDA's budget, PDUFA and MDUFA are considered to be "must pass" legislation, and Congress has in the past included language to address a range of other concerns. For example, MDUFA III included provisions about the extent to which FDA can delegate activities to third parties (inspections and the review of premarket notifications); the establishment of registration requirements (timing and electronic submission); a unique device identification system; and reporting requirements for devices linked to serious injuries or deaths. This report describes current law regarding medical device user fees and the impact of MDUFA on FDA review time of various medical device applications and the agency's medical device program budget. Appendix A and Appendix B provide historical details on the evolution of fees and performance goals from MDUFA I through MDUFA III. Appendix C provides a list of acronyms used in this report. The Medical Device Amendments of 1976 ( P.L. 94-295 ) was the first major legislation passed to address the premarket review of medical devices. Congress first authorized user fees to support the FDA's medical device premarket review program in 2002, 10 years after Congress had provided the authority for prescription drug user fees via PDUFA. For prescription drugs, the manufacturer must pay a fee for each new drug application (NDA) that is submitted to FDA for premarket review. In contrast, most medical devices listed with FDA are exempt from premarket review and do not pay a user fee (see Figure 1 ). Of the unique devices that are listed by manufacturers with FDA in FY2016, about 63% were exempt from premarket review; the remainder entered the market via the 510(k) process (35%), the premarket approval (PMA) process (1%), or via other means, such as the humanitarian device exemption (see " FDA Premarket Review of Medical Devices " and " Exemptions and Discounted Fees "). Premarket review and payment of the associated fee is required for about a third of the medical devices listed with FDA. FDA classifies devices based on their risk to the patient: low-risk devices are Class I, medium-risk are Class II, and high-risk are Class III. Low-risk medical devices (Class I) and a very small number of moderate-risk (Class II) medical devices are exempt from premarket review. In general, for moderate-risk and high-risk medical devices, there are two pathways that manufacturers can use to bring such devices to market with FDA's permission. One pathway consists of conducting clinical studies, then submitting a premarket approval (PMA) application with evidence providing reasonable assurance that the device is safe and effective. The PMA process is generally used for novel and high-risk devices and, if successful, it results in a type of FDA permission called approval . In FY2015, 95% of PMAs accepted for filing were approved by FDA. Another pathway involves submitting a premarket notification, also known as a 510(k) after the section in the FFDCA that authorized this type of notification. With the 510(k), the manufacturer demonstrates that the device is substantially equivalent to a device already on the market (a predicate device) that does not require a PMA. Substantial equivalence is determined by comparing the performance characteristics of a new device with those of a predicate device. The 510(k) process is unique to medical devices and, if successful, results in FDA clearance . According to FDA data, 85% of 510(k)s accepted for review in FY2015 were determined to be substantially equivalent. The standard for clearance of a 510(k) is substantial equivalence with a predicate device. Premarket review by FDA—both PMA and 510(k)—requires the payment of a user fee. FDA typically evaluates more than 4,000 510(k) notifications and about 40 original PMA applications each year. Fees collected under MDUFA III in FY2015 funded 35% of the MDUFA program total costs in FY2015. In addition to premarket review fees, there are also fees for when a manufacturer requests approval of a significant change in the design or performance of a device approved via the PMA pathway; these are called PMA supplements. Examples of PMA supplements include a Panel-Track Supplement , when it is necessary for FDA to evaluate significant clinical data in order to make a decision on approval, and a 180-Day PMA Supplement , if a manufacturer requests approval of a change in an approved device that does not require FDA to evaluate new clinical data or requires limited clinical data. The original 2002 user fee law had only authorized FDA to collect fees for premarket review, such as for PMA applications, PMA supplements, or 510(k) notifications. The 2007 reauthorization—MDUFA II—added two types of annual fees in order to generate a more stable revenue stream for the agency. According to FDA, there were fluctuations in the number of applications submitted from year to year, and fee revenues repeatedly fell short of expectations. MDUFA II added establishment registration fees , paid annually by most device establishments registered with FDA, and product fees , paid annually for high-risk (Class III) devices for which periodic reporting is required. MDUFA II also added two application fees—the 30-Day Notice and 513(g) application—and substantially lowered all existing application fee amounts (see Table A -1 ). A 30-Day Notice is used by a manufacturer to request modifications in manufacturing procedures and a 513(g) application is used by a manufacturer to request information on the classification of a device. Other than the establishment fee, the amount of each type of user fee is set as a percentage of the PMA fee, also called the base fee . The law sets both the base fee amount for each fiscal year, and the percentage of the base fee that constitutes most other fees. Under MDUFA III, the 510(k) fee was changed from 1.84% of the PMA fee to 2% of the PMA fee. MDUFA III changed the PMA fee amount to $248,000 in FY2013 rising to $263,180 in FY2016 and $268,443 in FY2017 (prior to inflation adjustment) (see Table A -1 ). The amount of the establishment registration fee was changed under MDUFA III to $2,575 in FY2013 rising to $3,872 in FY2016 and FY2017 (prior to inflation adjustment) (see Table A -1 ). MDUFA III also changed the definition of "establishment subject to a registration fee"; according to FDA, this would increase the number of establishments paying the fee from 16,000 to 22,000. Under MDUFA III, total fee revenue was set at $97,722,301 for FY2013 rising to $130,184,348 for FY2017. The total fees authorized to be collected over the five-year period FY2013 through FY2017 is $595 million. MDUFA III adjusts the total revenue amounts by a specified inflation adjustment, similar to the adjustment made under PDUFA, and the base fee amount is adjusted as needed on a uniform proportional basis to generate the inflation-adjusted total revenue amount. After the base fee amounts are adjusted for inflation, the establishment fee amount is further adjusted as necessary so that the total fee collections for the fiscal year generates the total adjusted revenue amount. The new adjusted fee amounts are published in the Federal Register 60 days before the start of each fiscal year along with the rationale for adjusting the fee amounts. The MDUFA IV proposal would change the 510(k) fee from 2.0% of the PMA fee to 3.4% of the PMA fee. MDUFA IV would change the PMA fee amount to $294,000 in FY201, rising to $329,000 in FY2022 (prior to inflation adjustment). The amount of the establishment registration fee would be changed under MDUFA IV to $4,375 in FY2018, rising to $4,978 in FY2022 (prior to inflation adjustment). The total fee revenue under the MDUFA IV proposal is $183,280,756 for FY2018, rising to $213,687,660 for FY2022. The total fees that would be authorized to be collected over the five-year period FY2018 through FY2022 would be $999.5 million plus inflation adjustments. Certain types of medical devices and medical device manufacturers or sponsors are exempt from paying fees, and small businesses pay a reduced rate. Humanitarian Device Exemption (HDE) applications are exempt from user fees, other than establishment fees. An HDE exempts devices that meet certain criteria from the effectiveness requirements of premarket approval. Devices intended solely for pediatric use are exempt from fees other than establishment fees. If an applicant obtains an exemption under this provision, and later submits a supplement for adult use, that supplement is subject to the fee then in effect for an original PMA. State and federal government entities are exempt from certain fees such as PMA, PMA supplement, 510(k), and establishment registration unless the device is to be distributed commercially. Indian tribes are exempt from having to pay establishment registration fees, unless the device is to be distributed commercially. Other than an establishment fee, the FDA cannot charge manufacturers a fee for premarket applications for biologics licenses and licenses for biosimilar or interchangeable products if products are licensed exclusively for further manufacturing use. Under a program authorized by Congress, FDA accredits third parties, allowing them to conduct the initial review of 510(k)s for the purpose of classifying certain devices. The purpose is to improve the efficiency and timeliness of FDA's 510(k) process. No FDA fee is assessed for 510(k) submissions reviewed by accredited third parties, although the third parties charge manufacturers a fee for their services. Under MDUFA III, FDA worked with interested parties to improve the third-party review program; work on improving the third-party review program would continue under the MDUFA IV proposal. In MDUFA II, Congress amended the process of qualifying for small business user fee discounts in response to frustrations expressed by domestic and foreign companies that had difficulties with the requirements. Small businesses—those with gross receipts below a certain amount—pay reduced user fees and have some fees waived altogether. These fee reductions and exemptions are of interest because many device companies are small businesses. Whether a device company is considered a small business eligible for fee reductions or waivers depends on the particular fee. Small businesses reporting under $30 million in gross receipts or sales are exempt from fees for their first PMA. Proof of receipts may consist of IRS tax documents or qualifying documentation from a foreign government. Companies with annual gross sales or receipts of $100 million or less pay at a rate of 50% of the 510(k) user fee, 30-day notice, request for classification information, and 25% of most other user fees. Small businesses must pay the full amount of the establishment fees. MDUFA III included a provision that allows FDA to grant a waiver or reduce fees for a PMA or establishment fee "if the waiver is in the interest of public health." According to the FDA presentation at the March 28, 2012, public meeting, the fee waiver is intended for laboratory developed test (LDT) manufacturers. The provision will sunset at the end of MDUFA III. As part of the MDUFA IV commitment letter, FDA will begin reviewing LDTs. The agency stated at the November 2, 2016, public meeting that it will review LDTs "no less favorably than any other devices in which MDUFA performance goals apply." The MDUFA IV proposal would reduce the fee paid by small businesses from 50% of the standard fee to 25% of the standard fee. MDUFA IV would establish a fee to be collected for de novo classification requests at 30% of the PMA fee, and de novo requests submitted by a small business are eligible for a reduced fee, 25% of the standard fee. A key element of FDA user fee laws—MDUFA and PDUFA—is that the user fees are to supplement congressional appropriations, not replace them. The law includes a condition, sometimes called a trigger, to enforce that goal. FDA may collect and use MDUFA fees only if annual discretionary appropriations for the activities involved in the premarket review of medical devices and for FDA activities overall remain at a level at least equal (adjusted for inflation) to an amount specified in the law. The MDUFA IV proposal updates the appropriation trigger "to provide assurance that user fees will be additive to budget authority appropriations." Over time, Congress has changed PDUFA to allow user fee revenue to be used for FDA activities related to not only premarket review but also the review of postmarket safety information associated with a drug. In contrast, MDUFA revenue can be used only for activities associated with FDA premarket review of PMAs, 510(k)s, and PMA supplements. The law states that fees "shall only be available to defray increases in the costs of resources allocated for the process for the review of device applications ." Importantly, the MDUFA IV proposal would include support for postmarket surveillance of medical devices: "funding will also improve the collection of real-world evidence from different sources across the medical device lifecycle, such as registries, electronic health records, and other digital sources." User fee revenues collected under MDUFA IV will be used to support the National Evaluation System for health Technology (NEST). FDA states that NEST "will help improve the quality of real-world evidence that health care providers and patients can use to make better informed treatment decisions and strike the right balance between assuring safety and fostering device innovation and patient access." MDUFA II added FFDCA Section 738A regarding required reports. Updated by MDUFA III, this section requires the Secretary to submit annual fiscal and performance reports for the next five fiscal years (FY2013 thru FY2017) to the Senate Committee on Health, Education, Labor, and Pensions, and the House Committee on Energy and Commerce. Fiscal reports address the implementation of FDA's authority to collect medical device user fees, as well as FDA's use of the fees. Performance reports address FDA's progress toward and future plans for achieving the fee-related performance goals identified in the agreement with industry. MDUFA III included a provision, for the three years following enactment, regarding streamlined hiring of FDA employees who would support the review of medical devices. Under the MDUFA III agreement, user fees will be used to "reduce the ratio of review staff to front line supervisors in the pre-market review program." FDA will enhance and supplement scientific review capacity by hiring reviewers and using external experts to assist with device application review. Using the streamlined hiring authority, FDA will work with industry to benchmark best practices for employee retention via financial and non-financial means. User fees will supplement (1) management training; (2) MDUFA III training for all staff; (3) Reviewer Certification Program for new CDRH reviewers; and (4) specialized training to provide continuous learning for all staff. FDA will improve its IT system to allow real-time status information on submissions. Under MDUFA III, FDA was required to hire a consultant to perform a two phase assessment of the medical device review process; Booz Allen Hamilton was chosen as the consultant. The first phase of the assessment focused on the identification of best practices and process improvements. A preliminary report published in December 2013 made four priority recommendations that were likely to have a significant impact on review time. A final report, released to the public in June 2014, detailed additional recommendations for improvements in the review process as well as other areas. In December 2014 CDRH published a final Plan of Action to address each of the Phase 1 recommendations. The consultant was required to evaluate FDA's implementation of the Plan of Action and publish a report no later than February 1, 2016; the report was published by the deadline. An independent assessment also will be conducted under MDUFA IV. In phase I, the contractor will evaluate the implementation of the MDUFA III independent assessment recommendations and publish a report. In phase II, the independent assessment will evaluate the medical device premarket review program to identify efficiencies; evaluate the premarket review infrastructure and allocation of FTEs; assess the alignment of resource needs with training and expertise of hires; identify and share best practices across branches; and assess the new MDUFA IV programs, such as NEST. One objective of the MDUFA agreement is focused on FDA's commitment to completing the review of the various medical device submissions—such as PMA reviews and 510(k) notifications—within specified time frames in exchange for an industry fee to support the review activity. Performance goals are specified for each type of submission for each fiscal year. Many of the programs and initiatives outlined in the MDUFA agreement are intended to reduce the average total time to decision for PMAs and 510(k)s. FDA and applicants share the responsibility for achieving these goals, which are shown for MDUFA III and the MDUFA IV proposal in Table 1 . Under MDUFA II and MDUFA III, FDA meets with industry on a quarterly basis to present data and discuss progress in meeting performance goals. These quarterly performance reports are posted on the FDA website. The quarterly meetings and reports would be continued under the MDUFA IV proposal. The amount of time it takes FDA to reach a review decision to clear a 510(k) notification or approve a PMA application is a measure of how well the agency is meeting the goals defined in the MDUFA agreement between FDA and the medical device industry. The time it takes to review a medical device—total review time—is composed of the time FDA handles the application—FDA time—plus the amount of time the device sponsor or submitter takes to respond to requests by FDA for additional information about the device. Figure 2 shows that the total amount of time a device is in the 510(k) review process has decreased from a peak in FY2010. The amount of time a 510(k) submission spends in FDA's hands has remained fairly stable; time in the submitter's hands peaked in FY2010 and has slowly declined. FDA reviewers frequently need to ask for additional information—called an AI Letter—from 510(k) device sponsors due to the incomplete or poor quality of the original submission. In FY2010, 77% of 510(k) sponsors received an AI letter on the first FDA review cycle. In FY2016, 76% received an AI letter on the first FDA review cycle. According to FDA, these quality issues have involved "the device description, meaning the sponsor either did not provide sufficient information about the device to determine what it was developed to do, or the device description was inconsistent throughout the submission." The device sponsor may not provide a complete response to the AI letter, in which case the FDA will send a second AI letter. In FY2010, 35% of 510(k)s received an AI letter in the second FDA review cycle. In FY2016, 6% received an AI letter in the second FDA review cycle. The AI letter allows the device sponsor the opportunity to respond and although this increases time to final decision, it allows the submission the opportunity for the product to be cleared. The alternative is for FDA to reject the 510(k) submission. Figure 3 provides information on the amount of time FDA spends reviewing PMAs. It shows that the average total days for PMA application review has been decreasing since FY2009 (except for a single year spike in FY2013). However, for PMAs and 510(k)s, the final two to three cohort years are still open and average review time will increase; this will impact whether the shared goals shown in Table 1 are met. FDA reviewers frequently need to ask for additional information—called an AI Letter—from PMA device sponsors due to the incomplete or poor quality of the original PMA application. In FY2010, 86% of PMA sponsors received an AI letter on the first FDA review cycle. In FY2016, 87% received an AI letter on the first FDA review cycle. Figure 4 and Table 2 present the total amount spent on the FDA MDUFA program for FY2005 through FY2015. Figure 4 shows the contribution of medical device user fees collected from industry, as well as appropriations provided by Congress. Table 2 also provides dollar amounts and percentages derived from the two sources. All user fees (as enacted) account for 42% of FDA's total FY2016 program level. User fees are an increasing proportion of FDA's device-related budget. In FY2005, medical device user fees accounted for 15% of the MDUFA program total costs, compared with 35% in FY2015 as shown in Figure 4 and Table 2 . In contrast, user fees covered 71% of PDUFA program total costs in FY2015. The FDA provides information on the amount of MDUFA fees collected each fiscal year and how the fees are spent in an annual financial report. MDUFA II added FFDCA Section 738A, which outlines the reauthorization process. FFDCA Section 738A directs the FDA to develop a reauthorization proposal for the following five fiscal years in consultation with specified congressional committees, scientific and academic experts, health care professionals, patient and consumer advocacy groups, and the regulated industry. Prior to negotiations with industry, FDA is required to request public input, hold a public meeting, provide a 30-day comment period, and publish public comments on the agency's website. During negotiations with industry, FDA must hold monthly discussions with patient and consumer advocacy groups to receive their suggestions and discuss their views on the reauthorization. After negotiations with industry are completed, FDA is required to present the recommendations to certain congressional committees, publish the recommendations in the Federal Register , provide a 30-day public comment period, hold another public meeting to receive views from stakeholders, and revise the recommendations as necessary. Minutes of all negotiation meetings between FDA and industry are required to be posted on the FDA website. For MDUFA IV, FDA held an initial public meeting on July 13, 2015. The negotiation process between FDA and industry began on September 9, 2015; minutes of all 13 meetings with industry are available on the FDA website. According to FDA, the MDUFA IV negotiations involved the same four industry trade associations that participated in the MDUFA III negotiations: the Advanced Medical Technology Association (AdvaMed), the Medical Device Manufacturers Association (MDMA), the Medical Imaging and Technology Alliance (MITA), and the American Clinical Laboratory Association (ACLA). Monthly meetings with nonindustry stakeholders, such as health care professional associations and patient and consumer advocacy groups, began on September 15, 2015, and minutes of all 11 meetings are also posted on the FDA website. According to FDA, regular participants at these meetings included the National Health Council, Pew Charitable Trusts, the American College of Cardiology, the National Alliance on Mental Illness, FasterCures, the National Organization for Rare Disorders, the Alliance for Aging Research, JDRF (formerly the Juvenile Diabetes Research Foundation), and the National Center for Health Research. FDA stated that these groups were primarily interested in establishing NEST and further incorporation of patient's perspectives into the FDA medical device review process. On August 22, 2016, FDA announced that it had reached an agreement in principle with the medical device industry and laboratory community on proposed recommendations for the reauthorization of the medical device user fee program. Under the draft agreement, FDA would be authorized to collect $999.5 million in user fees plus inflation adjustments over the five-year period, FY2018 through FY2022. The amount is a 68% increase over the previous MDUFA III agreement, which was $595 million. In addition to supporting the premarket review of medical devices, the "funding will also improve the collection of real-world evidence from different sources across the medical device lifecycle, such as registries, electronic health records, and other digital sources." User fee revenues collected under MDUFA IV would be used to support the National Evaluation System for health Technology (NEST). The MDUFA IV package is posted on the FDA website and consists of proposed changes to statutory language and an agreement on FDA performance goals and procedures. A public meeting to discuss the recommendations for reauthorization of MDUFA was held on November 2, 2016; materials from this meeting are posted on FDA's website. Appendix A. Medical Device User Fees Appendix B. MDUFA III Performance Goals Appendix C. Acronyms Used in This Report
|
The Food and Drug Administration (FDA) is responsible for regulating medical devices. Medical devices are a wide range of products that are used to diagnose, treat, monitor, or prevent a disease or condition in a patient. A medical device company must obtain FDA's prior approval or clearance before marketing many medical devices in the United States. The Center for Devices and Radiological Health (CDRH) within FDA is primarily responsible for medical device review and regulation. CDRH activities are funded through a combination of annual discretionary appropriations from Congress and user fees collected from device manufacturers. Congress first gave FDA the authority to collect user fees from medical device companies in the Medical Device User Fee and Modernization Act of 2002 (P.L. 107-250). Congress last reauthorized medical device user fees for a five-year period (FY2013-FY2017) via the Medical Device User Fee Amendments of 2012 (MDUFA III, Title II of Food and Drug Administration Safety and Innovation Act, FDASIA, P.L. 112-144). The primary purpose of the user fee program is to reduce the time necessary to review and make decisions on medical product marketing applications. Lengthy review times affect the industry, which waits to market its products, and patients, who wait to use these products. Under MDUFA III, FDA was authorized to collect $595 million from industry from FY2013 through FY2017. In exchange for the fees, FDA and industry negotiated performance goals for the premarket review of medical devices. The Federal Food, Drug, and Cosmetic Act (FFDCA) requires premarket review for moderate- and high-risk devices. There are two main paths that manufacturers can use to bring such devices to market. One path consists of conducting clinical studies and submitting a premarket approval (PMA) application that includes evidence providing reasonable assurance that the device is safe and effective. The other path involves submitting a 510(k) notification demonstrating that the device is substantially equivalent to a device already on the market (a predicate device) that does not require a PMA. The 510(k) process results in FDA clearance and tends to be less costly and less time-consuming than the PMA path. Substantial equivalence is determined by comparing the performance characteristics of a new device with those of a predicate device. Demonstrating substantial equivalence does not usually require submitting clinical data demonstrating safety and effectiveness. In FY2015, FDA approved 95% of PMAs accepted for review and 85% of 510(k)s accepted for review were determined to be substantially equivalent. In September 2015, the agency began a series of negotiation sessions with industry on the MDUFA IV reauthorization agreement. On August 22, 2016, FDA announced it had reached an agreement in principle with industry on proposed recommendations for the reauthorization. Under the draft agreement, FDA would be authorized to collect $999.5 million in user fees plus inflation adjustments over the five-year period starting in October 2017. The MDUFA IV draft and final commitment letters and proposed statutory changes are posted on the FDA website. A public meeting to discuss the proposed recommendations for reauthorization of MDUFA was held on November 2, 2016, and the final agreement between agency and industry has been submitted to Congress. Since medical device user fees were first collected in FY2003, they have comprised an increasing proportion of the MDUFA program. In FY2006, medical device user fees accounted for 16% of the MDUFA program total costs, compared with 35% in FY2015. All user fees (as enacted) accounted for 42% of FDA's total FY2016 program level. Over the years, concerns raised about user fees have prompted Congress to consider issues such as which agency activities could use the fees, how user fees can be kept from supplanting federal funding, and which companies should qualify as small businesses and pay a reduced fee.
|
A free trade agreement is an agreement involving two or more trading partners under which tariffs and trade barriers are reduced or eliminated. Today, the United States has free trade agreements with 17 countries, including nations in Asia, the Middle East, South and Central America, and Africa. Historically, these agreements have been treated as congressional-executive agreements rather than treaties. That is, reciprocal trade agreements are traditionally approved and implemented by a majority vote of each house rather than approved by a two-thirds vote in the Senate before being submitted to both houses of Congress for implementation. In a succession of statutes, Congress has authorized the President to negotiate and enter agreements reducing tariff and nontariff barriers for limited periods, while permitting trade agreements negotiated under this authority to enter into force for the United States once they are approved by both houses and other statutory conditions are met. The most recent of these statutes is the Bipartisan Trade Promotion Authority Act of 2002 (Trade Act of 2002) in which Congress authorized the President to enter into trade agreements before July 1, 2007 so long as the agreements satisfied certain conditions and were subject to congressional review. Pursuant to that authority, the Executive entered into several trade agreements, including the U.S.-South Korea Free Trade Agreement (KORUS FTA), which was signed by officials for the two countries on June 30, 2007. The KORUS FTA is one of three agreements that were negotiated under the terms of the Trade Act of 2002 but have yet to be submitted to Congress for approval and implementation. Under section 2105 of the Trade Act of 2002, the KORUS FTA will enter into force for the United States "if (and only if)" the four conditions stated in section 2105(a) of the statute are satisfied. Broadly described, these four requirements are as follows: the President, at least 90 calendar days before entering the trade agreement, notifies Congress of the President's intention to enter into the agreement; the President, within 60 days after entering into the agreement, submits to Congress a description of the changes to U.S. law that the President considers required to bring the United States into compliance with the agreements; the President submits to Congress a copy of the final legal text of the agreement, a draft of the implementing bill, a statement of administrative action, and certain supporting information; and the implementing bill is enacted into law. Once the implementing bill is introduced in Congress, it must meet additional statutory requirements to be considered under the expedited ("fast track") procedures. Trade agreements are not the only type of measure to traditionally receive consideration under the expedited legislative procedure often referred to as "fast track." One of the purposes of these expedited procedures in the trade area is to prevent the legislation from being blocked by filibuster or amended to an extent that forces the two countries to reenter negotiations. The authority to apply fast track procedures to legislation approving and implementing a free trade agreement often goes by the name "Trade Promotion Authority" (TPA), a label that reflects the title of the Trade Act of 2002. As signed on June 30, 2007, the KORUS FTA was entered into before the July 1, 2007 deadline. Therefore, assuming that its implementing bill satisfies the remaining statutory requirements, it will be eligible for consideration under the fast track procedures. However, the bill's eligibility for TPA may be complicated by the inclusion of the recently negotiated changes to the agreement. In the summer of 2010, the Obama Administration announced plans to reengage in talks with South Korea over aspects of the KORUS FTA, particularly its provisions involving market access for U.S. autos. These talks concluded on December 3, 2010 when the two sides agreed to make certain additions and modifications to the 2007 agreement. The media has referred to these changes collectively as a "supplementary agreement" or "supplementary deal" to the KORUS FTA. The "supplementary deal," which was signed on February 10, 2011, is memorialized by an "exchange of side letters" and two "agreed minutes." It modifies a portion of both U.S. and South Korean commitments under the 2007 agreement and adopts new obligations for both parties. For example, the "supplementary deal" modifies three of the 2007 time frames for the elimination of U.S. duties on certain automotive goods and, for some goods, sets a different deadline for elimination. In the "exchange of letters," the United States and South Korea also agreed to establish a special auto safeguard mechanism for unexpected import surges of motor vehicles. Other U.S. commitments contained in the exchange of letters include, inter alia : preclude any prevention or undue delay of a motor vehicle's placement on the U.S. market on the ground that it incorporates a new, as yet unregulated, technology or feature absent scientific or technical information demonstrating that the technology or feature creates a risk for human health, safety, or the environment; provide a year-long grace period between the date a technical regulation or conformity assessment procedure is published and the date on which compliance with the measure becomes mandatory; periodically conduct post-implementation reviews of the effectiveness of its significant regulations affecting motor vehicles; and resolve matters related to South Korea's publication of "new" fuel economy or motor vehicle emissions based taxation measures through "cooperation and consultations," rather than through dispute settlement. In the "agreed minutes," the United States promised to increase the L-visa validity period for intracompany transferees t o five years for nationals of South Korea, and South Korea promised to deem certain U.S. motor vehicle imports in compliance with its new automobile fuel economy and greenhouse gas emissions regulation. Unlike the exchange of letters, the agreed minutes are framed in hortatory, rather than mandatory, language, do not expressly mention dispute settlement, and segregate each party's commitments into two freestanding documents. While the parties' intention determines whether an agreement is internationally binding, these differences suggest that the United States and South Korea intended for the exchange of letters, but not the agreed minutes, to encompass binding commitments. In turn, if the agreed minutes were intended to be political, rather than internationally binding, commitments, they may not require congressional approval. Moreover, the United States can already fulfill its promise to increase the L-visa validity period for South Korean nationals without changing U.S. law. Trade agreements are traditionally treated as congressional-executive agreements rather than treaties, which means they are approved and implemented by a majority vote of each house. In general, trade agreements are formally presented to Congress as part of an implementing bill. Each implementing bill sets two tasks before Congress. First, for the agreement to "enter into force"—that is, constitute binding international commitments—for the United States, it must receive congressional approval. Second, for those commitments to have legal effect domestically, Congress must "implement" them by repealing or amending relevant U.S. law or enacting new statutory authorities to ensure U.S. compliance with the agreement. On occasion, Congress has approved an international trade agreement without including an express approval provision in the legislation that otherwise implements—or appropriates funds for U.S. participation in—the agreement. However, statutory grants of TPA typically condition a trade agreement's eligibility for fast track consideration on, inter alia , the implementing bill's inclusion of an express approval provision in addition to provisions implementing the agreement. As a result of the newly negotiated changes to the KORUS FTA, two questions arise. First, can any or all of these changes enter into force for the United States without congressional approval? In order to do so, the changes would need to be treated as a type of agreement into which the Executive can constitutionally enter the United States without obtaining congressional consent—that is, an executive agreement or a voluntary agreement that does not bind the United States under international law. Second, can the "supplementary agreement" carry the force of law domestically absent congressional action? To do this, the changes must be treated as self-executing. A self-executing agreement requires no changes to the U.S. Code to become enforceable in a U.S. court by private parties or capable of being performed by U.S. agencies, and therefore it does not need to be submitted to Congress for implementation. Ultimately, if, in its entirety, the "supplementary agreement" constitutes a self-executing executive agreement, the 2010 changes may have no implications for the fast track consideration of the KORUS FTA because they would not be included in the implementing bill. The Executive and Congress will decide whether to treat these changes as part of an executive and/or self-executing agreement, and their decision is unlikely to be disturbed by a U.S. court. Accordingly, this report is primarily focused on the fast track eligibility of an implementing bill for the KORUS FTA that either treats the 2010 changes as part of the agreement that was "entered into" in 2007 or effectively includes them in the provisions implementing the 2007 agreement. Fast track procedures ensure timely committee and floor action on a particular piece of legislation. In the context of trade agreements, these expedited procedures are used to prevent an implementing bill from being blocked by filibuster or amended to an extent that forces the two countries to reenter negotiations. Fast track procedures also prevent the use of procedural delaying tactics, including tactics available to congressional leadership to stall or prevent congressional consideration of legislation to which they are opposed. An implementing bill that is statutorily authorized for fast track consideration may be referred to as having "Trade Promotion Authority" (TPA), a label that reflects the title of the Trade Act of 2002. That act mandates that legislation approving and implementing a free trade agreement that is entitled to consideration under the fast track procedures receive an up-or-down vote in Congress without amendment and with limited debate. However, the Trade Act of 2002 conditions a bill's eligibility for fast track consideration on its satisfaction of certain statutory requirements. In particular, the President must submit the implementing bill to Congress, and the implementing bill must contain three components: a provision approving a trade agreement "entered into" in conformity with the Trade Act of 2002; a provision approving a statement of administrative action, if any, proposed to implement that agreement; and if changes to U.S. law are required to implement the trade agreement, provisions "repealing or amending existing laws or providing new statutory authority" that are "necessary or appropriate to implement" the agreement. In light of the 2010 changes to the KORUS FTA, questions have arisen over whether legislation containing those changes will meet these requirements for fast track consideration. Two requirements that may have negative implications for the fast track consideration of the KORUS FTA and its implementing bill are: (1) the requirement that the bill approve an agreement that was "entered into" before the July 1, 2007 deadline for fast track consideration; and (2) the requirement that any bill provisions repealing, amending, or enacting U.S. law be "necessary or appropriate" for the implementation of the 2007 agreement. As mentioned above, an implementing bill is entitled to receive fast track consideration only if, inter alia , it includes a provision approving a trade agreement that was "entered into" in conformity with the Trade Act of 2002. The phrase "entered into" has generally been understood to mean "signed," but not necessarily "implemented," by the parties. Furthermore, to be in conformity with the Trade Act of 2002, that agreement must have been "entered into" before July 1, 2007. The 2010 changes to the KORUS FTA were not "entered into" before the deadline for fast track procedures authorized by the Trade Act of 2002. However, the Trade Act of 2002 seems to draw a distinction between the agreement that was signed—which must be the one being approved by Congress—and the "final legal text" of that agreement—which is the one that the President must submit to Congress with the implementing bill. This distinction suggests that the text of the agreement that was signed and the agreement that is submitted to Congress for approval need not be identical, and, in turn, some changes may be made to the original agreement without disqualifying the implementing bill from fast track consideration. It is difficult to predict whether Members are likely to view the 2010 changes as falling within this category of acceptable changes to a trade agreement. The question may hinge on whether those changes are intended to "enter into force" for the United States, and, if so, whether they can "enter into force" absent congressional action. In other words, it could depend on whether some or all of the terms of the "supplementary deal" can be treated by Congress as a nonbinding agreement, an executive agreement, or as an agreement than can otherwise become binding for the United States absent congressional approval. Assuming an intent to be bound by the 2010 changes, the "supplementary deal" could qualify as an executive agreement if it was entered into under either (1) an earlier agreement that received congressional approval, either prospectively or retroactively; or (2) the President's sole constitutional authority. Although the Constitution is understood to vest the President with the authority to conduct foreign relations and, as part of that, negotiate international agreements, it is unclear whether—and to what extent—these powers might encompass some degree of executive authority related to foreign commerce. Congress, on the other hand, has express constitutional authority to (1) "lay and collect taxes, duties, imposts, and excises;" (2) "regulate commerce with foreign nations;" and (3) "make all laws which shall be necessary and proper" to carry out these specific powers. Accordingly, it seems unlikely that the "supplementary deal" could qualify as an executive agreement on the grounds that the President has the sole constitutional authority to enter into it. However, to the extent that the 2010 changes primarily clarify the text, by, for example, setting a time frame for meeting a tariff elimination deadline that was contained in the 2007 agreement, the "supplementary deal" may well be amenable to treatment as an executive agreement—particularly if the original 2007 trade agreement receives congressional approval. If, on the other hand, the implementing bill approves substantively new U.S. commitments—particularly those that fall within the scope of one of Congress's explicit constitutional powers—that were agreed to after the original text was signed, the bill could be deemed ineligible for fast track procedures because these changes could not be treated as an executive agreement. Therefore, provisions of the "supplementary deal" that represent fundamentally new U.S. obligations (e.g., new or earlier tariff elimination deadlines) or require the enactment of new U.S. laws (e.g., new trade remedies) may warrant close scrutiny to assess the Executive's authority to commit the United States to those terms. There is historical precedent for treating supplemental agreements to a trade agreement as executive agreements when the supplemental agreements were signed after the expiration of TPA. The George H. W. Bush Administration signed the North American Free Trade Agreement (NAFTA) on September 18, 1992. In doing so, NAFTA was "entered into" before the legislative authority for its fast track status, the Omnibus Trade and Competitiveness Act of 1988 (Trade Act of 1988, P.L. 100-418 , 102 Stat. 1107), expired on June 1, 1993. However, having indicated during his campaign that he would not sign legislation implementing NAFTA until new "supplemental agreements" on labor and the environment had been negotiated, President Clinton commenced side agreement negotiations with Mexico and Canada after the 1992 signing of NAFTA. Ultimately, two side agreements, the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC), were signed by officials for the United States, Mexico, and Canada on September 14, 1993, more than three months after the expiration of TPA. The United States Trade Representative (USTR) released a letter stating that these supplemental agreements were not "trade agreements for purposes of fast track procedures" and referred to the NAAEC and NAALC as executive agreements instead. In accordance with this view, the President submitted these supplemental agreements to Congress in simultaneity with the text of NAFTA but only to inform congressional consideration of the implementing bill. The President did not seek—and did not receive—congressional approval of the two agreements. Instead, the provision of the implementing bill that approved NAFTA stated that Congress approved the agreement that was "entered into on December 17, 1992." Although the Executive's characterization of the NAFTA side agreements was ultimately successful, it did not go unchallenged in the Senate. In particular, the late Senator Ted Stevens expressed strong concerns that, by considering the implementing bill under the fast track procedures, Congress was permitting the Executive to usurp unconstitutionally broad authority to enter into and participate in international agreements. He said: We are setting a precedent—at the request of the Executive—giving the Executive broad, broad authority to negotiate nontrade agreements under protections of the fast track procedure. As I remember my constitutional history, the Framers of our Constitution had deep fears of a runaway Executive, an Executive that might go off and make agreements with foreign nationals, foreign governments, contrary to the best interests of our people. However, the President did not leave the side agreements out of the implementing bill entirely, which may have lessened the persuasiveness of Senator Stevens's argument for some Members. Specifically, the NAFTA implementing bill included a provision authorizing U.S. participation in the supplemental agreements. Although Senator Stevens disapproved of that provision as well, Congress enacted the bill in its entirety, which may permit a characterization of the NAAEC and NAALC as having received congressional approval after all. The treatment of NAFTA's side agreements may illustrate how Congress and the Executive have approached substantive changes to a trade agreement that were negotiated after the expiration of TPA. However, the KORUS FTA may also provide the President with even greater authority than NAFTA did to commit the United States to a changed version of the underlying trade agreement without obtaining congressional approval. The KORUS FTA expressly permits its parties to modify the agreement without abiding by their "applicable [domestic] legal procedures." NAFTA does not include this language. Consequently, NAFTA could not be altered without Congress's approval even after the text of NAFTA was approved and implemented by Congress. To a limited extent, the opposite is true of the KORUS FTA, which states that officials of both parties may, by consensus, "make modifications to the commitments." This difference has two possible implications for the modification of the KORUS FTA. First, the United States and Korea may be able to bring the 2010 changes into force without congressional approval as soon as the agreement that was "entered into" in 2007 enters into force. The second implication is that because the 2010 changes can enter into force without congressional action once the 2007 agreement enters into force, the Executive may seek to characterize the 2010 "supplementary deal" as an executive agreement authorized by congressional approval of earlier agreement. However, this characterization of the agreement would not be controlling for the purposes of the fast track procedures. As described below, if a Member objects to considering the KORUS FTA implementing bill under the fast track procedures, the bill's eligibility for TPA will be determined under the chamber's procedural rules and not by the Executive Branch. The second condition that the KORUS FTA implementing bill must satisfy in order to be entitled to fast track consideration is the Trade Act of 2002's requirement that provisions in the bill that repeal, amend, or enact U.S. law must be "necessary or appropriate" to implement the 2007 agreement. The legislative history of the Trade Act of 2002 suggests that the phrase "necessary or appropriate" should be strictly interpreted and, perhaps, more strictly interpreted than it was in the past. However, some perceive Congress's treatment of trade agreements under earlier TPA statutes as precedent for an "open-ended" construction of the "necessary or appropriate" phrase. When other trade agreements have been modified after they were signed, some Members of Congress have questioned whether the modifications are "necessary or appropriate" and therefore warrant treatment under the same fast track procedures as the rest of the implementing bill. For example, the definition of "necessary or appropriate" was discussed during the floor debates on the NAFTA implementing bill. As mentioned above, although the Clinton Administration did not seek congressional approval of the NAFTA side agreements in the implementing bill, it did include a provision in the bill seeking congressional authority to "participate" in the agreements. On the floor, some Members suggested this authorization of U.S. participation in the side agreements was not "necessary or appropriate" to the implementation of the original NAFTA and therefore was not eligible for fast track consideration. Perhaps the most vociferous advocate of this view was Senator Ted Stevens, who argued: The "necessary and appropriate" language is only involved if changes in existing law or new statutory authority are required to implement such trade agreements. There is no authority whatsoever in the law to include separate executive agreements in this legislation. And they should not be here ... There is no legal authority for these side agreements to be before the Congress under the fast-track procedures. Senator Baucus sought to rebut Senator Stevens's arguments on the grounds that the President has broad constitutional authority to execute agreements and the "fast track statutory authority gives the President the ability to negotiate agreements and provisions appropriate to trade laws," a much broader term. The debate illustrates different opinions as to which adjective in the Trade Act of 2002's "necessary or appropriate" clause carries greater weight. Because the NAFTA implementing bill was ultimately enacted, one could argue that its passage set a precedent for broad interpretations, like the one offered by Senator Baucus, of the "necessary or appropriate" clause. This view would support the position that even if the KORUS FTA includes provisions implementing the 2010 changes, the bill is nevertheless eligible for fast track consideration under the terms of the Trade Act of 2002. Although legislative procedure is most often dictated by the standing rules of the House and Senate, Congress generally enacts fast track procedures into law instead of amending either body's standing rules. However, the statutory grant of TPA to a trade agreement's implementing bill remains "an exercise of the rulemaking power of the House of Representatives and the Senate, respectively." Accordingly, Congress retains the same authority over TPA as it has over other rules of legislative procedure, and each chamber may waive, suspend, or repeal fast track authority for legislation implementing the KORUS FTA. The Trade Act of 2002 authorizes either chamber to pass a resolution making the fast track procedures inapplicable to an implementing bill on the grounds that either the Executive failed to follow certain procedures or the agreement "fail[s] to make progress in achieving the purposes, policies, priorities, and objectives" specified by the Trade Act of 2002. Most likely, the Senate and House parliamentarians will be consulted about the KORUS FTA implementing bill before it is introduced in either chamber. If an implementing bill is introduced and a Member is concerned that it is not entitled to receive fast track consideration, the Member may raise an objection. At that point, the bill's eligibility for fast track status will be resolved under the chamber's procedural rules. In the House, the presiding officer will rule on the availability of fast track procedures for the implementing bill with the guidance of the House parliamentarian. A similar procedure would be followed in the Senate if a Member there raised a point of order. In principle, a decision on the availability of the fast track procedures could be appealed to the full body. Ultimately, a chamber's decision as to whether the implementing bill qualifies for fast track consideration will be made independently of any decision reached in the other chamber. In the context of the NAFTA implementing bill, Senator Stevens strenuously argued against the bill's eligibility for fast track consideration, but he did not raise a point of order. Instead, he proposed an amendment to strike the language in the NAFTA implementing bill that authorized U.S. participation in the NAAEC and NAALC. The amendment could not be considered, however, because amendments are not permitted for bills considered under the fast track procedures. As a result, it appears that neither the House nor the Senate was asked to formally determine the NAFTA implementing bill's eligibility for fast track consideration. If a Member in either chamber raises an objection to the fast track consideration of the KORUS FTA and the bill is deemed ineligible for TPA under the Trade Act of 2002, then the bill will be considered under the regular procedures of that chamber. Under these procedures, the bill, like other pieces of legislation, might not be brought up for a vote or it might be amended. In addition, the chamber could grant fast track authority to the bill even though it was deemed ineligible under the terms of the Trade Act of 2002. Although some believe that political hurdles will prevent a trade agreement's implementing bill from being passed without the fast track procedures, implementing legislation for the U.S.-Jordan Free Trade Agreement was enacted under regular procedures after fast track authorities added in the Omnibus Trade and Competitiveness Act of 1988 expired. On the other hand, Congress may have treated the Jordan agreement with unusual deference because of Jordan's unique geopolitical role in the Middle East peace process at that time. It is difficult to predict whether Congress would feel that diplomatic reasons warrant affording the KORUS FTA similarly deferential treatment. In order for the KORUS FTA to enter into force for the United States, Congress must consent to it—either by implementing the agreement or enacting an express statement of congressional approval. Moreover, for the commitments contained in the KORUS FTA to have legal effect domestically, Congress must implement the agreement—that is, repeal or amend current U.S. law or enact new statutory authority as is "necessary or appropriate." The KORUS FTA implementing bill, which is expected to develop out of consultations between the Executive and Congress, will be designed to achieve these goals. Once the bill is formally submitted to Congress, it will be entitled to fast track consideration if it satisfies the requirements of the Trade Act of 2002. In particular, the implementing bill must: (1) approve the agreement that was "entered into" in 2007; and (2) include provisions enacting, amending, or repealing existing U.S. laws to the extent "necessary or appropriate" for the implementation of the agreement that was "entered into" in 2007. It is difficult to predict whether Congress will view the inclusion of changes made by the 2010 "supplementary deal" in the implementing bill as disqualifying the bill from fast track consideration. Because the "supplementary deal" was agreed upon several years after the expiration of TPA, including it in its entirety in the implementing bill could present two problems for the bill's eligibility for consideration under the fast track procedures. First, the implementing bill could be disqualified from fast track consideration on the grounds that it approves an agreement that was not entered into in conformity with the Trade Act of 2002. Second, the bill could be disqualified from fast track consideration because it effects changes to U.S. law that are not "necessary or appropriate" for the implementation of the KORUS FTA that was entered into in 2007. However, the enactment of the NAFTA implementing bill provides historical precedent for fast track consideration—and, ultimately, congressional approval and implementation—of a free trade agreement that was modified after the expiration of TPA. In that case, the two NAFTA side agreements were characterized as executive agreements, and, accordingly, the implementing bill did not express congressional approval of them. Some Members disapproved of this approach, arguing that by not approving the side agreements Congress gave the Executive unconstitutionally broad authority to enter into international agreements. The NAFTA implementing bill did, however, include a provision authorizing U.S. participation in those side agreements. Some Members protested this move as well, arguing that the authorization was not "necessary or appropriate" for the implementation of the original NAFTA, but Congress passed the implementing bill in its entirety. As a result, the NAFTA implementing bill is often characterized as both approving and implementing the two NAFTA side agreements. Although Members expressed concern about the use of the fast track procedures to consider the NAFTA implementing bill, no Member formally challenged the bill's eligibility for fast track consideration. To challenge the use of the fast track procedures in the consideration of the KORUS FTA implementing bill, a Member must raise an objection. At that point, the bill's eligibility for fast track consideration will be resolved by the chamber in which the objection was raised. If one of the chambers deems the KORUS FTA implementing bill ineligible for fast track consideration under the Trade Act of 2002, then it will be considered under the regular procedures of that chamber. In addition, Congress retains substantial authority over whether to grant fast track consideration to the KORUS FTA implementing bill. Each chamber may waive, suspend, or repeal fast track authority for legislation implementing the KORUS FTA. Each chamber may also pass a resolution making the fast track procedures inapplicable to an implementing bill if the measure is deemed procedurally or substantively deficient under the terms of the Trade Act of 2002.
|
On June 30, 2007, U.S. and South Korean officials signed the Korea Free Trade Agreement (KORUS FTA) for their respective countries. It is one of three free trade agreements currently awaiting submission to Congress for approval and implementing legislation. In June 2010, the Obama Administration announced plans to seek Congress's approval for the KORUS FTA after first engaging in talks with South Korea over U.S. concerns with the agreement as signed, particularly over its provisions involving market access for U.S. autos. The results of these talks are memorialized in three February 10, 2011, documents, which have been collectively referred to as the "supplemental agreement" or "supplementary deal" to the 2007 KORUS FTA. The Executive, in consultation with Congress, is expected to draft legislation approving and implementing the KORUS FTA and submit the resulting "implementing bill" to Congress during the first session of the 112th Congress. This legislation will be entitled to consideration in Congress under expedited ("fast track") legislative procedures if it satisfies the requirements of the Bipartisan Trade Promotion Authority Act of 2002 (Trade Act of 2002). In particular, the implementing bill must: (1) approve the agreement "entered into" in 2007; and (2) include provisions enacting, amending, or repealing existing U.S. laws only to the extent that the provisions are "necessary or appropriate" for the implementation of the agreement "entered into" in 2007. Each chamber of Congress, acting independently of the other, has the authority to determine for itself whether the KORUS FTA implementing bill conforms with these requirements. To the extent either the House or the Senate finds that the bill satisfies the terms of the Trade Act of 2002, the bill will be entitled to receive an up-or-down vote without amendment and with limited debate in that chamber. It is difficult to predict with certainty how the 2010 changes might affect Congress's decision to consider the KORUS FTA implementing bill under the fast track procedures. However, the effect of side agreements on the fast track eligibility of the implementing legislation for the North American Free Trade Agreement (NAFTA) may be instructive. In that case, the Executive concluded supplemental agreements to the trade agreement after the agreement was signed and trade promotion authority had expired. These agreements were treated as executive agreements, circumventing the need for their express approval by Congress, but the implementing bill nevertheless authorized U.S. participation in the two agreements. Arguably, the NAFTA supplemental agreements may be characterized as having received congressional approval. Although Members expressed concern about the use of the fast track procedures to consider the NAFTA implementing bill, no Member formally challenged the bill's eligibility for fast track consideration. To challenge the use of the fast track procedures to consider the KORUS FTA implementing bill, a Member must raise an objection. The bill's eligibility for fast track consideration will then be resolved by the chamber in which the objection was raised. Either chamber may also decide, as an exercise of its rulemaking power, to waive, suspend, or repeal its grant of fast track authority. If the KORUS FTA implementing bill is deemed ineligible for—or otherwise denied—fast track consideration, the bill, in its entirety, may be considered under the regular procedures of each chamber. Under these procedures, the bill, like other pieces of legislation, might not be brought up for a vote or might be passed with amendments. The Jordan Free Trade Agreement was statutorily implemented under regular procedures.
|
Biotechnology may be broadly defined as the application of biological systems and organismsto technical and industrial processes. (1) The disciplineof biotechnology may be traced to the 1944identification of deoxyribonucleic acid (DNA). (2) Thisdiscovery commenced a significant researcheffort that culminated in the sequencing of the human genome in 2000. (3) The biotechnology industryhas provided many new technologies, including diagnostic kits, DNA fingerprinting, proteinsynthesis, enzyme engineering, and transgenic plants and animals. (4) Many observers forecast that thecompletion of the human genome project will bring even more spectacular advances in the future. (5) The biotechnology industry is notable both for its heavy concentration of small businesses and its weighty research and development (R&D) expenses. In 1998, a total of 1,283 biotechnologyfirms participated in the domestic biotechnology market. More than two-thirds of these firmsemployed fewer than 135 persons, and approximately one-third employed less than 50 persons. (6) Theprominence of small biotechnology enterprises belies the enormous expenses that must be devotedtowards R&D in this market. The U.S. biotechnology industry is one of the most research-intensiveendeavors in the world, with $9.9 billion devoted to R&D in 1998. (7) Given their small size and heavy expenses, many observers believe that firms in the biotechnology industry rely upon their ability to raise venture capital. (8) The patent law has beenidentified as a facilitator of these R&D financing efforts. Absent patent rights, a biotechnologyconcern may have scant tangible assets to sell or license. By providing members of thebiotechnology industry with enforceable proprietary interests in their inventions, the patent law issaid to expedite capital infusion and technology transfer. (9) Although many commentators believe that the patent law plays a crucial role in the biotechnology industry, (10) numerous legal,economic and policy issues have arisen concerning thepatenting of biotechnology. This report considers these issues, emphasizing the effect of intellectualproperty rights upon small, entrepreneurial companies. This study first profiles the biotechnologyindustry, including a review of its principal technologies and need for R&D funding. It nextprovides an overview of the patent system and its relationship to the biotechnology industry. Thisreport then reviews two principal patentability requirements, statutory subject matter and utility, andtheir application to biotechnologies. It closes with a discussion of legislative issues and options forbiotechnology patenting. This study suggests that patents play a significant role in the ability of small, entrepreneurial firms in the biotechnology industry to acquire capital for R&D. Experience teaches that investorsmay be wary of uncertainties surrounding patent rights, leading to diminished capital infusions intothe biotechnology market. The birth of the U.S. biotechnology industry dates to the founding of Genentech, Inc., in 1976. (11) Biotechnology today is a growing sector of the domestic economy. The industry essentially doubledin size between 1993 and 1999, generating $20 billion in revenues in 1999. (12) Biotechnologycompanies directly employed 150,800 persons in 1999, with an additional 286,600 persons employedby companies supplying goods or services to the industry. (13) The domestic biotechnology industry includes a handful of large companies with a substantial market share. (14) However, "a typical biotechR&D company is a small start-up with all its financialand human resources invested in the development of one or two products or technologies." (15) It isoften the case that a promising technology is discovered and preliminarily developed by a smallenterprise. A large biotechnology firm then acquires the smaller enterprise, or its intellectualproperty rights, in order to bring the technology to market. (16) Domestic enterprises enjoy a commanding position in the global biotechnology industry. The U.S. biotechnology industry is the acknowledged world leader in biomedical research, benefittingthe health of U.S. citizens, creating tens of thousands of jobs and improving our balance of trade. (17) The biotechnology industry is also diverse, employing its technologies in medicine, industrialprocesses, environmental cleanup, food, agriculture and numerous other applications. A brief reviewof some principal biotechnologies follows. Biotechnology has recently introduced the technique of cloning. Cloning employs DNA from one animal to produce a genetically identical animal. (18) Cloned organisms may be created by fusinga cell from one organism with an immature reproductive cell from a second organism. The secondcell is then stimulated to replicate. The cells, if placed into an appropriate womb, will result in thelive birth of an animal genetically identical to the one from which the original DNA was taken. Inthe case of Dolly, the sheep cloned in 1997 in Scotland, (19) an udder cell was fused with an unfertilizedegg cell from which the nucleus had been removed, and the cell mass grown was then implanted ina sheep womb. Scientists may introduce a gene directly into a patient through a technique called gene therapy. This method involves the insertion of a gene into the cells of a gene-deficient patient, either tocorrect a genetic error or to introduce a new function into the cell. The National Institutes of Health(NIH) first performed gene therapy on a human patient in 1990. (20) NIH scientists took blood cellsfrom a four-year-old girl suffering from an immune disease caused by the lack of a specific enzyme,adenosine deaminase (ADA). They then introduced a functioning ADA gene into those cells, whichwere then returned to the patient's bloodstream. Throughout the 1990's, thousands of patients were treated with various sorts of gene therapy on an experimental basis in the United States. (21) The death of a patient undergoing experimentaltreatment in late 1999 has chilled gene therapy efforts, however. (22) A subsequent inquiry revealedindications of unacceptable scientific conduct and monitoring. (23) These findings prompted bothinvestigations by Congress and the Food and Drug Administration (24) as well as suspensions of similargene therapy programs elsewhere. (25) A specific gene may itself be used to endow its possessor with new properties or functions. (26) The agricultural division of the biotechology industry is based upon this technology. The typicalGenetically Modified Organism (GMO) results from the insertion of a gene from one organism intoanother organism, conferring new properties upon the receiving organism. Widely known examplesinclude insecticide-producing crops and rice enriched with vitamin A. (27) The use of GMOs in theUnited States has become widespread, with estimates that 33% of domestic corn and 50% of soybeancrops are genetically modified. (28) Additionally,cotton and canola oil are major crops also consistingsubstantially of GMO strains. (29) The Human Genome Project is a publicly funded, international consortium of scientists engaged in identifying each of the approximately 100,000 human genes. (30) In the United States, the HumanGenome Project was launched in 1990 under the auspices of the U.S. Department of Energy and theDepartment of Health and Human Services. (31) Private enterprise Celera Genomics, led by J. CraigVenter, also endeavored to sequence the human genome. (32) On June 26, 2000, President Clinton and UK Prime Minister Tony Blair announced that the initial stage of the Human Genome Project had been completed. Growing understanding of thehuman genome will allow researchers to move from identifying genes to understanding theirfunctions. In particular, scientists should increasingly possess the tools needed to identify the genesassociated with diseases. This understanding should assist the development of new approaches fordiagnosing, preventing and treating disease. (33) Fragments of DNA may also be used in basic and applied research. Because DNA is organized is a specific way, (34) a set DNA strand may beemployed as a probe for the presence of thecomplementary strand. Researchers are thus able to use such genetic probes in experimental anddiagnostic procedures to search for specific DNA and RNA sequences. Living organisms, into which certain genetic dispositions have been engineered, also can be used in research. (35) A prominent example is theso-called "Harvard mouse," which has been renderedespecially susceptible to cancer. (36) A similarmouse lacks a functional immune system, making itextremely useful for immunological and infectious disease research. (37) Therapeutic genetic inventions involve isolated genes or their protein products. (38) These proteinshave broad applications to many diseases, including cancers, diabetes, osteoporosis, as well as AIDSand other infectious diseases. (39) For example,some hormonal deficiencies may be treated with dosesof human growth hormone, a recombinant protein. (40) Biotechnologies have also allowed the morerapid and efficient manufacture of human insulin in order to treat diabetes. (41) Clinicians may also use short, specific DNA sequences to search an individual's tissue or bodily fluid for the presence of a specific genetic element. (42) One application of DNA probes is in geneticscreening. In this process, which is in a nascent stage of development, tendencies toward hereditarydiseases can be determined by assaying the genetic make-up of a fetus or the prospective parents. (43) Other biotechnologies include antibodies directed against specific proteins or organisms (44) andmanufactured protein fragments bound by certain antibodies in an infected patient's bloodstream. (45) These products may be used in diagnostic assays. Such tests screen blood or other samples forindicators of pregnancy, cancer, human immunodeficiency virus infection and other medicalconditions. The biotechnology industry has generated a variety of technical advances that have impactedfields ranging from agriculture, to health care, to the criminal justice system. These advances havenot been achieved without costs, however. The significant presence of small firms, as well assubstantial research and development expenses, suggest that capital infusions play an important rolein the biotechnology industry. The need for funding looms largest for products intended for humanmedical use. (46) The typical biotech companygenerally requires $250 million to $500 million to funda product from research to profitability. (47) Lengthyperiods required for regulatory approval accountfor much of this expense. (48) Despite the promise it holds for future developments, the biotechnology industry has recently encountered difficulty in attracting investors. One commentator recently observed that "venturecapital is tough to come by at a time when investors are looking for quick payouts and have littlepatience for biotechnology, which seems to be plodding compared to Internet, software andtelecommunications companies." (49) For example,during the first six months of 1999, biotechnologyinitial public offerings generated only $363 million, representing only about 10% of the $3.5 billionattracted by Internet and software companies. (50) As a result, many industry observers believe that a strong patent portfolio is essential for capital infusion in the biotechnology industry. (51) Evena firm that does not yet market a product may be ableto obtain income from its intellectual property. Rights may be sold or the technology licensed fordevelopment or research purposes, creating a revenue stream that supports additional research. Patent attorney Kenneth J. Burchfiel has characterized biotechnology as an industry whose wealthresides in its patents more than its products. (52) Recent stock market movements suggest the significance of patent rights to investors. For example, on March 14, 2000, President Bill Clinton and UK Prime Minister Tony Blair issued a jointstatement urging that "raw fundamental data on the human genome . . . should be made freelyavailable to scientists everywhere." (53) A numberof biotechnology companies lost a substantialpercentage of their market capitalization as investors sold shares in record numbers. (54) Among theseenterprises were Human Genome Sciences, Inc, which fell 25% on the day on the announcement,and Incyte Pharmaceuticals, Inc., which fell 30%. (55) The chief concern of many sellers was thatbiotechnology patent rights would be weakened or subject to uncertainty. (56) The United States Patentand Trademark Office ("PTO") responded by issuing a press release on March 16, 2000, explainingthat U.S. patent policy was unaffected by the joint statement. As the impact of the Clinton-Blairannouncement was better understood, the stock prices of many biotechnology enterprises rose. (57) The Clinton-Blair announcement was not an isolated incident. The market capitalization of many biotechnology and other high-technology enterprises has been impacted by patent-relateddevelopments. In a single day, CellPro Inc. lost 50 % of its stock market value following the FederalCircuit holding that CellPro Inc.'s Ceprate bone marrow transplant system infringed a competitor'spatent. (58) Similarly, Visx, a manufacturer of lasermedical devices, lost a patent dispute and watchedits stock fall 40 % within one hour. (59) A successfulsettlement of a patent infringement lawsuit withHitachi recently imparted substantial gains to Rambus Inc. stock. (60) Similarly, the stock of OdeticsInc. rose 24% upon news of a favorable jury verdict in its patent litigation against StorageTechnology Corp. in 1998. (61) These episodes suggest that individuals may be aware of a company's patent portfolio when making investment decisions. As a result, the strength or weakness of intellectual property rights,as well as the certainty associated with their creation and scope of granted rights, potentially impactscapital infusion into high technology markets such as biotechnology. The rate of patenting biotechnology has dramatically increased in recent years. More than 9,000patents issued in the biotechnological arts in1998, as compared with just over 2,000 patents in1988. (62) Patents concerning genetic materials arealso being filed at a growing rate. On July 13,2000, the Director of the Patent and Trademark Office (PTO), Q. Todd Dickinson, reported thatapproximately 20,000 patent applications concerning genetic materials were pending before thePTO. (63) He also explained that approximately6,000 gene-related patents had already issued by thatdate, including 1,000 that were specifically drawn to human genes. (64) The patenting process begins with the filing of an application at the PTO. In deciding whether to approve a patent application, a PTO examiner will consider whether the submitted applicationfully discloses and distinctly claims the invention. (65) The examiner will also determine whether theinvention itself fulfills certain substantive standards set by the patent statute. (66) Among the moreimportant requirements are that the invention must be novel and nonobvious. To be judged novel,the invention must not be fully anticipated by a prior patent, publication or other knowledge withinthe public domain. (67) A nonobvious inventionmust not have been readily within the ordinary skillsof a competent artisan at the time the invention was made. (68) Beyond novelty and nonobviousness, two patentability requirements are of particular significance for biotechnology. First, the invention must be judged to comprise subject matter thepatent law was designed to protect. (69) Thisgatekeeper to patentability is variously known as therequirement of "patent eligibility," "patentable subject matter," or "statutory subject matter." (70) Acrucial biotechnology patenting issue is whether living inventions and genetic material areappropriately subject to the patent system. The debate concerning biotechnology patents is reviewedbelow. The other significant substantive patentability standard is the so-called utility requirement. This requirement is ordinarily satisfied if the invention is operable and provides a tangible benefit. (71) Although the utility requirement is readily met in most fields, it presents a more significant obstacleto patentability within biotechnology. Biotechnicians sometimes synthesize compounds without aprecise knowledge of how they may be used to achieve a practical working result. When patentapplications are filed claiming such compounds, they may be rejected as lacking utility within themeaning of the patent law. This report will later consider the utility requirement in some detail. Once the PTO allows a patent to issue, the patent instrument is formally published. (72) Issuedpatents therefore present a full technical disclosure of the patented invention. (73) The patent proprietorthen obtains the right for twenty years to exclude others from making, using, selling, offering to sellor importing into the United States the patented invention. (74) The Patent Act allows these rights tobe enforced in federal court. Unauthorized infringers may be enjoined and required to pay monetarydamages in favor of the patentee. (75) A few core points concerning the patent law should be noted here. First, the patent grant is in the nature of the right to exclude. A patent owner may prohibit others from employing the patentedinvention, but does not obtain the right to make or use the patented invention itself. (76) For example,simply because the PTO has granted an individual a patent on a gene therapy does not mean that theFood and Drug Administration has approved, or will approve, the practice of that therapy. Inaddition to the Food and Drug Administration, the Environmental Protection Agency andDepartment of Agriculture regulate the use of biotechnological inventions. (77) Second, the patent right applies not only to full-fledged commercial activities, but also to most unauthorized experiments involving the patented invention. The patent statute itself contains no"experimental use" infringement defense analogous to the fair use privilege codified within theCopyright Act. (78) As a result, the United StatesCourt of Appeals for the Federal Circuit has held thatmere experimentation with the patented invention constitutes an infringing act, so long as thisexperimentation holds the potential to impact the patent holder negatively. (79) The court concludedthat only the use of the patented invention wholly for "amusement, to satisfy idle curiosity, or forstrictly philosophical inquiry" may possibly be exempted from infringement liability. (80) Given theexpenses associated with biotechnology R&D, increasing collaboration between industry andacademia, and ultimately commercial motivation of most researchers, successful use of this so-calledexperimental use defense is unlikely. (81) Finally, the PTO bases its patentability determinations only upon the relatively limited criteria set forth in the Patent Act. These criteria include whether the patent application appropriatelydiscloses and claims the invention for which protection is sought, as well as the impact of thenovelty, nonobviousness, statutory subject matter and utility requirements upon the claimedinvention. (82) The PTO is not statutorily authorizedto consider other issues, such as whether thepatented invention may be licensed to ensure access by researchers and other interested parties, whenmaking this decision. (83) The issue of whether living organisms are merely unpatentable products of nature, or whetherethical or policy concerns should bar their patenting, continues to command public attention. Aswith other sorts of inventions, the governing statute is section 101 of the current patent law, thePatent Act of 1952, which is codified in Title 35 of the United States Code. Section 101 allowspatents to be granted for any "process, machine, manufacture, or composition of matter." As a result,an invention is eligible for patenting if it is a "process," which the Patent Act defines as a "process,art or method." (84) Alternatively, the invention maybe a "machine," which has been interpreted toinclude any apparatus; (85) a "composition ofmatter," including synthesized chemical compounds andcomposite articles; (86) or a "manufacture," a broadlyoriented, residual designation. (87) Under the literal language of the Patent Act, most biotechnologies would qualify as either a composition of matter or process. Genetic materials are at bottom chemical compounds, albeit verycomplex ones, that are considered to be compositions of matter. (88) Illustrative is the patentapplication at issue in In re Deuel , (89) which claimed a "purified and isolated DNA sequenceconsisting of a sequence encoding human heparin binding growth factor of 168 amino acids havingthe following amino acid sequence: Met Gln Ala . . . [the remainder of the lengthy amino acidsequence is omitted here]." An inventor could also obtain a process patent directed towards thetechniques of biotechnology. For example, in In re O'Farrell , (90) the patent applicant claimed a"method for producing a predetermined protein in a stable form in a transformed host species ofbacteria." Despite the broad statutory language, the courts had traditionally crafted several exceptions topatentability. One significant restriction is that a "product of nature"-a preexisting substance foundin the wild-may not be patented per se . For example, an individual may not obtain a patent on a newvariety of plant found in a remote part of the Amazon Basin, even if the existence of this plant waspreviously unknown. (91) However, the courts have also established that significant artificial changes to a product of nature may render it patentable. (92) By purifying,isolating or otherwise altering a naturally occurringproduct, an inventor may obtain a patent on the product in its altered form. (93) The rule that patentsmay be granted for altered products of nature renders patentable many inventions of biotechnology,including genetic materials and proteins. For example, in Amgen, Inc. v. Chugai PharmaceuticalCo. , (94) the patentee claimed a "purified andisolated DNA sequence consisting essentially of a DNAsequence encoding human erythropoietin." (95) With the scope of patentable subject matter limited, one expert has concluded that a properly issued patent cannot give rights over a gene as found in a person's chromosomes. The artificialnucleic acid construct claimed by the patent would not be the same as found in a living organism. (96) Patent protection may also be obtained on so-called living inventions. The leading Supreme Court opinion on the subject, the 1980 decision in Diamond v. Chakrabarty concluded that agenetically engineered microorganism was patentable. (97) Diamond v. Chakrabarty involved the PTOrejection of Dr. Ananda Chakrabarty's claims towards an artificially generated bacterium with theability to degrade crude oil. At the Supreme Court, the PTO Solicitor's chief argument was thatbecause genetic technology could not have been foreseen at the time the patent statute was draftedin the early 1950's, the resolution of the patentability of such inventions should be left to Congress. On its way to reversing the PTO decision, the Court disagreed: "A rule that unanticipated inventionsare without protection would conflict with the core concept of the patent law that anticipationundermines patentability." (98) The Court alsodismissed concerns over the possible perils of geneticresearch. It stated that researchers would assuredly pursue work in biotechnology whether theirresults were patentable or not, and the regulation of genetic research was a task that also fell to thelegislature. (99) Following the lead of the Supreme Court, the PTO Board has held that an artificial animal life form constitutes patentable subject matter. In Ex parte Allen , (100) the Board reasoned that a claimedpolyploid Pacific oyster constituted a non-naturally occurring manufacture or composition of matterwithin the meaning of � 101. Contemporaneously, PTO Commissioner Donald Quigg issued aformal notice, stating that non-naturally occurring, non-human multicellular living organisms arepatentable subject matter. (101) Among thenotable patents the PTO issued in keeping with this noticeconcerned the Harvard mouse, which was genetically engineered to be susceptible to cancer. (102) The PTO notice did advise that "the grant of a limited, but exclusive property right in a human being is prohibited by the Constitution." (103) This statement appears consonant with the ThirteenthAmendment, which provides that "[n]either slavery nor involuntary servitude, except as apunishment for crime whereof the party shall have been duly convicted, shall exist within the UnitedStates." (104) The Commissioner further advisedthat claims directed to a non-plant multicellularorganism which would include a human being within its scope should include the limitation"non-human" to avoid a � 101 rejection. Several objections have arisen to patenting the inventions of biotechnology. Most of these objections have been raised with regard to human genetic materials and genetically modifiedorganisms, but they typically apply with varying force to other biotechnologies. A central positionof many commentators is that the grant of proprietary rights for these inventions is degrading andinappropriate. These concerns principally stand on ethical, moral and theological grounds. Some individuals believe that patenting biotechnology devalues the worth and dignity of living beings. These commentators believe that biotechnology patents would allow individuals to obtainan ownership right in another sentient being. From this perspective, such a patent right is akin toslavery and morally wrong. (105) Other observers have identified a fundamental right of species and individuals to biological integrity. Biotechnology activist Jeremy Rifkin, for example, has expressed concerns that thepatenting of genetic materials reduces living beings to mere bundles of information. When livingcreatures are abstractly expressed as claims in a patent instrument, Rifkin urges, the notion ofmanipulating them at a fundamental level becomes more palatable. (106) Theological arguments have also been raised against patenting biotechnology. Some observers believe that reverence for life is eroded by economic pressures to view living beings and geneticmaterials as industrial products. Noting these theological concerns, Reverend WesleyGranberg-Michaelson identified a background of Judeo-Christian thinking about how we relate to the natural environment. In a nutshell that background says that we have a responsibility for preserving the integrityof that creation, and for working with it to preserve its intrinsic values . . . . [T]he doctrineof trust in legal parlance is synonymous about the relation of creation to humanity. TheJudeo-Christian view says that the creation is, in essence, held in trust; there arelimitations on what we can do. We have a responsibility to see that its integrity ispreserved. This background has led to legislation such as endangered species laws, animalwelfare laws, laws regarding environmental quality. (107) Others are concerned that biotechnology patenting places the values of the traditional agricultural community at stake. They explain that patenting may cause a handful of large,multinational enterprises to control genetically modified animals, seeds and other fundamental toolsof the farmer. While farmers could previously employ resources at their own disposal, they may nowbe dependent upon others to obtain seeds. Some observers also believe that plants and animals withincreased production efficiencies will reduce the number of farmers needed. (108) Other concerns over biotechnology patenting are instrumental in character. Some commentators believe that allowing patents on living inventions, genetic materials and otherbiotechnologies will encourage their continued commercial development. (109) Others are concernedthat granting patents lends an aura of legitimacy to biotechnology. (110) In either case, this set ofconcerns about patenting biotechnology echoes concerns about the impact of biotechnology moregenerally. Although such arguments are numerous and diverse, some of the principal objections aresummarized here. During his June 26, 2000, remarks commemorating the completion of the first survey of the human genome project, President Clinton noted several common concerns regarding theidentification of genetic information. As explained by President Clinton: We must ensure that new genome science and its benefits will be directed toward making life better for all citizens of the world, never just a privilegedfew. As we unlock the secrets of the human genome, we must work simultaneously to ensure that new discoveries never pry open the doors of privacy. And wemust guarantee that genetic information cannot be used to stigmatize ordiscriminate against any individual or group. (111) Other observers oppose patents on genetically modified organisms due to their belief that they contribute to animal suffering. They cite such instances as the incorporation of the bovine growthhormone gene into pigs. This gene encourages an increased lean to fat ratio that produces a healthiermeat product. Animals expressing the gene were found to be lethargic, arthritic, and possessing anheightened vulnerability to stress. (112) Otherbiotechnologies, such as the Harvard mouse, dramaticallyincrease the likelihood an animal will experience disease and suffering. (113) Other commentators have expressed concerns over diminishing genetic diversity. According to Jeremy Rifkin, while biotechnology may provide gains in the short run, the long termconsequences include the depletion of genetic stock. In his view, because biotechnology would maylead to the development of "optimal" plants and animals, the gene pool will suffer for lack of variety. These specialized breeds may be susceptible to unknown weaknesses and not be sustainable. (114) Observers have also noted the environmental hazards associated with release of artificialentities. The consequences of the release of genetically modified organisms are difficult to predict. As living entities, these organisms may reproduce, mutate and migrate once released into theenvironment. Artificial products may also result in deleterious interactions with other animals andplants in uncertain ways. (115) Proponents of biotechnology patenting offer numerous arguments in favor of their position. First, they observe that patent rights provide the right to exclude others from practicing the claimedinvention. (116) Patent ownership does notprovide an affirmative right to market the technology. These commentators believe that disallowing patents to issue on biotechnologies may decreaseresearch and development efforts, but would neither suppress biotechnology nor allow meaningfulcontrol on the manner in which biotechnologies are employed. Observers such as Professor Robert P. Merges have further stated that the patent system is not the proper vehicle for technology assessment. (117) He explains that the patent system has a more basicgoal: "to promote the progress of science and useful arts," as stated in the Constitution. (118) As aresult, Professor Merges believes that potential social consequences of biotechnologies are betteraddressed through regulatory regimes. Agencies such as the Food and Drug Administration couldreview health and environmental hazards. Scientists could establish seed banks to preserve thegenetic variety of various crops, for example, or establish protocols to address concerns over privacy. In the view of Professor Merges, these measures have little to do with patents. In deciding to uphold PTO decisions to grant patents on living inventions, the courts have also observed that patents have long been granted on living inventions. Exemplary is the 1873 patentissued to Louis Pasteur on "yeast, free from organic germs of disease, as an article ofmanufacture." (119) Microbiological processeshave been used for centuries in order to make wine, agetobacco, bate leather, digest sewage and for numerous other applications, and many of thesetechniques have been patented in the United States. (120) Attorney James R. Chiapetta believes that the denial of patent protection would not dampen enthusiasm for biotechnology development. Instead, he asserts, this step would merely encourageinventors to maintain biotechnologies as trade secrets. The concealment of the workings ofbiotechnologies would only hinder the development of regulatory measures that would reduce anyperceived threats of harm. (121) Mr. Chiapetta also explains that a purpose of the patent system is to enhance industrial efficiency. Part of this process can be the obsolescence of older technology as a result of innovativeadvances. Mr. Chiapetta finds it unfortunate that biotechology may place further strains on theviability of the traditional family farm, but observes that biotechnologies are hardly unique in thisregard. Many technical, economic and social factors are leading to fewer and larger farms withinthe United States, and he argues that biotechnology should not be singled out within the patent lawfor this reason. (122) Proponents of biotechnology patenting also observe that this prospect appears rather benign in the face of current social norms. According to LeRoy Walters, Ph.D., Director of the KennedyInstitute of Ethics at Georgetown University, given that individuals routinely buy, sell, breed,confine, eat and perform research on plants and animals, the practice of patenting them does notseem particularly worrisome. (123) A number of scientific commentators have dismissed the notion of species integrity as specious. For example, Dr. Oliver Smithies of the University of Wisconsin explained that many mammalian species with no possible means of inter-breeding have remarkably similar genomes. (124) Dr. Smithiesfurther observed that inter-species genetic transfer has occurred naturally, albeit rarely, withouthuman intervention through viral and other microbial agents. Dr. Finnie A. Murray of OhioUniversity has explained that all species are constantly evolving; no species has a fixed genome, andgenetic plasticity is a fundamental property of living beings. (125) As a result, many observers do notbelieve that artificial inter-species genetic transfers can be said to violate any fundamental norm ofgenetic integrity. Other commentators have also noted that traditional breeding programs often perpetuate genetic defects. One expert points out that purebred cats, dogs and horses often suffer from a variety ofgenetic defects leading to diseases ranging from metabolic disorders to arthritis. (126) Geneticengineering potentially avoids these problems by allowing expression of a single desirable traitwithout concomitant selection of others. (127) In arguing that biotechnology may be put to work todiminish animal suffering, some observers have pointed to the genetically engineered transgenicchicken that resists avian leukemia virus. The result has been healthier birds and significant savingsto the chicken industry. (128) Finally, proponents of patenting in this field point to the many gainful advances already achieved by the biotechnology industry. The continued availability of patent protection mayencourage innovation and product development, proponents say, yielding concomitant socialbenefits. Although many of these commentators are cognizant of concerns for animal results, theyregard the treatment of human diseases and the amelioration of human suffering as a primary moralimperative. (129) A team of inventors decided to place the issue of biotechnology patenting squarely before the PTO and the courts. In conjunction with biotechnology activist Jeremy Rifkin, cellular biologist Dr.Stuart Newman filed a patent application on December 18, 1997, claiming a method for combininghuman and animal embryo cells to produce a single embryo. (130) This embryo could then be implantedin a human or animal surrogate mother, resulting in the birth of a "chimera," or mixture of the twospecies. The Newman-Rifkin application specifically mentions chimeras made in part from mice,chimpanzees, baboons, and pigs. The PTO has rejected the application on several grounds, amongthem ineligible subject matter under � 101, although final administrative action has not yethappened. (131) No matter what the ultimatedisposition of their application, Newman and Rifkin mayonce more bring the debate on the patentability of living inventions into the judicial system. Section 101 of the Patent Act also mandates that patents issue only to "useful" inventions. Utility ordinarily presents a minimal requirement that the invention be capable of achieving apragmatic result. (132) Patent applicants need onlysupply a single, operable use of the invention thatis credible to persons of ordinary skill in the art. As demonstrated by Justice Story's 1817 instructions to the jury in Lowell v. Lewis (133) and Bedford v. Hunt , (134) the notion ofutility is a longstanding feature of United States patent law. In Lowell , Justice Story remarked: All that the law requires is, that the invention should not be frivolous or injurious to the well-being, good policy, or sound morals of society. The word "useful", therefore, isincorporated into the act in contradistinction to mischievous or immoral. . . . But if theinvention steers wide of these objections, whether it be more or less useful is acircumstance very material to the interest of the patentee, but of no importance to thepublic. If it be not extensively useful, it will silently sink into contempt and disregard. Under Justice Story's view, the utility requirement does not provide a significant place for technology assessment. Outside of the most narrow limits, valuation of the invention is left to themarket rather than to the mechanisms of the patent law. Historically, courts employed the utility requirement to strike down patents concerning inventions that were judged to be immoral or fraudulent. A handful of early decisions invalidatedpatents on inventions intended for use in gambling or other disfavored activities. A patented toyautomatic race course, (135) lottery devices (136) and a slot machine (137) were among those held to lack utilitybecause their functions were judged unwholesome. Inventions that were designed to misleadconsumers were similarly invalidated. (138) The modern view is that so long as the invention may be put to a single lawful use, it possesses utility within the patent statute. Representative of the contemporary position is the Federal Circuitopinion in Juicy Whip, Inc. v. Orange Bang, Inc . (139) The plaintiff, Juicy Whip, held a patentconcerning a post-mix dispenser that included a transparent bowl. According to the patent, the bowlwas filled with a liquid that appeared to be the beverage available for purchase. While the bowl wasarranged in such a way that it seemed to be the source of the beverage, in fact no fluid connectionexisted between the bowl and the beverage dispenser at all. Instead, the beverage was mixedimmediately prior to each beverage sale. The district court struck Juicy Whip's patent on the groundof lack of utility, reasoning that the patented invention acted to deceive consumers. The Federal Circuit reversed on appeal, concluding that the fact that one product can be altered to make it look like another is in itself a specific benefit sufficient to satisfy the statutory requirementof utility. The appeals court reasoned that many valued products, ranging from cubic zirconium tosynthetic fabrics, are designed to appear as something that they are not. (140) The Federal Circuitfurther concluded that the utility requirement does not direct the PTO or the courts to resolve issuesof product safety or deceptive trade practices, which were left to such agencies as the Federal TradeCommission or the FDA. (141) As a result of decisions such as Juicy Whip , in most technical fields the utility requirement is employed merely to sift out utterly incredible inventions from the domain of patentability. Forexample, the utility requirement has led to the rejection of patents claiming a perpetual motionmachine (142) and a method of slowing the agingprocess. (143) In modern practice, the utility requirement most often comes into play in the fields of biotechnology and chemistry. In these disciplines, inventors often synthesize a new compound, ora method of making a new compound, without a preexisting knowledge of a particular use to whichthe compound may be put. Scientists may generate a compound based on their knowledge of thebehavior of related pharmaceutical compounds, for example, or may wish to isolate a fragment ofgenetic material for which some application may develop in the future. However, at the time theinventor generates the compound, no precise knowledge of the compound's utility is known. Today there are considerable incentives for biotechnicians to obtain patent protection on compounds of interest as soon as possible. For example, in the case of medical treatments, food anddrug authorities require extensive product testing before the pharmaceutical can be broadly marketed. Before investing time and effort on laboratory testing and clinical trials, biotechnology concernsdesire to obtain patent rights on promising compounds even where their particular properties are notwell understood. But when patent applications are filed too close to the laboratory bench, inventorshave discovered that the utility requirement can pose a considerable hurdle. The Supreme Court opinion in Brenner v. Manson addressed such a situation. (144) The inventorManson filed a patent application claiming a method of making a known steroid compound. Although the particular compound Manson was concerned with was already known to the art,chemists had yet to identify any setting in which it could be gainfully employed. However, it wasknown that another steroid with a very similar structure had tumor-inhibiting effects in mice,Manson's new method of making the compound was a research tool of interest to the scientificcommunity. The Patent Office Board affirmed the examiner's rejection of the application. The Board reasoned that because Manson could not identify a single use for the steroid he produced, the utilityrequirement was not satisfied. The Board was unimpressed that a similar compound did havebeneficial effects, noting that in the unpredictable art of steroid chemistry, even minor changes inchemical structure often lead to significant and unforeseeable changes in the performance of thecompound. Manson appealed to the Court of Customs and Patent Appeals, which reversed. Key tothe court's reasoning was that the sequence of process steps claimed by Manson would produce thesteroid of interest. According to the Court of Customs and Patent Appeals, because the claimedprocess worked to produce a compound, the utility requirement was satisfied. The Supreme Court, however, reversed. The Court took issue with Justice Story's understanding that the utility requirement is fulfilled so long as the claimed invention is not sociallyundesirable. At least within the context of scientific research tools, the Court imposed a requirementthat an invention may not be patentable until it has been developed to a point where "specific benefitexists in currently available form." (145) Chiefamong the Court's concerns was the breadth of theproprietary interest that could result from claims such as those in Manson's application. "Until theprocess claim has been reduced to production of a product shown to be useful, the metes and boundsof that monopoly are not capable of precise delineation. . . . . Such a patent may confer power toblock whole areas of scientific development, without compensating benefit to the public." (146) TheCourt closed by noting that "a patent is not a hunting license. It is not a reward for the search, butcompensation for its successful conclusion. 'A patent system must be related to the world ofcommerce rather than to the realm of philosophy.'" (147) Although Brenner v. Manson appears to take a strict view of the utility requirement, a more recent Federal Circuit opinion on utility, In re Brana , (148) suggests a more limited role. Like Manson,Brana claimed chemical compounds and stated they were useful as antitumor substances. Thescientific community knew that structurally similar compounds had shown antitumor activity duringboth in vitro testing, done in the laboratory using tissue samples, and in vivo testing usingmice astest subjects. The latter tests had been conducted using cell lines known to cause lymphocytictumors in mice. The PTO Board rejected the application for lack of utility, and on appeal the Federal Circuit reversed. Among the objections of the PTO was that the tests cited by Brana were conducted uponlymphomas induced in laboratory animals, rather than real diseases. The Federal Circuit respondedthat an inventor need not wait until an animal or human develops a disease naturally before findinga cure. (149) The PTO further stated that Branacited no clinical testing, and therefore had no proof ofactual treatment of the disease in live animals. The Federal Circuit found that proof of utility did notdemand tests for the full safety and effectiveness of the compound, but only acceptable evidence ofmedical effects in a standard experimental animal. (150) The holding of Brana , along with its failure to discuss or even cite Brenner v. Manson , suggeststhat the Federal Circuit has adopted a more liberal approach to the utility requirement than did theSupreme Court. (151) The Federal Circuit didindicate that, in cases where the invention lacks awell-established use in the art, the applicant must disclose a specific, credible use within the patent'sspecification. (152) Brenner v. Manson and Brana were chemical cases. The PTO applies the utility requirementto the analogous discipline of biotechnology as well. Inventors often seek patent protection onbiological compounds soon after they have been synthesized. Such compounds includecomplementary DNA ("cDNA"), which corresponds to proteins used by human cells, and expressedsequence tags ("ESTs"), DNA sequences that correspond to a small portion of each cDNA. Becausethis nascent field is highly unpredictable, the functions of cDNA fragments and ESTs are usuallyunknown at the time they are discovered. Yet they remain extraordinarily valuable for their potentialuses, and scientists from private industry, government facilities and university laboratories alike havemarketed these research tools for commercial sale. The patentability of these genetic materials hasproven controversial. While Brenner v. Manson holds that serious scientific interest alone does notfulfill the utility requirement, Brana and other Federal Circuit opinions suggest a more lenientposture. In an attempt to address cDNA, ESTs, and other biotechnology patents, the PTO published "Revised Interim Utility Examination Guidelines" in the Federal Register on December 21, 1999. (153) The 1999 utility guidelines require all patent applicants to identify explicitly a specific, substantialand credible utility for their inventions, unless such a utility is already well-established. Accordingto PTO Director Q. Todd Dickinson, "the Patent Office has raised the bar to ensure that patentapplicants demonstrate a 'real world' utility. One simply cannot patent a gene itself without alsoclearly disclosing a use to which that gene can be put. As a result, we believe that hundreds ofgenomic patent applications may be rejected by the USPTO, particularly those that only disclosetheoretical utilities." (154) Director Dickinson explained the meaning of terms "specific, substantial and credible" in the context of the utility requirement as follows: � An asserted utility is credible unless the logic underlying the assertion is seriously flawed, or the facts upon which the assertion is based are inconsistent with the logicunderlying the assertion. For example, at least some nucleic acids might be used as probes,chromosome markers, or diagnostic markers. Therefore, the per se credibility of assertionsregarding the use of nucleic acids is not usually questioned. However, even if credible, atleast one asserted utility must also be both specific and substantial. � A utility is specific when it is particular to the subject matter claimed. For example, a polynucleotide said to be useful simply as a "gene probe" or "chromosome marker" doesnot have specific utility in the absence of a disclosure of a particular gene or chromosometarget. Similarly, a general statement of diagnostic utility would ordinarily be insufficientto meet the requirement for a specific utility in the absence of an identification of whatcondition can be diagnosed. � A substantial utility is one that defines a "real world" use. Utilities that require or constitute carrying out further research to identify or reasonably confirm a "real world"context of use are not substantial utilities. For example, basic research that uses a claimednucleic acid simply for studying the properties of the nucleic acid itself does not constitutea substantial utility. (155) Many observers have greeted the new PTO Guidelines favorably. The former Director of the National Institutes of Health (NIH), Dr. Harold Varmus, stated that he was "very pleased with theway [the PTO] has come closer to [the NIH's] position about the need to define specific utility." (156) Dr. Francis Collins, Director of the National Human Genome Research Institute, has said that thenew utility guidelines are "quite reassuring in terms of making sure that we end up with an outcomewhere the patent system is used to provide an incentive for research and not a disincentive." (157) Inaddition, Dr. Craig Venter, the President and Chief Scientific Officer of Celera GenomicsCorporation, recently stated that he was "pleased to see [the PTO] is raising the bar" on genepatents. (158) An interesting aspect of the new PTO Utility Guidelines is their compatability with the governing case law. Although each application must be considered on its own merits, the Guidelinesappear to be closer to the holding of Brenner v. Manson than Brana. It is unclear how theFederalCircuit would rule on a utility-based rejection under the PTO Guidelines in light of its holding in Brana. (159) In this vein, PTO DeputyAssistant Commissioner for Patent Policy Stephen G. Kunin hasexpressed his view that "it may remain for the Board of Patent Appeals andInterferences and thefederal courts to determine the true scope of the substantiality criterion of the utility requirement ona case-by-case basis." (160) Some legal and scientific commentators have expressed concern that proprietary interests in scientific knowledge will impede research efforts overall. Following the lead of Brenner v. Manson ,Professors Heller and Eisenberg have invoked the "tragedy of the anticommons" to argue against thepatenting of genetic materials. (161) The "tragedyof commons" is a familiar metaphor for manyeconomists, lawyers and scientists. A resource is prone to overuse in a tragedy of the commonswhen too many owners each have a privilege to use a given resource and no one has a right toexclude another. Overpopulation, air pollution, and species extinction result from tragedies of thecommons. In a mirror image of the tragedy of the commons, a resource may be prone to underuse in a "tragedy of the anticommons." In this circumstance, multiple owners each have a right to excludeothers from a scarce resource and no one has an effective privilege of use. Transaction costs,strategic behaviors, and the cognitive biases of participants often prevent individuals from reachinga socially optimal agreement allocating property rights. Use of the resource then becomes difficultor impossible. Professors Heller and Eisenberg argue the granting of intellectual property rights to early research results holds the potential to create a tragedy of the anticommons in biomedical research. They specifically identify two mechanisms through which patents on gene fragments may hinderinnovation. First, too many concurrent fragments of intellectual property rights may hinder theexploitation of potential future products. In a spiral of overlapping patent claims held by differentindividuals, one enterprise may own a patent on a raw genomic DNA fragment, another on thecorresponding protein, and yet another on a diagnostic test for a genetic disease. Professors Hellerand Eisenberg explain that each upstream patent allows its owner to set up another tollbooth on theroad to product development, adding to the cost and slowing the pace of downstream biomedicalinnovation. Second, upstream patent owners may be able to stack licenses on top of the future discoveries of downstream users. The use of reach-through license agreements on patented research tools isexemplary. These covenants give the owner of a patented invention, used in upstream stages ofresearch, rights in subsequent downstream discoveries. Such rights may take the form of a royaltyon sales that result from use of the upstream research tool, an exclusive or nonexclusive license onfuture discoveries, or an option to acquire such a license. Professors Heller and Eisenberg contendthat reach-through license agreements may lead to an anticommons as upstream owners stackoverlapping and inconsistent claims on potential downstream products. Others have urged that originators of research tools too require a return on investment, and that allowing patents only on final products would further industry concentration. (162) If independentresearchers and research enterprises were unable to patent their discoveries, then they might haveno option but to join large companies capable of seeing this earlier research through to a completedproduct. This trend might chill the market for preliminary genetic materials and ultimately diminishresearch. Commentators further note that research tools are subject to a lively market within the biotechnology industry. Many enterprises are interested in purchasing research tools, and as a resultmany enterprises are engaged in making them. Attorney Scott A. Chambers says that describingthese products as preliminary and arising within the "realm of philosophy" is simply inaccurate. (163) Those in favor or a more porous utility standard also argue that research products do not present a special case. They observe that patented products and processes often are later found to possessadditional, more valuable uses than those named in the original patent. In such cases advanceknowledge of one particular use does not somehow restrain the patentee's proprietary interest inthose additional applications. For example, the chemical compound nitroglycerine, originallydeveloped as an explosive, was later found to be useful as a heart medication. If an inventor hadobtained a patent on the nitroglycerine compound itself, then he would continue to possess aproprietary interest in that compound no matter what applications were discovered for it. Whethercharacterized as a basic research tool or an applied technology, any invention potentially serves asthe basis for later developments. (164) Finally, observers have noted that arguments similar to those of Professors Heller and Eisenberg have been made in the past. The techniques of polymer chemistry, for example, involve the use oflong chains of basic compounds. During the emergence of polymer chemistry several decades ago,some critics argued that granting broad generic claims on basic polymers would allow a fewenterprises to own the building blocks of the industry. These critics claimed that this monopolizationby a few would slow progress. According to some contemporary commentators, these perceivedconcerns never materialized with regard to polymers, and are unlikely to occur in the contemporarybiotechnology industry. (165) Patents play an important role within the modern biotechnology industry. Some observersbelieve that, particularly for entrepreneurs and small, entrepreneurial biotechnology firms, patentsfacilitate capitalization and therefore support technological advance. (166) Experience also suggests thatlegal uncertainties regarding biotechnology patents may impact the ability of enterprises to acquirefunding for their research and development efforts. However, other commentators remain deeplyconcerned over the implications of patenting living inventions, genetic materials and otherbiotechnologies, as well as the patenting of biotechnological inventions with unknown or speculativeutilities. Patent reform legislation holds the possibility for resolving these concerns. ShouldCongress choose to review the progress of biotechnology, there are at least two patent issues it couldconsider: patent eligibility and the utility requirement. The potential for limiting the patentability of living inventions is moderated by several factors. One source of restraints consists of international agreements to which the United States is asignatory. Two international agreements that speak towards intellectual property rights, the NorthAmerican Free Trade Agreement (NAFTA) (167) and the Trade-Related Aspects of Intellectual PropertyRights of the World Trade Organiziation ("TRIPS Agreement"), (168) are worthy of note here. Article1709(1) of NAFTA provides that signatory states "shall make patents available for any inventions,whether products or processes, in all fields of technology." Article 27(1) of the TRIPS Agreementreads similarly. This language confirms the broad sense of patent eligibility under current U.S. law. Both NAFTA and the TRIPS Agreement do allow signatory states to exempt higher life forms from the patent system. As further stated in Article 1709(3) of NAFTA, a signatory may excludefrom patentability "plants and animals other than microorganisms" and "essentially biologicalprocesses for the production of plants or animals, other than non-biological and microbiologicalprocesses for such production." Article 27(3) of the TRIPS Agreement reads almost identically. The impact of these exceptions is that a signatory may disallow patents from issuing on living entities other than microorganisms. Thus, microscopic organisms such as bacteria, viruses andprotozoa must be classified as patentable. Signatories may, but need not, issue patents on higher lifeforms ranging from genetically modified rice to the Harvard mouse. Signatories to NAFTA and the TRIPS Agreement may also deny patents to processes that are deemed "essentially biological" in character. Whether a particular process is "essentially biological"depends upon the degree of artificial activity required to perform the process. A method ofselectively breeding animals by selecting particular animals and bringing them together would likelybe deemed "essentially biological" and therefore may be held unpatentable. However, a method oftreating a plant to improve its yield, such as a method of pruning a tree, would not be judged"essentially biological" due to the more significant degree of human intervention. (169) Excluding thislater sort of process from patentability would not comport with NAFTA or TRIPS Agreement. U.S.law arguably includes this exception already, given case law requiring that biotechnologicalinventions be subject to artificial invention in order to be patentable. (170) Should Congress choose, it could take an approach other than that suggested by case law and PTO practice by making certain biotechnologies unpatentable. Numerous patent applications havebeen filed on a variety of biotechnological inventions. These applications have resulted in manyissued patents, and some of these patents have been litigated in the courts. Legislation affectingthese patents would prompt concerns over governmental takings under the Fifth Amendment. (171) Limiting biotechnology patenting would counter prevailing trends within the patent communityboth domestically and abroad. As suggested by the recent patenting of methods of doing business,many patent systems are tending towards an increasingly broad scope of patentable subject matter. (172) Biotechnologies are generally patentable in Japan, and after several years of debate the EuropeanParliament issued a Directive approving biotechnology patents. (173) The utility requirement is judge-made law. Its only statutory mooring is the term "useful" recited in � 101 of the Patent Act. Although the PTO has issued Utility Guidelines, Congress hasnever elaborated on the utility requirement. The concern of many actors within the biotechnologicalindustry that the utility requirement be calibrated appropriately, (174) concern within the researchcommunity that some patents could provide a disincentive for further research, and arguableinconsistencies within the case law, (175) suggestthat these issues may draw congressional interest. Congress could examine whether the definition of patentable utility should be legislatively specified. For example, the Patent Act could list the pertinent factors suitable for demonstrating theutility of expressed sequence tags ("ESTs"). PTO Deputy Assistant Commissioner for Patent PolicyStephen G. Kunin has suggested that pertinent factors include knowledge of the correspondingmRNA sequence, protein coding sequence or genomic sequence; whether there are sequencepolymorphisms linked to the corresponding genomic location; the function of the protein encodedby the corresponding messenger Rnucleic acid ("mRNA"); the phenotype of a mutation in thecorresponding gene; the tissue distribution of the corresponding mRNA and tissue-specificexpression levels; and the map location of its corresponding genomic sequence. (176) A recurringcomplaint is that patent applicants specify minimal and rather abstract utilities, such as the possibleuse of an EST merely as a probe or marker. (177) Congress could resolve whether these uses fulfill thepatentable utility requirement. Some caution, however, that specifying such technical detail in lawhas drawbacks to the extent the law would need to be amended in order to reflect changes in rapidlyevolving technologies.
|
The biotechnology industry is notable both for its heavy concentration of small businesses and its weighty research and development (R&D) expenditures. Given the small size and heavy expensesof many biotechnology firms, their ability to raise venture capital may be of some consequence. Thepatent law has been identified as a facilitator of these R&D financing efforts. Although many observers believe that the patent law plays a significant role in the biotechnology industry, two principal issues have arisen regarding biotechnology patenting. First,observers have fundamentally questioned whether patents should be granted for living inventions,genetic materials and other biotechnologies. Ethical issues, concerns that biotechnology patentingpromotes animal suffering and decreases genetic diversity, as well as regard for the traditionalagricultural community animate many of these objections. Supporters of biotechnology patentingcounter that trade secret protection is a less attractive social alternative, observe that patents havelong been granted for biotechnologies, and question whether the patent law is the appropriate vehiclefor technology assessment. Commentators have also differed over the extent to which an inventor must show a specific, practical use for a biotechnology in order to be awarded a patent. Some observers favor a strict viewof the utility requirement due to concerns over overlapping upstream patents that discourage researchand commercialization. Others believe that the utility requirement should be applied leniently,stating that a strict view of utility will only lead to industry concentration and that biotechnologyresearch tools cannot be meaningfully distinguished from other sorts of inventions. Congress may choose to exercise oversight on these issues. Such consideration would likely include examination of U.S. commitments in international agreements along with other factors.
|
Congress approved legislation in 1972 to adjust Social Security benefits for inflation automatically (P.L. 92-336). However, the formula for calculating the new cost-of-living adjustment (COLA) was flawed. Although intended to provide inflation adjustments only to people already receiving benefits, each increase for current beneficiaries also raised the initial benefits of future beneficiaries. The formula assumed that wages would continue to rise faster than prices, as they had in the past. However, the high inflation and unemployment in the 1970s resulted in higher-than-intended increases for beneficiaries affected by the new formula, and lower-than-expected revenues for Social Security. If the erroneous formula had not been changed, future beneficiaries could have received initial benefits that exceeded their pre-retirement earnings—higher than Congress intended and higher than payroll taxes could finance. As part of the 1977 Amendments ( P.L. 95-216 ), Congress corrected the error in the benefit formula in the 1972 Amendments by creating a new formula in which initial benefit levels are indexed to wages, then increased by inflation after the initial year. Without the 1977 Amendments, the system would have become insolvent within five years. The correction to the benefit formula resulted in different treatment for all Social Security beneficiaries depending on year of birth, as described in the following section. The erroneous benefit formula created by the 1972 Amendments affected people who turned 62 in 1972 or later—that is, individuals born in 1910 and later. This is because the formula used to calculate Social Security retirement benefits is based on the year an individual reaches the earliest age of eligibility, which is age 62. When the error in the benefit formula was corrected in the 1977 Amendments, benefits for people who were already eligible for retirement benefits were left unchanged. As a result, beneficiaries born between 1910 and 1916—the seven years prior to the notch—were allowed to receive unintentional windfall benefits for the rest of their lives. The 1977 Amendments corrected the error in the Social Security benefit formula, starting with individuals born in 1917. As a result, the benefits of people who were born during the notch years are lower than those of the beneficiaries who came just before them. To ease the transition to the new, corrected formula, Congress phased in the change for people born from 1917 through 1921—the notch babies. For many who retired during in this phase-in period, however, the transition formula did not lessen the differential between their benefits and the windfall benefits received by people born in earlier cohorts. Figure 1 shows inflation-adjusted initial monthly benefit amounts for average wage earners born from 1900 to 1965. The notch babies' birth years are shown in yellow. The term "notch" originated from graphs such as this one, where the lines representing the benefit levels of notch babies dip below the lines representing the benefit levels of individuals born immediately before and soon after. Many notch babies actually receive higher real benefits than people who were born after they were, all else equal. For example, people born in 1917 receive higher average monthly benefits than people born in 1922 (the first year the correct formula was fully phased in). As shown in Figure 1 , an average wage earner born in 1917 would receive a monthly benefit of $1,166 (in 2007 dollars), while an average wage earner born in 1922 would receive a monthly benefit of $1,080. In addition, most notch babies have significantly higher replacement rates than people born after they were, all else equal. A replacement rate is one way of measuring the adequacy of a person's post-retirement income; it is a comparison between a person's income before and after retirement. This report calculates replacement rates in the same way as the Social Security Administration (SSA) actuaries, which is to show the proportion of beneficiaries' average indexed earnings replaced by their initial Social Security benefits. In 2007, the estimated replacement rate for an average wage earner retiring at age 65 was 40%. In drafting the 1972 Amendments, Congress intended to maintain replacement rates at roughly 40%, but the double-indexing error caused replacement rates to rise above 50% before the error was fixed, as shown in Figure 2 below. The notch babies' replacement rates are higher than most beneficiaries born after they were—particularly in comparison to current and future beneficiaries, whose replacement rates are declining as the full retirement age increases. Benefits for people born in 1922 and later are calculated using the new, corrected formula established by the 1977 Amendments. This formula is currently being used to calculate the annual initial retirement benefit. In 1992, Congress voted to establish a 12-member commission to study the notch issue. The Commission on the Social Security "Notch" Issue released its report on December 31, 1994. Its principal conclusion was that the "benefits paid to those in the 'Notch' years are equitable, and no remedial legislation is in order." Its report states that "the uneven treatment between those in the 'Notch' years and those just before them was magnified by the decision of Congress to fully grandfather" people born before 1917 under the old law. It further states that "in retrospect" Congress "probably should have" limited the benefits of those whose benefits were calculated using the erroneous formula in the 1972 Amendments, but that it was too late to do so given their advanced age. Among advocacy groups, support for legislation to increase benefits for notch babies has been limited. The lead proponent of such legislation is the TREA Senior Citizens League (TSCL). Some Members have complained that TSCL has misled seniors about the issue in mailings that solicit money. A few veterans' groups and grassroots notch groups also have supported notch legislation. Most other organizations representing older Americans, led by AARP, have opposed notch legislation. The AFL-CIO, the National Association of Manufacturers, and the National Taxpayers Union also have come out in opposition, as did the Carter, Reagan, and George H. W. Bush Administrations. The Clinton Administration, the George W. Bush Administration, and, to date, the Obama Administration have taken no position. One lesson from the experience of the notch babies is that almost any change to Social Security benefits can create a notch. Whenever benefits increase or decrease at some specific point along a continuum—most commonly a point defined by date of birth, income, or assets—a notch or "cliff" can result at the point on the continuum where the benefits rise or fall. For example, if benefits are increased for everyone born before (or after) a certain date, a downward notch in benefits will occur for beneficiaries whose date of birth is after (or before) that date. Notches are quite common in means-tested programs, such as Supplemental Security Income (SSI), in which benefits are conditioned on having income or assets under a certain threshold. For example if an aged or disabled person who lives alone has no other income and has assets of less than $2,000, he or she is eligible for a federal SSI benefit of $674 per month in 2011. If he or she has assets of $2,001, then the individual is ineligible for benefits in that month. An alternative to creating a "notch" or "cliff" in benefits would be to phase in the change in benefits over a range, whether it be a range of birth years, a range of income, or a range of assets. The disadvantages of phasing in changes in benefit levels over a range of birth years, income or assets, are that it can target the desired change less precisely and can sometimes raise the total cost of the program. Take, for example, a hypothetical proposal to reduce the deficit of the Social Security trust funds by reducing the benefits of all old-age beneficiaries born after 1969 by 10%. This would create a notch based on one's date of birth. Other things being equal, two retired workers with identical career average earnings who were born one day apart on December 31, 1969 and January 1, 1970, respectively, would have benefits that would differ by 10%. Another alternative would be to phase in the change over a range of birth years. This would replace the notch with a slope. Depending on the specifics of the phase-in, the approach could result in total expenditures that are higher or lower. For example, if the reduction were phased in at the rate of one percentage point per year, beginning with a 1% reduction for those born after December 31, 1960, a 2% reduction for those born after December 31, 1961, etc., there would be no notch, and savings would be greater than under the original proposal. On the other hand, the reduction could be phased in at 1% per year beginning with those born after December 31, 1969. This, too, would eliminate the notch, but total savings would be less than under the original proposal. In summary, a notch or cliff in benefits is a common consequence of conditioning the amount of benefits (or taxes) on an individual's location along a continuum based on date of birth, income, or assets. Notches can be eliminated by phasing in the change in benefits or taxes, but only at the cost of either targeting the change in benefits or taxes less precisely or spending more or less than would occur with a notch or cliff. Over the years, many bills have been introduced in Congress to increase benefits for notch babies, but there has been little legislative action on them. In past Congresses, various attempts were made to gain support for discharge petitions to force the House Ways and Means Committee to report out a bill, but the sponsors were unable to get enough signatures. Notch legislation, however, did reach the Senate floor a number of times.
|
Some Social Security beneficiaries who were born from 1917 to 1921—the so-called notch babies—believe they are not receiving fair Social Security benefits. (The Social Security Administration (SSA) and a 1994 commission on the notch issue define the notch period as 1917 to 1921, though some advocates define the period as 1917 to 1926.) The notch issue resulted from legislative changes to Social Security during the 1970s. The 1972 Amendments to the Social Security Act first established cost-of-living adjustments (COLAs) for Social Security. This change was intended to adjust benefits for inflation automatically, but an error caused benefits to rise substantially faster than inflation. Congress corrected the error in the 1977 Amendments. However, benefits for those born from 1910 to 1916 were calculated using the flawed formula, giving them unintended windfall benefits. The notch babies, born from 1917 to 1921, became eligible for benefits during the period in which the corrected formula was phased in. For many who retired during in this phase-in period, however, the transition formula did not lessen the differential between their benefits and the windfall benefits received by people born in earlier cohorts. Some notch babies feel it is unfair that their benefits are lower than those received by the older individuals who received the windfall, and also that the transition formula did not do enough to make up the difference. A number of legislative attempts have been made over the years to give notch babies additional benefits, but none have been successful. A congressionally mandated commission studied the issue and concluded in its 1994 report that "benefits paid to those in the 'Notch' years are equitable, and no remedial legislation is in order." Any future change to the Social Security benefit formula has the potential to create a notch. This is an important consideration as lawmakers consider changes to ensure long-term system solvency.
|
Private individuals and firms, often called "contractors" and "subcontractors," have transported mail between postal facilities since at least 1792 (1 Stat. 233), and according to the U.S. Postal Service (USPS), contractors have delivered mail to homes and businesses since 1900. Today, contractors transport mail between postal facilities via land, air, water, and rail. One type of land (i.e., "surface") mail transportation contract is the "highway contract route" (HCR). HCR contracts come in three subtypes. "Transportation" contracts have private "suppliers" transport mail between postal facilities. "Combination" contracts require suppliers to make a small number of mail deliveries in the course of transporting mail between the USPS's facilities. "Contract delivery service" (CDS) contracts compensate suppliers for collecting and delivering mail in rural areas. This latter subtype of contract became the focus of controversy in 2007. The National Association of Letter Carriers (NALC), the union for mail delivery persons, and the USPS signed a collective bargaining agreement in autumn 2006. The agreement covered a wide range of compensation and workplace matters. It included two memoranda of understanding (MOUs) concerning contracting letter carrier work. The MOUs established a six-month moratorium on any new contracting of mail carrier work in post offices employing city carriers. They also pledged the NALC and USPS to create a joint USPS-NALC committee to review existing policies and practices concerning the contracting out of mail delivery. The Committee shall seek to develop a meaningful evolutionary approach to the issue of subcontracting, taking into account the legitimate interests of the parties and relevant public policy considerations. The National Rural Letter Carriers Association (NRLCA), which represents rural delivery persons, also reached a collective bargaining agreement with the USPS in 2006. Its Article 32 carries the following language on the use of contractors to deliver mail: The Employer will give advance notification to the Union at the national level when subcontracting which will have a significant impact on bargaining unit work is being considered and will meet to consider the Union's views on minimizing such impact. No final decision on whether or not such work will be contracted out will be made until the matter is discussed with the Union [....]No expansion of the Employer's current national policy on the use of contract service in lieu of rural carriers will be made except through the provisions of this Article, which are intended to be controlling. The parties recognize that individual problems in this area may be made the subject of a grievance. In 2007, representatives of both NALC and NRLCA alleged that the USPS was expanding its use of CDS carriers. William Young, then-president of the NALC, called upon Congress to "stop the cancer of contracting out before it spreads." Members of the NALC picketed the USPS's national headquarters and post offices in Florida and New Jersey. The USPS denied the unions' accusation, and argued that contract mail delivery was "not new." The USPS also stated that its contracts with the postal unions recognize the USPS's authority to use contractors. Nevertheless, the USPS further noted that "cost pressures, competition, and a changing marketplace demand cost-effective options from the Postal Service." Subsequently, a 2008 Government Accountability Office (GAO) study found that the average annual cost of delivery by a city carrier was nearly twice that of a CDS carrier. Some Members of the 110 th Congress expressed concern about the USPS's practice of hiring contractors to collect and deliver mail. On March 28, 2007, Representative Albio Sires introduced H.Res. 282 , which expressed "the sense of the House of Representatives that the United States Postal Service should discontinue the practice of contracting out mail delivery services." H.Res. 282 was referred to the House Committee on Oversight and Government Reform (HCOGR) and was cosponsored by 256 Members. Not quite two months later, Senator Tom Harkin introduced S. 1457 on May 23, 2007. The bill would have forbidden the USPS from entering "into any contract ... with any motor carrier or other person for the delivery of mail on any route with 1 or more families per mile." The bill would have permitted all existing CDS contracts to remain in effect and to be renewed. S. 1457 was referred to the Senate Committee on Homeland Security and Governmental Affairs and had 38 cosponsors. The HCOGR's Subcommittee on Federal Workforce, Postal Service, and the District of Columbia considered the issue at April and July hearings. Both the NALC and the NRLCA said that contractors should not be trusted to deliver the mail. Three Members present at the July hearing spoke of contractors delivering mail in suburban and city locations, including the Bronx of New York. The NALC stated that private employers—unlike the USPS—are not required to give preference to veterans in hiring. The USPS testified that it was not replacing career carriers with contractors, and that it assigned only new delivery routes to contractors. John Potter, then-Postmaster General, declared that the USPS had "made a commitment for the life of this agreement [with the NALC] not to contract out any city delivery in big cities" and to work with both unions on the use of contractors in suburban and rural areas. The use of contractors to deliver mail also was discussed at a Senate hearing. After lengthy negotiations, the NALC and the USPS signed an MOU in October 2008. This agreement extended through the life of the collective bargaining agreement the moratorium against new CDS contracts in post offices employing city carriers. Additionally, the MOU required any new deliveries to be assigned according to geographic boundaries agreed upon by the NALC, NRLCA, and USPS. That same year, the NRLCA and the USPS worked out their differences over the use of private mail delivery contractors via the grievance process set forth in the NRLCA-USPS collective bargaining agreement. In November 2010, the NRLCA-USPS collective bargaining agreement expired. A year later, the NALC-USPS contract expired. Whether the mail contracting MOUs remain in force is unclear. The USPS and the two unions had negotiations and entered mediation. Unable to settle their differences, the parties went to binding arbitration. The USPS and the NRLCA completed binding arbitration in July 2012. The previous collective bargaining agreement's language regarding the hiring of private contractors to deliver mail was not altered, leaving it unclear whether the USPS and NRLCA have come to a working agreement on this particular issue. The USPS and the NALC entered binding arbitration in June 2012. Arbitration of the USPS-NALC agreement likely will be completed in the coming months. The Postal Reorganization Act of 1970 (PRA; P.L. 91-375; 84 Stat. 725) replaced the U.S. Post Office Department with the USPS, an independent establishment of the executive branch (39 U.S.C. 201). The PRA requires the USPS to "maintain an efficient system of collection, sorting, and delivery of the mail nationwide" (39 U.S.C. 403(b)(1)). To this end, the PRA provides the USPS with considerable discretion over its operations. 39 U.S.C. 5005 authorizes the USPS to "obtain mail transportation service ... by contract from any person or carrier for surface and water transportation under such terms and conditions as it deems appropriate." Additionally, Congress provided the USPS with the authorities to (1) "enter into and perform contracts" (39 U.S.C. 401); (2) "provide for the collection, handling, transportation, delivery, forwarding, returning, and holding of mail" (39 U.S.C. 404(a)(1)); and (3) "establish mail routes and authorize mail transportation service thereon" (39 U.S.C. 5203(a)). However, the PRA also carries provisions relating to USPS employee compensation. For one, the PRA sets a compensation and benefits floor: It shall be the policy of the Postal Service to maintain compensation and benefits for all officers and employees on a standard of comparability to the compensation and benefits paid for comparable levels of work in the private sector of the economy (39 U.S.C. 1003(a)). Additionally, letter carriers are civil servants and, under the PRA, are entitled to wages established through contracts collectively bargained by the USPS and postal unions (39 U.S.C. 1001(b) and 39 U.S.C. 1201 et seq.). The NALC has contended that the USPS's use of CDS carriers instead of USPS mail carriers "violates the spirit of the nation's basic postal law." Using contractors, the union has said, circumvents the collective bargaining process and opens the door for the USPS to replace all career mail carriers with contractors. Hence, the PRA's provisions regarding the USPS's authority to contract and operate an "efficient" system of mail may be at tension with the statute's provision on USPS employee compensation. Between 1998 and 2012, the number of carrier routes served by CDS carriers increased from 5,424 to 9,991, or 84.2% ( Table 1 ). Similarly, over the past 15 years the number of delivery points served by CDS carriers has increased from 1,828,257 to 2,680,140, or 46.6% ( Table 3 ). However, throughout this period, the USPS career city and rural carriers delivered mail on the vast majority of postal carrier routes—not less than 95.6% ( Table 2 ). City and rural carriers also have served at least 98% of the nation's delivery points ( Table 4 ). Thus, although the USPS has increased its use of CDS carriers to deliver mail, these contractors serve on 4.4% of all routes and deliver mail at 2% of all delivery points. Additionally, the data show a shift between the portions of the total routes and deliveries handled by city and rural letter carriers. The percentage of routes served by rural carriers has grown from 26.5% to 32.4%, while the percentage of routes served by city carriers has declined from 71.2% to 63.2%. Additionally, the percentage of delivery points served by rural carriers has increased from 25.4% to 30.7%; whereas the percentage of delivery points served by city carriers has decreased from 73.0% to 67.3%. Current postal law requires the USPS to operate an "efficient" system of mail and provides the USPS with various authorities to achieve this objective. However, the law also sets a pay and compensation floor for USPS employees and requires the USPS to collectively bargain with its employees. These aspects of postal law come into conflict in the matter of the USPS using private persons or firms to deliver mail. The data above indicate that the USPS has increased its use of contractors over the past 15 years. Yet, the data also indicate that contractors serve only a very small percentage of carrier routes and deliver to very few homes and businesses. Whether the use of private persons and firms to deliver mail will arise as an issue of interest to Congress is unclear. The USPS, NALC, and NRLCA may settle the matter through arbitration and ensuing memoranda of understanding. In the event that the use of contractors cannot be settled through the parties themselves, there are at least two broad perspectives that might be taken on the situation. First, it might be argued that Congress should take no action. Historically, Congress has not enacted specific policies concerning the extent of the USPS's use of contractors to deliver mail. It has left the matter to be decided by the Postal Service and its letter carrier unions through collective bargaining and the grievance process. Congress may continue this practice, reasoning that the USPS has legitimate grounds to pursue cost-savings via the use of contractors. Indeed, it might be further contended that the use of contractors to deliver mail is in keeping with long-time USPS practices. Contractors have been used to collect, transport, sort, and deliver mail; and machines built by private firms do much of the mail sorting work once performed by USPS employees. Letter carriage would not appear to be an inherently governmental function under current procurement policy, so the USPS should be free to outsource this work as it deems proper. Second and alternately, Congress may choose to intervene, viewing the issue as involving an unintended conflict arising out of two national policies—USPS operational efficiency and the rights of unionized, federal employees. From this perspective, it could be argued that the USPS is supposed to be a self-supporting agency; but that does not necessitate that the USPS should be permitted to outsource however much postal work it chooses. It might be further argued that there is a positive societal benefit in the federal government hiring individuals (often minorities and veterans) and compensating them well. Thus, Congress might either ban the practice of using contractors to deliver mail (or perform other mail-movement activities); or it could limit the amount of mail delivery work performed by contractors—perhaps by capping the percentage of routes served by non-USPS employees. Were Congress either to ban or limit the use of contractors, it might wish to consider helping the USPS recoup any lost savings by providing it with additional authorities to increase its revenues or decrease its operating costs.
|
Recently, the U.S. Postal Service (USPS) has been in negotiations with the National Association of Letter Carriers (NALC) and National Rural Letter Carriers Association (NRLCA). One issue that may or may not be settled is the Postal Service's use of non-USPS employees (i.e., contractors) to deliver mail. If the parties cannot come to a satisfactory arrangement, Congress may be approached to consider the matter. Contractors have delivered mail to homes and businesses since 1900. Controversy over this practice arose in 2007 when the NALC alleged that the USPS had expanded the use of contractors into city areas at the expense of unionized membership. Congress held hearings on the matter, and legislation was introduced in both houses. The USPS and NALC came to a memorandum of understanding (MOU) in October 2008 to govern the practice, which appeared to quell the controversy. However, the issue was reopened when USPS's collective bargaining agreements with the NRLCA and the NALC expired in 2010 and 2011, respectively. At present, it is unclear whether the parties have come to mutually agreeable arrangements concerning the use of contactors to deliver mail. By law, the USPS is obliged to provide for an "efficient" system of mail delivery. Federal statute provides the USPS with considerable freedom to enter into contracts with private parties. Wage-earning contractors cost less to employ than wage- and benefits-earning USPS employees. However, federal law also requires the USPS to collectively bargain its employees' compensation. Thus, a conflict arises between these competing legal imperatives when the USPS employs a contractor to perform work that was or could be performed by a postal employee. The USPS has increased its use of contractors in recent years, but USPS employees continue to serve 98% of all U.S. homes and businesses. This report will be updated as developments warrant.
|
Nearly one-third of the land area of the United States is covered by forest land. The 750 million acres of U.S. forests are owned both privately—by individuals and corporations—and publicly—by federal, state, and local governments. At the federal level, the Forest Service—an agency within the U.S. Department of Agriculture—is the principal forest management agency, charged with managing 193 million acres designated mostly as national forests. The Forest Service manages the forest resources under a multiple use-sustained yield mandate, meaning that the agency must balance uses such as providing recreation opportunities, timber supplies, livestock grazing, watershed protection, and fish and wildlife habitats, in a manner that does not impair the productivity of the land for future resource yields. The national forests have been the focus of controversy for many years. Reduced timber harvests, increased wildfire risks, degraded forest health, and disagreements among users and other stakeholders have led to congressional disputes over appropriate management. Some interests have suggested third-party certification of sustainable management of the national forests as a possible solution to many of these difficulties. Sustainable forest certification programs were created in the 1990s as a nongovernmental approach to promote sustainable forest management practices. Sustainable forest management generally requires that the stewardship and use of the forests balance current and future demand for the resources with maintaining ecological, economic, and social functionality. Forest landowners may voluntarily participate in these programs with the goal of gaining a market advantage through independent third-party assessments and product labels to communicate compliance with standards of sustainable management. The standards are developed by different multi-stakeholder groups with little or no government participation. Although initially directed at private forest owners, certification programs have evolved and developed mechanisms to certify public forests. In 1997, the USDA Forest Service declared it would not pursue certification of any of the national forests. However, the certification of several state, Department of Energy (DOE), and Department of Defense (DOD) forests has raised new questions about this policy. In 2005, the Forest Service sponsored a study evaluating the potential certification of the national forests, but the agency has not issued any changes to its certification policy since the study was released in 2007. If Congress determines that the national forests should be subject to certification, Congress could direct the Forest Service to pursue certification for some or all of the 105 national forest administrative units. Certifying the national forests as sustainably managed may have many potential benefits. Certification might demonstrate and emphasize that the management of the national forests is held to high ecological, economic, and social standards. Certification might reduce existing conflicts over management decisions for the national forests, and has the potential to streamline the management process. For example, certification programs have requirements for planning, management, and public involvement programs as well as for measurable performances on the ground. While these requirements currently exist in policy, regulations, or statutes, Congress may consider that certification would be sufficient and could replace the existing structure. In addition, certification of the national forests may provide benefits to the private sector. The timber and wood products industries as well as the "green" products industries may benefit from having access to a greater supply of certified materials. Finally, certifying the sustainability of the national forests may complement other sustainability policy directives, such as federal green purchasing and green building policies. However, certifying the national forests may present some costs, risks, and uncertainties. The certification process would require direct and indirect investments. Direct costs include the initial fee to pay for the audit process, and then whatever annual or semi-annual costs are required to maintain certification. Indirect costs include changes that may be required to earn or maintain certification, such as implementing new monitoring and reporting systems or adjusting harvest levels. These costs may or may not be recovered in improved management, or even in higher stumpage prices for the certified products leaving the national forests. While certification was initially seen as a means to gain market advantages, those expectations have rarely been realized in the domestic U.S. market. In addition, the certification process and maintenance requirements could have the unintended, opposite effect of becoming another layer of administrative complexity for the Forest Service to navigate. This report outlines the history and development of forest certification as a voluntary, market-based mechanism to promote sustainable forest practices. It then describes, compares, and contrasts the two major certification programs used in the United States based on a broad range of sustainable forest management issues pertinent to the National Forest System. Sustainable forest certification programs began essentially as outgrowths from failed international negotiations to address global forest degradation issues at the 1992 United Nations Conference on Environment and Development (UNCED), also known as the Earth Summit, in Rio De Janeiro. Amid increasing concern among environmental nongovernmental organizations (NGOs) and other stakeholders about the deforestation occurring in developing tropical countries, the international community met to discuss a legally binding global forest policy. However, developing countries were opposed to any legally binding agreement, based mostly on trade concerns. Instead, the process led to the Statement of Forest Principles, a nonbinding set of general economic, environmental, and development guidelines that was largely considered a disappointment in terms of setting a global forest policy. In 1995 the Montreal Process convened as an international effort to define measures of sustainable forest management. Participating nations—including the United States—developed national policy-level criteria and indicators as measures of the principles of sustainable forest management. The criteria and indicators included the conservation of biological diversity; maintaining forest and ecosystem productivity; conserving soil and water resources; maintaining global carbon cycles; maintaining long-term socioeconomic benefits; and a legal and institutional framework for sustainable forest management. The Montreal Process, along with the Forest Principles, formed a framework of economic, environmental, and social definition and measure of sustainable forest management that was carried forward by the forest certification programs. In the absence of governmental mechanisms, the NGO community turned to private-sector tools to promote sustainable forest management. In 1993, the Forest Stewardship Council (FSC) certification standard was developed by the World Wildlife Fund and other NGOs. As a voluntary certification and labeling system, the FSC standard was intended to leverage the growing consumer demand for sustainable wood products and use market incentives to promote sustainable forest operations. The FSC is registered as a nonprofit organization headquartered in Oaxaca, Mexico. Although the initial impetus for the development of the program was to protect tropical forests, FSC is a global standard that also applies to temperate and boreal forests. As such, the FSC principles of sustainable forest management apply globally, but regional, national, and even subnational standards may be created to adapt to local conditions. In 1995, the U.S. chapter of the FSC was formed in Minneapolis and is responsible for developing and publishing the U.S. standard applicable to the lower 48 states. The FSC-US is further divided into nine regions, with regionally specific guidance built into the standard. As of July 2011, the FSC had certified 353 million acres of private and public forest land in 79 countries ( Figure 1 ), including 33 million acres in the United States ( Figure 2 ), as sustainably managed. After 1993, other certification programs soon emerged to compete with the FSC program. In particular, programs emerged from various industry groups. In North America in 1994, the American Forests & Paper Association (AF&PA) established the Sustainable Forestry Initiative (SFI) to focus on sustainable forest production in the United States, and later expanded it to include Canada. The initial SFI program was developed entirely by wood products industry representatives, with no external stakeholder participation. Participation became mandatory for AF&PA members, but firms could self-select which criteria to measure and could self-report compliance. Market pressures have forced the SFI standard to undergo significant substantive and structural changes to compete with the FSC standard. The SFI standard now requires third-party audits, is independent from the AF&PA, and is a registered nonprofit organization headquartered in Washington, DC. As of April 2011, the SFI had certified 58 million acres private and public forest land in the United States as sustainably managed ( Figure 2 ). Several other certification programs emerged in the 1990s, but competition and consolidation left two global programs—the FSC and its primary global competitor, the Programme for the Endorsement of Forest Certification (PEFC). Numerous other programs operate at national or regional levels. In North America, there are two national programs—one for Canada and the SFI for North America. Smaller programs, such as the American Tree Farm System, also operate in the United States. However, the SFI and FSC programs are the two major certification programs that would apply to the national forests. The PEFC program is a global umbrella organization for different national certification programs, providing a common label to facilitate trade in a global market. The PEFC is a nonprofit organization headquartered in Geneva, Switzerland. Originating in Europe, the PEFC was first initiated by landowner groups, and now also includes industry interest groups. The PEFC endorses national programs using a third-party verification process based on internationally developed sustainability benchmarks. In 2005, the PEFC endorsed the SFI standard, and the SFI Board of Directors serves as the governing body for the U.S. chapter of the PEFC. As of July 2011, the PEFC had 35 national members, and had certified the sustainable management of 576 million acres ( Figure 1 ) through the endorsement of 30 national certification programs. Since the PEFC program works by endorsing other national certification programs, the PEFC program would not apply directly to the national forests. The other national system operating in North America is the Canadian Standards Association Sustainable Forest Management System (CSA-SFM). Developed in 1996 at the request of the Canadian forest products industry association, the CSA-SFM is Canada's official national standard for sustainable forest management and is endorsed by the PEFC. As of September 2010, the CSA-SFM had certified over 160 million acres in Canada. The CSA-SFM does not apply to forests in the United States. The American Tree Farm System (ATFS) promotes responsible forest stewardship on smaller, privately owned, nonindustrial forests in the United States. Founded in 1941, the ATFS is the oldest certification system and is a program of the American Forest Foundation, a nonprofit organization headquartered in Washington, D.C. Landowners with at least 10 acres of managed forest land are eligible to participate in the program. Requiring third-party verification, the ATFS is endorsed by the PEFC and accepted by the SFI chain-of-custody requirements. The ATFS has certified over 26 million acres in the United States ( Figure 2 ). As a program that targets mostly small landowners, the ATFS would not apply to the national forests. Most certification programs have common elements. Participation is voluntary, but compliance with the standards is mandatory to receive and maintain certification. Most programs are private and nongovernmental, and the governance structure is typically balanced between competing environmental, economic, and social interests. The process of negotiating the standards of sustainable management is also balanced between these competing stakeholder groups to prevent one interest from dominating the process. Most programs use independent, accredited third parties to verify compliance with the standards and have requirements that extend throughout the supply chain to maintain the certified label. In addition, there are monitoring and reporting requirements, as well as re-certification requirements after a specified time frame. Sustainable forest certification is a form of private governance that uses the market to induce and monitor sustainable behavior. Forest operations are evaluated by independent auditors for conformance against negotiated standards of sustainability. The result is an eco-label on forest products leaving the certified forest, which communicates to consumers a responsibly and sustainably produced product. Firms along the entire supply chain must certify their operations to continue to sell the products with the eco-label (this is referred to as chain-of-custody certification). Demand by wood suppliers has driven the market for certified products more than demand by consumers. For example, in the late 1990s, environmental groups concerned with rapid tropical deforestation began boycotting the Home Depot, one of the largest suppliers of wood products. In response, the Home Depot began carrying FSC-certified wood. Other retailers followed suit, creating a demand for certified wood products. Landowners began certifying their forests and providing certified products to respond to the growing demand. A similar situation occurred for pulp and paper products when Time, Inc., committed to using certified paper sources. The result is that the market for certified products has grown exponentially in under two decades of existence, with nearly a quarter of the world's industrial wood production coming from certified sources. Supplier demand in the market also drives competition between the certification programs. After the boycotts, the Home Depot initially accepted only FSC-certified wood products, despite pressure from the SFI program and the AF&PA. Environmental groups—who had very successfully boycotted the Home Depot—preferred the FSC program and questioned the validity and rigor of the self-reporting and voluntary SFI program. The Home Depot commissioned a consultant to conduct an independent comparison with participation from both the SFI and FSC programs. The report highlighted a stronger emphasis on ecological protections in the FSC program, and a stronger emphasis on industry concerns and a more lenient verification procedure in the SFI program. Largely in response, the SFI program went through several revisions to become more competitive and comparable to the FSC program, including requiring third-party audits and separating from the AF&PA organization. Competition has also affected the FSC program: it has revised its standard, strengthened its accreditation processes, and created programs for smaller landowners in response to the SFI and PEFC programs. Market forces continue to influence the development and evolution of the certification programs. Since home building is the largest use of wood products, building codes are critical in determining wood use. This is especially true in the specialized green building market. The U.S. Green Building Council (USGBC) implements the Leadership in Energy and Environmental Design (LEED) program and only awards credit for FSC-certified wood products. The SFI has continued to revise its standards to become more comparable to the FSC standard, gain LEED credit, and subsequently gain greater access to the green construction market. In 2010 there was an unsuccessful movement to add other certification programs—including the SFI standard—to the LEED program. Although the initial reasoning for only allowing FSC certification is unclear, the USGBC membership voted against changing the requirement. There are generally two reasons why landowners and firms choose to invest in forest certification programs: the potential for a market advantage, and to communicate and be accountable for responsible and sustainable forest operations. Potential market advantages from certification include price premiums, greater access to niche markets, product differentiation, and customer loyalty. For U.S. forests, the expectations for market benefits appear to be mostly unrealized. The consumer demand for certified products is limited and price premiums have been minor, and have not always offset the costs of certification. Highly specialized markets, however, have realized some market advantages. Certified wood from tropical countries typically demands higher price points, as do luxury home building products (at least prior to the 2008 real estate crash). Instead of just a market advantage, certification actually may be becoming a market access requirement. Despite disappointing market performances, forest landowners certified in the United States appear generally satisfied with their decision to certify. This may be because of the accountability mechanisms inherent in certification programs. Certification signals responsible management and behavior. In that sense, certification can be a defensive tool used to avoid any negative publicity similar to the Home Depot boycotts in the 1990s. Both the FSC and the SFI programs have two parts: landowner certification to ensure the sustainable management of the land, and chain-of-custody certification to trace the life cycle of wood products originating in a certified forest. Although certification programs were established to deal with logging and timber products in the marketplace, timber harvesting is not required. Certification evaluates the extent to which forest management is meeting the objectives laid forth in a forest management plan, and then evaluates the extent to which the plan is meeting the standards of sustainable forest management. On a broad scale, both the FSC and the SFI operate within similar frameworks with similar governance structures, procedures to develop the standards, and accreditation and auditing requirements. System governance and the development of the sustainability standards are balanced among the competing groups interested in sustainable forest management. This forces the environmental, social, and economic/industry groups to work together and negotiate standards that are broadly acceptable measures of sustainability. The certification audit is done by an accredited, independent third party that evaluates the management plan and the on-the-ground activities, and includes conversations with staff as well as with stakeholders. The audit process may find minor or major non-conformances with the standard, which must be remedied prior to or immediately following certification. Upon certification, there are maintenance and re-certification requirements. Each system includes monitoring, consistency, and enforcement provisions. Once a forest is certified, products leaving the forest may use the system's label. However, a separate, chain-of-custody certification is required in order to use the certification label along the supply chain. The chain-of-custody standard is designed to ensure that certified wood is accounted for as it leaves the forest, and typically includes sourcing, production controls, record-keeping, and documentation requirements. Each producer or vendor along the supply chain must be certified in order to use the label. Both the SFI and FSC programs use a chain-of-custody certification process that is adapted from the landowner certification process described above. Despite their broad similarities within this general framework, the FSC and the SFI each have their own unique attributes at a detailed, specific level. Table 1 provides a side-by-side comparison. The two certification programs operate at different levels: the FSC is an international organization with a U.S. chapter and regional distinctions; the SFI is a North American organization that is endorsed by an international certification system. Although they both function at the national, U.S. level, the different scopes do have implications for the governance and membership structures of the programs. Both programs emphasize a balanced governance structure, but take different approaches to specific governance operations, including membership. The FSC operates as a global organization with a national chapter in the United States. Globally, the FSC is a multi-stakeholder organization with membership open to individuals and organizations (the General Assembly), with the exception of governments. Governmental agencies may not become members, but may serve advisory or other roles. Members are organized into either the social, environmental, or economic chamber. Emphasizing a balanced approach, each chamber carries the same voting weight, regardless of membership size. Within each chamber, votes are equally divided between northern and southern hemisphere nations, with the goal of creating a balance between the needs of developed and developing nations. The General Assembly elects three members from each chamber to serve on the Board of Directors. General Assembly meetings are held every three years, during which the membership may change the constitution, operation, and structure of the organization with a supermajority (67%) vote. It is also important to note that certification and membership are separate processes; becoming certified does not automatically result in becoming a global FSC member, and not all members are certificate-holders. FSC-US is the national initiative of the FSC charged with adapting and applying the global FSC principles and criteria to the specific conditions in the continental United States. The U.S. chapter consists of a national board with nine members, which mirrors the structure of the global FSC with balanced social, environmental, and economic chambers. Global FSC members residing in the United States form the membership body and have the opportunity to participate in FSC-US committees and working groups, the standards review and revision process, and elect or may become members of either the U.S. or international Board of Directors. Unlike the global FSC, certificate holders, including governmental agencies, automatically become FSC-US members with voting privileges. Within the U.S. chapter, there are nine regional working groups. Although endorsed at the international level by the PEFC, SFI operates entirely at a national level within the United States and extends operations into Canada. The SFI is not a membership-based organization but has a Board of Directors consisting of 18 members representing a balance of environmental, economic, and social interests. Current board members nominate and elect successive members; the only requirement is knowledge of sustainable forestry. The Board of Directors sets the policies of the SFI organization, elects the executive committee, appoints task groups, and develops the standards, certification, and accreditation procedures. To provide oversight, the External Review Panel—an independent group of experts representing environmental groups, professionals, academics, and public agencies—monitor the development and implementation of the SFI program. The SFI program includes Implementation Committees, which are state or regional-level grassroots organizations that promote the SFI program and sustainable forestry practices as well as respond to local needs. Although membership requirements may vary by committee, generally any SFI certificate holder with operations in that location may participate. As of August 2011, there were 37 Implementation Committees in operation at the state or regional level. Both certification programs use a hierarchical standard based on their particular principles of sustainable management at a broad, abstract scale and then progress towards more specific and measurable indicators. The principles are defined and applied differently, largely due to the different geographic scopes of the programs. See Table 2 for a listing of the principles. Both programs emphasize an open and inclusive process to develop the standards, but there are functional differences that stem in part from the differing governance structures. Both programs released revised standards in 2010. The global FSC standard is based on 10 principles of sustainable forest management which are implemented through 56 criteria. The FSC focuses on promoting forest stewardship, biological diversity, and ecosystem functionality while protecting the land tenure and use rights of indigenous peoples and the health and safety of forest workers. The principles and criteria are globally applicable, and are adapted to local conditions through 192 Indicators set at the national level by the FSC-US standard with specific guidance as needed for the 9 U.S. regions. The global FSC is currently in the process of conducting the first full revision of the principles and criteria, although the standard has been amended to include plantations and small-scale ownerships. The General Assembly is expected to vote on the revision in late 2011. However, the FSC-US standards, in accordance with the global FSC policy, are reviewed and revised every five years. The revision process is conducted by working groups of FSC members and technical experts, and includes a robust stakeholder consultation process. The FSC-US standards require global FSC approval prior to becoming effective. The latest revision was approved in July 2010. Certificate holders typically have one year to comply with a revised standard. The SFI standard is based on 14 principles of sustainable forest management which consist of 20 Objectives implemented through 38 performance measures and 115 indicators. Because the United States has a mature system of laws and regulations that have mostly settled land tenure (ownership), use rights, and rights of indigenous peoples, the SFI principles of sustainable forestry focus more on forest stewardship, biological diversity, and forest operations, although worker safety, training and improvement are also covered. Different objectives apply depending on the type of forest operation (land management or fiber sourcing) and the certification type. The SFI standard is reviewed and revised every five years. The process is conducted by a task group—with a balanced membership—appointed by the Board of Directors and includes public notice, review, and comment provisions as well as regional stakeholder workshops. In addition, the External Review Panel ensures that public input has been adequately addressed during the revision process. The latest revision became effective with Board of Directors approval in January 2010. Certificate holders typically have one year to comply with a revised standard. The certification audits are not conducted directly by FSC or SFI, but are conducted by independent third-party organizations ("certification bodies") that must be internationally accredited. The accreditation process ensures these certification bodies are knowledgeable about sustainable forest management and can objectively and credibly evaluate conformance with the standards. The certification bodies may be for-profit and not-for-profit organizations. Both programs have conflict-of-interest policies to maintain the credibility and impartiality of the certification bodies. Both programs require annual audits of the certification bodies to maintain their accreditation. Many certification bodies are accredited to certify both SFI and FSC programs. Both programs draw from the International Standards Organization (ISO) 9000 and 14000 standards series. The ISO is an international standards setting organization of 146 countries and publishes standards for a variety of products and services. The ISO 9000 standard focuses on quality management process to achieve customer and regulatory requirements and includes requirements for auditors. The ISO 14000 standard focuses on the development of an environmental management process. The FSC developed its own accreditation process and organization—Accreditation Services International (ASI)—instead of relying solely on ISO standards. Initially part of FSC, in 2006 ASI became an independent organization and currently certifies other sustainable resource management programs. In addition to ISO requirements, the FSC has specific training and education requirements for lead auditors and requirements for the composition of multi-disciplinary audit teams. The SFI program requires accreditation by the American National Standards Institute (ANSI) National Accreditation Board, the U.S. accreditation body for the ISO standards. The SFI program also has specific qualification requirements for the lead auditor, as well as for all members of the audit team. The certification audit typically includes a review of the operating plans and procedures and other supporting documents, staff consultations, on-the-ground field inspections, and stakeholder consultations conducted by the certification body. The certification body then issues a report identifying any potential minor or major non-conformances and corrective actions required to achieve certification. The final certification assessment—or a summary—is made publicly available on the system's website. Once certified, there are monitoring and recertification requirements that vary by system, as well as procedures for handling complaints. The audit requires specific stakeholder consultations. The audit report must be peer-reviewed by at least one independent and qualified expert. Minor non-conformances must be resolved within three months of certification, major non-conformances within one year, or certification may be revoked. Annual monitoring and maintenance requirements include a surveillance audit that may be conducted on-site. Some documents must be made publicly available. Re-certification is required every five years. Compliance with all indicators is mandatory, with very limited exceptions under very specific circumstances. The FSC has a dispute resolution process (FSC-STD-01-005) to handle complaints and appeals brought against the FSC, an accredited certification body, or a certificate holder. The process generally proceeds at the lowest level possible, with the certification body being the first level of response. If the dispute is not resolved, it then proceeds to the FSC-US level, and then the global FSC level. The audit requires stakeholder consultations as appropriate. Minor non-conformances must be resolved within one year of certification; major non-conformances must be resolved prior to certification. Annual monitoring and maintenance requirements include publicly available annual summary audit and progress reports. Re-certification is required every three years. Compliance with all indicators is mandatory, but the indicators may be substituted or modified based on local conditions, supported with a thorough analysis and adequate justification, and with the certification body ensuring consistency with the spirit of sustainable forestry. The SFI has a dispute resolution process to handle inquiries, complaints or challenges about inconsistent practices, the validity of a certification, or SFI label use. The process operates mostly through the state or regional Implementation Committees but may also proceed through the External Review Panel. The SFI does not have a policy preventing the certification of federal lands, and there are specific requirements for public lands incorporated into the standard. The FSC standard also has some specific requirements for public lands incorporated into the standard. However, the FSC-US has a Federal Lands Policy that would apply to any federal government agency wishing to pursue certification. The policy identifies three threshold standards that must be met prior to certification. The first threshold is a willing landowner (e.g. the Forest Service), the second threshold is public consensus regarding the management of the National Forest System, and the third threshold is the development of specific FSC standards applicable to the federal agency. The FSC applied the Federal Lands Policy when certifying DOD and DOE lands in 2004. However, prior to issuing their certification, the FSC-US expressed concern about the ability of other federal forests to meet the threshold requirements. There are direct and indirect costs associated with certification. Direct costs include the initial certification fee, and then may include annual maintenance fees, and after a specified time period, a re-certification fee. The initial certification fee covers the cost for the third-party audit, which includes the time and travel cost for a team site visit that may last up to a week, and time for reviewing plans, writing reports and issuing the certification. The certification cost may vary widely depending in part on the size of the land being certified; estimates range from less than ten cents per acre to hundreds of dollars per acre. This initial investment tends to be easier for larger landowners to absorb. To encourage broader acceptance of certification across the landscape, both the SFI and FSC programs have created programs to help offset the costs of certification for smaller landowners. In terms of direct fees, the SFI and FSC programs appear to have comparable costs. The indirect costs of certification are the management and operation costs required to achieve and maintain certification. The certification audit may reveal operational practices that need to be changed, such as investment in different equipment, technologies, training, or management practices. Certification may require management investments, such as developing and implementing a monitoring and record-keeping program, or a product-tracking program for the chain-of-custody requirements, or non-commercial thinning to improve forest health in overstocked stands. In addition, certification may require planned harvest levels to be adjusted in both the short and long term, potentially affecting income generation. There are relatively few reports that directly and objectively compare the SFI and FSC programs, the two primary certification programs for large landowners in the United States. Several reports claim objectivity, but actually were published by FSC, SFI, or one of their partners. In addition, many of the comparisons are based on previous versions of both the SFI and FSC standards and are no longer relevant. One of the first objective comparisons was the report commissioned by the Home Depot in 1999, which included participation from representatives of each program. The comparison process and publication of that report in 2001 were a catalyst for significant changes in the SFI program. In 2008, the Yale Program on Forest Policy and Governance compared the programs for the USGBC, but that comparison is based on outdated versions of the standards. Most recently, the Dovetail Partnership, Inc., an environmental NGO that appears to have no ties to either program, released the only comparison based on the current standards. Among the few objective comparisons, the general consensus is that structurally the programs are now very similar. The FSC standard is more prescriptive while the SFI standard allows more flexibility. Each program has different strengths and weaknesses that relate to their different ideas about sustainability. The SFI program emphasizes sustainable timber harvesting, and places forest management as a tool to achieve that objective. The FSC program emphasizes sustainable forest management, and places timber harvests as one tool to achieve that objective. Overall, the strengths and weaknesses in each program are complemented by the strengths and weaknesses in the other program, and dual certification from both programs is relatively common, especially for public forests. Directly comparing the SFI and FSC programs is challenging, mostly because the programs have different targets. The FSC program mostly uses performance-based targets, whereas the SFI program uses both performance- and systems-based targets. Performance targets are focused on the goals of the standard, or achieving some desired objective or condition, such as minimizing ecological damage. System targets are focused on developing a process to achieve the desired outcome, such as developing a program to minimize ecological damage. One useful way to understand the difference is that performance-based targets are generally evaluated in the field, while systems-based targets are generally evaluated in an office. Performance-based standards are more prescriptive, but attempt to ensure that the desired objectives are realized. Systems-based standards are often more flexible, which allows participants to adapt to their own particular situation, but may lack the mandatory mechanisms that ensure the desired objectives are actually realized. Using the 2010 versions of both standards, this section evaluates both the FSC and SFI standards across a broad range of issues pertinent to the certification of the U.S. national forests. A more detailed, side-by-side comparison is provided in Appendix . The comparison uses the standards and criteria from the Montreal Process and issues relevant to public lands management. The comparison is organized into six broad categories: Forest management Wildlife and habitat management Water and soil resource management Other forest uses and values Decision-making and management planning Miscellaneous Overall, the SFI and FSC certification programs have similar coverage in these categories. The programs each emphasize different sustainability objectives: the SFI program emphasizes sustainable timber harvesting, and places forest management as a tool to achieve that objective; the FSC program emphasizes sustainable forest management, and places timber harvests as one tool to achieve that objective. The SFI standard is generally more flexible, and includes more stringent worker safety requirements and provisions for continual improvement. The FSC standard is generally more prescriptive, and includes more stringent ecological protections. In addition, the FSC program is more detailed and complex, as shown by the comparative difference between the size of standard documents. The FSC standard is described in 75 pages, with references to several other policy documents. In comparison, the SFI standard is described in 14 pages. However, this level of detail may be a result of the global focus of the FSC program, as it also applies to countries that may not have comparable environmental and social regulations as the United States. Given the relative similarities between the FSC and SFI programs, what may actually drive any differences between the programs is the rigor and quality of the audit process. The forest management category covers mostly silvicultural activities specifically related to the growth and cultivation of trees, such as harvest operations, roads management, fire and fuels management, insect and pest management, and economic considerations. Harvest operations within sustainable forestry balance forest productivity and economic benefits while limiting ecosystem impacts and resource damage. Sustainable harvest operations also have implications for biodiversity, depending on how the forest is regenerated. Regeneration may be done naturally by allowing the remaining trees to serve as seed sources, or regeneration may be done manually by planting saplings of the desired species. Both require carefully planned and executed pre- and post-harvest activities such as site preparation and rehabilitation. Road-building activities should generally minimize habitat fragmentation and erosion and sedimentation concerns. Active forest management should emphasize restoring natural disturbance regimes, including wind, fire, and pest occurrences. This category also includes the definitions and harvest prescriptions for old-growth trees. The SFI and FSC programs have many similar forest management provisions. Both programs emphasize healthy, functioning ecosystems and allow for site-specific fuel management strategies to restore natural disturbance regimes. In addition, both programs discourage the use of chemical pest control methods. Both programs have provisions to minimize the damage from road building activities. Both programs encourage stand biodiversity and the utilization of woody biomass, and discourage excessive harvest waste. Despite these similarities, there are some differences between the forest management provisions in the FSC and SFI programs. While they both call for the calculation of a sustainable harvest level, the FSC requires a specific calculation method and requires harvest levels to remain below the projected growth level. The SFI does not define sustainable harvest levels or specify a calculation method. The FSC program has regionally specific guidance regarding the size of clearcut harvests while the SFI program has one size limit that applies nationally. The SFI program calls for specific reforestation time frames depending on the site regeneration method; the FSC does not have any specific reforestation time frames. While the FSC program prohibits harvesting old growth on public lands, the SFI program does not have any similar harvest prohibitions. The wildlife and habitat management category covers activities and impacts related to the entire ecosystem, such as endangered species and habitat protections, biodiversity requirements, exotic and invasive species controls, and wilderness or special places designations. As central tenets for sustainable forestry, biodiversity and forest ecosystem health and function are inter-related. Biodiversity can be evaluated across landscapes, specific sites, or within the genetic structure of the same species. Increasing biodiversity helps the forest ecosystem withstand and adapt to various disturbances and maintain functionality. Protecting endangered species and their habitats is in part related to biodiversity conservation. Preserving landscapes through wilderness or other special designations is also related to conserving biodiversity, but also reflects other cultural and spiritual values and uses for the forest ecosystem. The SFI and FSC programs have a few, broadly similar wildlife and habitat management protections such as promoting stand and landscape biodiversity, controlling exotic and invasive species, and allowing the use of hybrids and clones. Although both programs have species and habitat protections and special places designations, there are differences within the particular provisions. The FSC program has more stringent protections that extend to a broader classification of rare, threatened, and endangered species and habitats and encourages directed protection to ensure activities like habitat connectivity. The FSC also calls for a precautionary approach when evaluating actions that can affect those species, while the SFI does not specify a similar precautionary approach. The FSC program has a broader definition of special places that include more stringent protection requirements. In addition, the FSC has more stringent protections for old growth by prohibiting any harvest on public lands. The SFI program encourages conserving old growth, but does not prohibit old-growth harvests. Finally, the FSC program explicitly prohibits the use of genetically modified organisms (GMOs), while the SFI program allows for their use as long as all applicable laws and regulations are followed. The water and soil resource management category covers activities that may impair those resources, and the health and productivity of the forest ecosystem. Forest ecosystems often contain the headwaters for water bodies that serve multiple interests, such as recreation or municipal water supply sources. Within the forest ecosystem, erosion and sedimentation are the primary impairments to water quality, and are often associated with harvest operations. Harvest operations may also impair the soil resource. Soils that have been eroded, compacted, or depleted of nutrients may impair the ability of the soil to support vegetation and degrade the productivity of the ecosystem. The water and soil resource management provisions with the SFI and FSC programs are fairly similar. Harvest operations within both programs are to meet or exceed the best management practices (BMPs) for erosion and sedimentation control and water quality specified for that region. Both programs have protections and guidelines for water bodies, including riparian zones and wetlands. The primary difference between the programs water and soil resource management provisions is that the FSC explicitly calls for the consideration of soil productivity when planning multiple harvests on the same site, and the SFI is silent on this topic. The other forest uses and values category covers issues mostly related to the multiple-use mandate of the national forests. The Multiple Use-Sustained Yield Act of 1960 (P.L. 86-517) directed the Forest Service to manage the national forests for the uses of range (livestock grazing), recreation, timber, wildlife, and water supply. While these apply to surface use, there is also interest in the subsurface use of the national forest land, which is typically managed and administered in conjunction with other federal agencies. Also covered in this category are aesthetic and visual impacts and climate change concerns related to the forest ecosystem's role in the carbon cycle. The FSC and SFI programs treat other forest uses and values differently. The SFI program has more prescriptive requirements for mitigating visual and aesthetic impacts from harvest operations, but is largely silent on grazing and mineral development. The FSC program has more prescriptive requirements for grazing, mineral development, and carbon storage. For grazing and mineral development, the FSC calls for those uses to minimize ecological damage. However, the FSC's focus on land tenure and user rights tends to discourage landowner infringement on use rights associated with mineral development and grazing leases. While the SFI program calls for increasing research and knowledge about climate change impacts, the FSC standard is more prescriptive and essentially calls for no net loss of carbon storage capacity. The decision-making and management planning category covers activities related to the legal and institutional framework for sustainable forestry, as well as stakeholder input and public transparency issues. Sustainable forestry, in many ways, relies on careful planning to be successful. Management planning includes assessing the current conditions of various resources, understanding the implications different management options will have on the future conditions of those resources, selecting a management option that achieves the desired future conditions, and then monitoring the implementation of the management option and its impacts. While public involvement and transparency are important considerations for the management of the national forests as a public resource, it is also an important consideration for certification programs as market mechanisms. Planning, public involvement, and decision-making for the national forests are governed by several intersecting laws, including the National Forest Management Act ( P.L. 94-588 ), the National Environmental Policy Act (P.L. 91-190), and the Administrative Procedures Act (P.L. 79-404). The decision-making and management planning provisions within the SFI and FSC programs are similar in many regards. Both programs call for compliance with all laws and regulations. Both programs call for the development of management plans. The management plans include the collection of a range of data and maps, and specify target harvest areas and levels. Both programs have annual reporting requirements that include making a summary report available to the public. Despite these similarities, there are some differences within the decision-making and management planning provisions with the two programs. The FSC has a more stringent requirement for updating the management plans. The SFI has a more stringent worker safety requirement that extends to contractors. The remaining differences, although distinct when comparing the two programs together, lose their distinctions when applied to the national forests and the mandates of various U.S. laws and regulations. The miscellaneous category captures areas that are not relevant to the other categories but may still be of interest to Congress. Included in this category are the requirement from both certification programs for an official commitment to the program and requirements for public federal land standard compliance. Specific chain-of-custody requirements are not covered in this report. Although initially directed at private forest owners, forest certification programs have become increasingly used by public forest management agencies. In the United States, several state and county forests have become certified, including but not limited to the Michigan Department of Natural Resources, the Minnesota Department of Natural Resources, the New York Department of Environmental Conservation, the Pennsylvania Department of Conservation and Natural Resources, the Wisconsin County Forests and the Wisconsin Department of Natural Resources, and the Washington Department of Natural Resources. Instead of choosing just one program, most of these public forests opted for dual certification and became certified by both the SFI and FSC programs. There are no standard metrics to evaluate the benefits and costs of the state certification programs. While the SFI program has stated that it is ready to certify the national forests, the FSC program is likely several years away from having procedures that would address a national forest certification process. Prior to certification, the FSC program would need to determine if the national forests meet the three threshold requirements set forth in its Federal Lands Policy. Then, if the national forests meet the threshold requirements, the FSC would have to develop and approve a standard specific for the national forests. It is not clear how certification would affect the management of the national forests. However, certification could evaluate the extent to which the forest management plans align with the standards of each certification program, and then evaluate the extent to which those forest plans are being implemented. The results of these third-party evaluations of the forest plans and their implementation could potentially alleviate—or escalate—stakeholder and congressional disputes over the appropriate management of the national forests. It is unclear whether the Forest Service has the existing authority to certify the national forests. If Congress chooses to require certification of the national forests, there are other questions to consider, including which certification program(s) to require; what (if any) forest management process requirements (e.g., public involvement standards) might be relaxed; and what would be the impact on timber purchasers of processing certified sustainable wood. Congress may also consider if certification should occur across the entire National Forest System, or at the unit level, and then how many and which units should be certified. This table presents a side-by-side comparison of the FSC and SFI standards that would be applicable to U.S. national forests. The comparison criteria categories used were developed by CRS for assessing sustainable forestry, the standards and criteria from the Montreal Process, public forest land management, and other factors. Summaries of the FSC and SFI measures are presented. Several measures are listed more than once if they are applicable to more than one area. However, not all of the SFI and FSC measures are included in the table, as some are not relevant for the sustainable management of federal forests. Each entry identifies the relevant FSC and SFI measures using the numbering system of that program.
|
The national forests have been the focus of controversy for many years. Reduced timber harvests, increased wildfire risks, degraded forest health, and disagreements among users and other stakeholders have led to congressional disputes over appropriate management. Some interests have suggested third-party certification of sustainable management of the national forests as a possible solution to many of these difficulties. There are two major certification programs in the United States: the Sustainable Forestry Initiative (SFI) and the Forest Stewardship Council (FSC) program. The FSC and SFI programs are very similar in many regards. Both programs use a multi-stakeholder approach that balances environmental, social, and economic interests to negotiate broadly acceptable standards of sustainable forest management. Both programs use independent, accredited third parties to verify compliance with the standards. Both programs have stakeholder involvement and public transparency requirements. Within the standards, both programs have similar coverage in terms of requirements for harvest operations, wildlife and habitat management, water and soil protection, and decision-making and management planning. Despite these similarities, the SFI and FSC programs do have some distinct differences. The programs each emphasize different sustainability objectives: the SFI program emphasizes sustainable timber harvesting, and places forest management as a tool to achieve that objective; the FSC program emphasizes sustainable forest management, and places timber harvests as one tool to achieve that objective. The SFI standard is generally more flexible, while the FSC standard is generally more prescriptive with more on-the-ground performance requirements. How certification would affect the management of the national forests is uncertain. However, certification could evaluate the extent to which the forest management plans align with the standards of each certification program, and then evaluate the extent to which those forest plans are being implemented. A third-party evaluation of the forest plans, and their implementation, could potentially alleviate—or escalate—stakeholder and congressional disputes over the appropriate management of the national forests. It is unclear whether the Forest Service has the existing authority to certify the national forests. If Congress chooses to require certification of the national forests, there are other questions to consider, including which certification program(s) to require; what (if any) forest management process requirements (e.g., public involvement standards) might be relaxed; and what would be the impact on timber purchasers of processing certified sustainable wood. Congress may also consider if certification should occur across the entire National Forest System, or at the unit level, and then how many and which units should be certified.
|
This report explores the legal issues raised by prescription drug importation. Although this report is intended to focus on legal analysis, policy issues are also addressed because they are closely linked. For a more complete analysis of policy issues, see CRS Report RL32511, Importing Prescription Drugs: Objectives, Options, and Outlook , by [author name scrubbed]. Issues associated with the risks posed by some online pharmacies and prescription drug sales over the Internet will no longer be addressed in this report, but are rather addressed in CRS Report RS21711, Legal Issues Related to Prescription Drug Sales on the Internet , by [author name scrubbed]. High prescription drug prices have increased consumer interest in purchasing less costly medications abroad by means of either commercial or personal (consumer) imports. Meanwhile, congressional legislators have been exploring a variety of legislative solutions to the problems posed by rising drug costs. During the 108 th Congress, the Medicare prescription drug benefits bill, H.R. 1 , modified a provision of existing law that authorizes the FDA to allow the importation of prescription drugs if the Secretary of HHS certifies that implementing such a program is safe and reduces costs, a determination that no Secretary has made in the years since a similar certification requirement was established in 2000. Congress has used the appropriations process to insert provisions prohibiting the use of funds to restrict prescription drug importation. Most recently, P.L. 110 - 329 , the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009, prohibited the U.S. Customs and Border Protection (CBP) from using funds to prevent individuals from transporting on their person a 90-day supply of Canadian prescription drugs that comply with the Federal Food, Drug, and Cosmetic Act (FFDCA). However, few, if any, prescription drugs from Canada will comply with the requirements of the FFDCA because such drugs are likely to be unapproved, mislabeled, or improperly dispensed. As a result, the provisions in these appropriations bills and the final Medicare bill appear to have limited effect and ultimately did not change the law with respect to the prohibition against importing prescription drugs from Canada and other foreign countries. The debate about drug importation continues. On the one hand, some policymakers remain opposed to allowing prescription drugs to be imported from foreign countries. Worried about the risk to consumers, these critics argue that, with its current resources and authority, the FDA cannot guarantee the safety or effectiveness of such drugs, which they contend are more susceptible to being mishandled, mislabeled, unapproved, or counterfeited than drugs sold domestically. Legislators and others have also expressed concerns about the safety of imports in general and the ability of the FDA to inspect increasing amounts of imported products entering the United States. In addition, drug manufacturers and other opponents argue that allowing the importation of prescription drugs would stifle investment in the research and development of new drugs. On the other hand, importation proponents, who claim that importation would result in an increased supply of prescription drugs that could result in significantly lower prices for U.S. consumers, say that safety concerns are overblown and would recede if additional precautions were implemented. Arguing that drug manufacturers are concerned only about their profits, proponents of importation contend that U.S. consumers should not subsidize the cost of research and development and that consumers in other countries should share the burden. Linked to the issue of prescription drug importation is a debate about drug costs. While some comparisons of U.S. and Canadian drug prices conclude that U.S. prices are higher than their Canadian counterparts, other studies do not find such discrepancies. In part, studies may vary depending on which drugs are selected for comparison and whether or not U.S. generic drugs, which tend to be cheaper than Canadian brand-name and generic drugs, are considered. In addition, there is an unresolved debate about whether allowing drug imports would affect drug prices. Supporters argue that drug prices would drop due to competition if imports were allowed, while opponents argue that increased demand for imported drugs and moves by manufacturers to limit supplies of cheaper drugs would cause prices to rise both in the U.S. and abroad and would increase the risk of counterfeit drugs being introduced into the system. According to a study by the Congressional Budget Office (CBO), "the reduction in drug spending from importation would be small," in part because of new costs associated with ensuring the safety of imported drugs and because of the likelihood that manufacturers would alter drug formulations or reduce foreign supplies. Furthermore, there are questions about how much it would cost to implement a safe drug importation program. The FDA has estimated that such a program would cost at least $100 million but that the figure could rise as high as several hundred million dollars, especially if there was an increase in the volume of imported drugs. In response to concerns about prescription drug imports, a number of congressional legislators have introduced bills that would make changes to existing law in these areas. Bills introduced in the 110 th Congress include H.R. 194 , H.R. 380 , H.R. 1218 , H.R. 2638 , H.R. 2900 , H.R. 3161 , H.R. 3580 , S. 242 , S. 251 , S. 554 , and S. 1082 . Current regulation of prescription drug importation consists of a patchwork of federal and state laws in an array of areas. At the federal level, the FDA regulates prescription drugs under the FFDCA, which governs, among other things, the safety and efficacy of prescription medications, including the approval, manufacturing, and distribution of such drugs. It is the FFDCA that prohibits the importation—sometimes referred to as "reimportation"—of certain prescription drugs by anyone other than the manufacturer and that requires that prescription drugs may be dispensed only with a valid prescription. After a change in enforcement policy by CBP, the FDA assumed the primary responsibility for determining whether foreign drug imports may legally enter the country. In addition, the Drug Enforcement Agency (DEA) administers the Controlled Substances Act, which is a federal statute that establishes criminal and civil sanctions for the unlawful possession, manufacturing, or distribution of certain addictive or dangerous substances, including certain prescription drugs that share these properties, such as narcotics and opiates. At the state level, state boards of pharmacy regulate pharmacy practice, and state medical boards oversee the practice of medicine. Thus, some of the laws that govern pharmacies and doctors vary from state to state. Finally, although foreign laws are beyond the scope of this report, it is important to note that such laws may also affect the importation of drugs from those countries. At the federal level, the FDA regulates prescription drugs under the Federal Food, Drug, and Cosmetic Act (FFDCA), which governs, among other things, the safety and efficacy of prescription medications, including the approval, manufacturing, and distribution of such drugs. Although many states also have their own laws that regulate drug safety, the FDA maintains primary responsibility for the premarket approval of prescription drugs, while the DEA and CBP have somewhat more limited regulatory authority over such drugs. The FFDCA contains several provisions that apply to prescription drug imports. First, the statute contains an outright prohibition that forbids anyone other than the manufacturer from importing prescription drugs. This prohibition affects drugs originally made in the United States. Second, the FFDCA contains a number of other provisions relating to drug approvals and labeling that make it nearly impossible for prescription drugs made for foreign markets to comply with the extensive statutory requirements, in part because the FDA considers any drugs not made on an FDA-inspected production line to be unapproved and therefore illegal. These provisions generally affect foreign versions of drugs that are approved for domestic sale. Importation of both U.S.-manufactured prescription drugs and unapproved foreign versions of U.S.-approved prescription drugs are discussed in this next section. That section also discusses the change in CBP policy with regard to the seizure of mail order prescription drugs, the penalties under the FFDCA, the FDA's personal importation procedures, state plans to import prescription drugs, and businesses that facilitate the importation of prescription drugs. In addition, this section contains a discussion of other legal areas that may affect prescription drug importation, including antitrust law, trade law, and patent law. Currently, the FFDCA prohibits anyone other than the manufacturer of a prescription drug from importing that drug into the United States. Thus, it is technically a violation of the statute for individual consumers or online pharmacies to import a prescription drug back into the country, even though the drug was, prior to export, originally manufactured in any U.S. state or territory, the District of Columbia, or Puerto Rico and even if the drug otherwise complies with the FFDCA. Although critics of this law argue that there is no rational justification for forbidding the importation of a drug that is theoretically identical to its counterpart sold in the United States, the FDA contends that the agency can no longer guarantee the safety of a prescription drug once it has left the country and the agency's regulatory control. According to the agency, the FDA "cannot provide adequate assurance to the American public that the drug products delivered to consumers in the United States from foreign countries are the same products approved by the FDA." In response to concerns about the rising costs of prescription drugs, however, Congress adopted importation amendments to the FFDCA in 2000. Under the Medicine Equity and Drug Safety (MEDS) Act, the FDA was authorized to allow pharmacists and wholesalers to import prescription drugs from Canada if certain safety precautions were followed. The act, however, stipulated that the importation provision would not become effective until and unless the Secretary of HHS determined that the implementation of the provision would "pose no additional risk to the public's health and safety; and [would] result in a significant reduction in the cost of covered products to the American consumer." Citing safety concerns, both the current and former Secretaries declined to implement this provision. In the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Medicare Act), Congress revisited the issue of prescription drug importation. Like the MEDS Act it superseded, the Medicare legislation directs the FDA to allow pharmacists and wholesalers to import prescription drugs if certain safety precautions are followed. Unlike the MEDS Act, which covered prescription drugs from a specified group of foreign countries, the Medicare Act allows imports from Canada only. In addition, the Medicare Act, unlike the MEDS Act, also authorizes the FDA to allow, by regulatory waiver, individuals to import prescription drugs for personal use under certain circumstances. Despite these new importation provisions, the Medicare Act, like the MEDS Act, stipulates that the importation provisions will not become effective until and unless the Secretary certifies that the implementation of the provision would "pose no additional risk to the public's health and safety; and [would] result in a significant reduction in the cost of covered products to the American consumer." As noted above, the Secretary of HHS has thus far declined to provide such certification. Absent such certification, the ban on the importation of prescription drugs remains in effect. Even if the FFDCA did not contain an explicit prohibition against drug importation, the FDA maintains that consumer imports of prescription drugs from foreign countries would almost certainly violate other provisions of the act. For example, such drugs are likely to be unapproved, mislabeled, or improperly dispensed. According to the FDA: The reason that Canadian or other foreign versions of U.S.-approved drugs are generally considered unapproved in the U.S. is that FDA approvals are manufacturer-specific, product-specific, and include many requirements relating to the product, such as manufacturing location, formulation, source and specifications of active ingredients, processing methods, manufacturing controls, container/closure system, and appearance ... Moreover, even if the manufacturer has FDA approval for a drug, the version produced for foreign markets usually does not meet all of the requirements of the U.S. approval, and thus it is considered to be unapproved. Virtually all shipments of prescription drugs imported from a Canadian pharmacy will run afoul of the Act, although it is a theoretical possibility that an occasional shipment will not do so. Put differently, in order to ensure compliance with the Act when they are involved in shipping prescription drugs to consumers in the U.S., businesses and individuals must ensure, among other things, that they only sell FDA-approved drugs that are made outside of the U.S. and that comply with the FDA approval in all respects. The difficulty in determining whether a drug is FDA-approved is demonstrated by the agency's response to a letter from Representative Edward Markey. On October 11, 2006, he asked the agency how a consumer would know if a product is FDA-approved or unapproved. The agency responded with a recommendation that consumers access the FDA site to search for the active ingredient or name of drug. The names of approved companies for a drug will be listed ... If the manufacturer of a consumer drug is not listed, the drug may be unapproved or there may be data errors. The drug may also be an approved drug, but distributed under the name of another company. Consumers are also advised to check with the drug manufacturer. In addition to complying with the requirements regarding FDA approvals, imported drugs must also meet FDA requirements regarding labeling and dispensing. For example, mislabeling a drug is a violation of the FFDCA, as is the act of introducing or receiving a mislabeled drug in interstate commerce. In order to be properly labeled, prescription drugs must be labeled in accordance with the FDA's extensive labeling requirements. Furthermore, the FFDCA requires that prescription drugs may be dispensed only with a valid prescription. Therefore, it is a violation of the act to import prescription drugs without a legitimate U.S. prescription. According to the FDA, an inspection of prescription drug shipments by CBP found that 1,728 of 1,982 drug shipments from foreign countries violated the FFDCA because they contained "unapproved drugs" that could pose safety problems. Although the reason for the violation varied depending on the shipment, the FDA and CBP found shipments of drugs that, among other things, had never been approved by the FDA, were inadequately labeled (e.g., lacked instructions or were labeled in a foreign language), had been withdrawn from the U.S. market due to safety concerns, could cause dangerous interactions, required monitoring by a doctor, or were controlled substances. For example, in February 2007, the FDA alerted consumers that Americans who had ordered the prescription drugs Ambien, Xanax, Lexapro, and Ativan online instead received a product with haloperidol, the active ingredient in an anti-psychotic drug used to treat schizophrenia. A separate FDA investigation found that approximately 43 percent of the imported drugs that the agency intercepted from four countries—India, Israel, Costa Rica, and Vanuatu—were shipped to fill orders that consumers believed they were placing with Canadian pharmacies. Of the products believed to be Canadian, FDA reported that only 15 percent actually originated in Canada, while the remaining 85 percent were manufactured in 27 different countries. Until recently, the Department of Homeland Security, via the U.S. Customs and Border Protection agency (CBP), was responsible for examining imported prescription drugs at the nation's international mail centers and borders and for detaining and destroying any FDA-regulated prescription drugs that did not meet statutory or regulatory requirements. Prior to November 17, 2005, CBP officials tolerated prescription drug mail orders from Canada of up to 90 days worth of medication, "generally interpreting U.S. laws against the importation of drugs as applying to wholesalers and distributors." However, the CBP began strictly enforcing importation laws on November 17, 2005, two days after the beginning of open enrollment for the Medicare prescription drug program. This policy change lead consumer groups and Canadian pharmacies to complain that CBP's policy was intended to encourage seniors to enroll in the Medicare plan and decrease competition for often costly prescription drugs. CBP officials denied this charge, noting that the new enforcement policy was designed "to protect consumers from potentially dangerous drugs manufactured abroad." For the next eleven months, CBP agents confiscated mail packages with foreign prescription drugs and often destroyed the drugs, then mailed letters about the violation to consumers attempting to import the drugs. An estimated 37,000 to 40,000 packages were detained by CBP during this period. In past years, the House Committee on Appropriations had added provisions to appropriations bills that would have prohibited the FDA from using monies to prevent drug importation from foreign countries. Such provisions were always removed during conferences between the House and the Senate. Representative Emerson added a similar provision to the FY2007 Homeland Security appropriations bill prohibiting CBP from using funds to prevent importation of "FDA-approved" drugs. Opponents labeled the provision "an inappropriate way to address the issue of drug affordability" and expressed concerns that the United States would be more exposed to harmful counterfeit drugs or that terrorists would take advantage of the provision. Additionally, some Canadian pharmacist associations and other importation opponents worried that their country would encounter shortages as a result of the provision. Supporters noted that the provision was "aimed at forcing FDA to assess prescriptions from foreign countries for safety instead of simply blocking all reimported drugs." The Senate Committee on Appropriations subsequently stripped the Homeland Security appropriations bill of the importation provision, but Senators Vitter and Nelson introduced the CBP funding prohibition for certain seizures of Canadian drug imports in an amendment that passed 68-32. As passed on September 25, 2006, Section 535 reads as follows: None of the funds made available in this Act for United States Customs and Border Protection may be used to prevent an individual not in the business of importing a prescription drug (within the meaning of section 801(g) of the Federal Food, Drug, and Cosmetic Act) from importing a prescription drug from Canada that complies with the Federal Food, Drug, and Cosmetic Act: Provided, That this section shall apply only to individuals transporting on their person a personal-use quantity of the prescription drug, not to exceed a 90-day supply: Provided further, That the prescription drug may not be—(1) a controlled substance, as defined in section 102 of the Controlled Substances Act (21 U.S.C. 802); or (2) a biological product, as defined in section 351 of the Public Health Service Act (42 U.S.C. 262). The provision excludes narcotics, biologics, Internet sales, and importations of Canadian prescription drugs by mail order. Most importantly, the bill appears to allow individuals to transport a 90-day supply of prescription drugs from Canada across the border by foot or vehicle. However, the provision ultimately appears to have limited effect because it states that individuals may personally import Canadian prescription drugs that comply with the FFDCA. By definition, most prescription drugs from Canada do not comply with the FFDCA. As the previous section explained, drugs that comply with the FFDCA must be approved by the FDA, be dispensed with a valid prescription by a U.S. doctor, and meet, among other possible requirements, mandates that are manufacturer and product specific, manufacturing controls and processing methods, extensive labeling requirements, and source and active ingredient specifications. While it is possible that a prescription drug could meet FDA requirements and therefore obtain FDA approval, in almost all cases, imported prescription drugs will not comply with the FFDCA. Thus, the provision does not change the current illegal status of most drugs imported from Canada, and it appears that CBP may still legally use funds to detain Canadian drug imports that do not comply with the FFDCA. Despite the limited effect of the importation provision, CBP announced a change in its enforcement policy, effective October 9, 2006. CBP agents now "focus on intercepting only counterfeit medicines, narcotics, and illegal drugs." As a result, the FDA assumed the primary responsibility for determining whether Canadian and other international drug imports may legally enter the United States. In most cases, prescription drugs are illegal to import into the United States. The FDA has the authority to seize "[a]ny article of food, drug, or cosmetic that is adulterated or misbranded when introduced into or while in interstate commerce . . . ." However, the FDA's ability to "thoroughly inspect and handle confiscated imports" is questioned by some, given the agency's shortage of resources and staff. In December 2006, Senators Grassley and Baucus attempted to alter the Homeland Security importation provision. Their modification would have only allowed importation from Canada of prescription drugs "with at least two generic competitors" and would have excluded certain drugs and biologics from the those that the Homeland Security appropriations bill intended to allow individuals to personally carry across the Canadian border in a 90-day supply. Members of Congress have also attempted to use the agriculture appropriations bill to attach language to FDA funding that would allow prescription drug importation in various forms. The House FY2008 agriculture appropriations bill, H.R. 3161 , included a provision that purported to expand the types of persons who may import prescription drugs. An amendment to strike the provision failed by a vote of 146-283. The Senate bill, S. 1859 , did not contain a similar provision. As passed by the House on August 2, 2007, §726 of H.R. 3161 read as follows: None of the funds appropriated or otherwise made available by this Act for the Food and Drug Administration may be used under section 801 of the Federal Food, Drug, and Cosmetic Act to prevent an individual not in the business of importing a prescription drug within the meaning of section 801(g) of such Act, wholesalers, or pharmacists from importing a prescription drug which complies with sections 501, 502, and 505. The provision would have prohibited the FDA from using appropriated funds to prevent wholesalers, individuals not in the business of importing prescription drugs, and pharmacists from importing prescription drugs that—among other FFDCA conditions—obtain FDA approval; comply with good manufacturing practices; meet strength, quality, and purity requirements; do not contain other mixtures or substitutions for other substances; are labeled in accordance with FFDCA requirements; and were manufactured in establishments registered with the Secretary of HHS. It appears unlikely that any prescription drug manufactured for a foreign market would have met these and other requirements of FFDCA §§501, 502, and 505. In a statement of administration policy, the White House remarked: "While the provision theoretically limits importation to only FDA-approved prescription drugs, it would be impossible for FDA to verify at the border that they are not counterfeit." The provision would not have "legalized" importation for wholesalers, pharmacists, or other individuals not in the business of importing prescription drugs. Under FFDCA §801(d)(1), only manufacturers are allowed to import prescription drugs into the United States. Thus, while H.R. 3161 would not have provided funding to the FDA to prevent those such as wholesalers or pharmacists from importing prescription drugs that comply with parts of the FFDCA, the bill's provision would not have legalized importation by those persons. Failure to comply with the FFDCA may have exposed such individuals to criminal and civil liability. Additionally, drug manufacturers may not have allowed individuals not in the business of importing prescription drugs, wholesalers, or pharmacists to import such drugs into the United States. As a result, it appears that the provision would have had limited effect. The FY2008 agriculture appropriations bill was included in P.L. 110 - 161 , the Consolidated Appropriations Act, 2008. However, the provision in H.R. 3161 was not included. Rather, §558 of the act included the same language as the FY2007 homeland security appropriations bill. Please see above for a discussion of that provision. Senators Vitter and Stabenow cosponsored an amendment to the FY2008 Homeland Security Appropriations bill that appeared to expand upon the prescription drug importation amendment passed the previous fiscal year: None of the funds made available in this Act for U.S. Customs and Border Protection or any agency or office within the Department of Homeland Security may be used to prevent an individual from importing a prescription drug from Canada if—(1) such individual is not in the business of importing a prescription drug (within the meaning of section 801(g) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 381(g))); and (2) such drug—(A) complies with sections 501, 502, and 505 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 351, 352, and 355); and (B) is not—(i) a controlled substance, as defined in section 102 of the Controlled Substances Act (21 U.S.C. 802); or (ii) a biological product, as defined in section 351 of the Public Health Service Act (42 U.S.C. 262). The provision excluded narcotics and biologics. By preventing CBP from using funds to prevent certain individuals from importing Canadian prescription drugs, the amendment would have appeared to allow an unlimited supply of importations—by mail order, Internet sales, or physical transportation across the border—of Canadian prescription drugs that comply with parts of the FFDCA. However, like the provision in the previous fiscal year's bill, the amendment ultimately would likely have had limited effect because it stated that the imported Canadian prescription drugs must comply with three sections of the FFDCA that address adulteration, misbranding, and new drug applications. These three FDA provisions require, among other things, that drugs obtain FDA approval; comply with good manufacturing practices; meet strength, quality, and purity requirements; do not contain other mixtures or substitutions of other substances; are labeled in accordance with FFDCA requirements; and were manufactured in establishments registered with the Secretary of HHS. It appears unlikely that prescription drugs manufactured for the Canadian market would meet these and other requirements of FFDCA §§501, 502, and 505. While it is possible that a prescription drug could meet FDA requirements and therefore obtain FDA approval, in almost all cases, imported prescription drugs will not comply with the FFDCA. Thus, the provision would not have changed the current illegal status of most drugs imported from Canada, and it appears that CBP would still have been able to use appropriated funds to detain Canadian drug imports that did not comply with the selected sections of the FFDCA mentioned in the amendment. As passed on September 30, 2008, §535 of P.L. 110 - 329 , the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009, did not include the amended provision. The Consolidated Act contained the same text as the FY2007 Homeland Security Appropriations bill. Please see above for a discussion of that provision. The Department of Homeland Security had proposed deleting the section from the FY2007 appropriations bill in its Performance Budget Overview for FY2008, "because prohibiting CBP from exercising its authority to assist the FDA in enforcing current laws designed to protect the health and safety of American consumers is not the best way to address drug affordability." If a business or consumer violates the FFDCA by importing unapproved or misbranded prescription drugs, there are a number of criminal and civil penalties that may apply. As set forth in the act, penalties vary depending on the offense. Violations of the act's general prohibitions are a misdemeanor offense punishable by up to a year in prison or a fine of up to $1,000, or both. A violation of a general FFDCA prohibition that occurs after a prior conviction for violating the act or that is committed with the intent to defraud or mislead is a felony offense punishable by up to three years of imprisonment or up to a $10,000 fine, or both. Penalties for violations of the FFDCA's importation provisions are stricter. If a business or consumer knowingly imports a drug in violation of these provisions, then the violation is a felony offense punishable by up to 10 years in prison or up to $250,000 in fines, or both. Despite these designated penalties, individuals and corporations that violate the act may face monetary fines far greater than those specified in the FFDCA because those sanctions are superceded by general fines set forth in the Sentencing Reform Act of 1984, which applies across the board to all federal crimes. That statute raised the limit on the maximum penalties that apply to federal crimes. As a result, misdemeanor violations of the FFDCA are actually punishable by a fine of up to $100,000 for individuals and up to $200,000 for organizations, and felony violations of the act are punishable by up to $250,000 for individuals and up to $500,000 for corporations. In addition, federal courts are authorized to issue injunctions in order to enjoin violations of the act, and any drug that is adulterated or misbranded is subject to seizure under the act. It is important to note that "[t]hose who aid and abet a criminal violation of the act, or conspire to violate the act, can also be found criminally liable." Federal criminal law generally makes it a separate crime to aid or abet any criminal offense against the United States or to conspire to commit a criminal offense against the United States, so illegal importers could potentially be charged with these offenses as well as other general federal crimes, such as mail or wire fraud or making false statements. In addition, the FFDCA explicitly forbids certain acts, as well as the causing of such prohibited acts. Thus, businesses that facilitate the importation of unapproved prescription drugs or U.S.-manufactured prescription drugs may be liable if they are deemed to be "causing" violations of the act. In addition to penalties under the FFDCA and other federal criminal statutes, individuals or businesses that illegally import prescription drugs that are also controlled substances may be subject to penalties under the Controlled Substances Act. Despite the range of penalties that FDA has available to punish those who import prescription drugs in violation of the act, the agency has clarified that its "highest enforcement priority would not be actions against consumers." Indeed, the FDA exercises its enforcement discretion leniently in this regard by allowing consumers to import certain otherwise illegal prescription drugs under certain circumstances. These enforcement procedures, known as the FDA's personal importation procedures, are described in detail below. Because importing unapproved prescription drugs is a violation of the FFDCA, the FDA is responsible for determining whether pharmaceuticals should be admitted into the United States. To determine whether to allow or refuse entry to imported drugs, the FDA developed its personal importation procedures. Under the procedures, the FDA exercises its enforcement discretion to permit consumers to import otherwise illegal prescription drugs for purposes of personal use. Recognizing that the agency's limited enforcement resources are best directed at commercial shipments of imported drugs rather than personal imports, the FDA may, at its discretion, refrain from taking legal action against illegally imported drugs under the following circumstances: a) the intended use is unapproved and for a serious condition for which effective treatment may not be available domestically either through commercial or clinical means; b) there is no known commercialization or promotion to persons residing in the U.S. by those involved in the distribution of the product at issue; c) the product is considered not to represent an unreasonable risk; and d) the individual seeking to import the product affirms in writing that it is for the patient's own use (generally not more than three month supply) and provides the name and address of the doctor licensed in the U.S. responsible for his or her treatment with the product, or provides evidence that the product is for the continuation of a treatment begun in a foreign country. Ultimately, the personal importation procedures detail the FDA's enforcement priorities for imported drugs, but are not intended to grant a license to consumers to import unapproved prescription drugs into the United States. Indeed, the FDA emphasizes that even if all of the factors above are met, "the drugs remain illegal and FDA may decide that such drugs should be refused entry or seized." Furthermore, these procedures do not apply to commercial shipments of unapproved prescription drugs, nor are they intended to permit the importation of foreign versions of drugs that are already approved in the United States. Thus, it appears that personal importations of cheaper versions of prescription drugs that are already available in the U.S. do not conform to the FDA's personal importation procedures. Nevertheless, U.S. consumers continue to import drugs from abroad, and one Canadian group claims that Canadian pharmacies supply two million people in the U.S., or roughly one percent of the U.S. market for prescription drugs. Meanwhile, in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Congress authorized the FDA to allow individuals to import prescription drugs for personal use under certain circumstances, provided that the Secretary has certified that importation is safe and cost-effective. Specifically, the act, subject to certification, requires the Secretary of HHS to allow individuals to import prescription drugs from Canada if the drug: a) is imported from a licensed pharmacy for personal use by an individual, not for resale, in quantities that do not exceed a 90-day supply; b) is accompanied by a copy of a valid prescription; c) is imported from Canada, from a seller registered with the Secretary; d) is a prescription drug approved by the Secretary ... e) is in the form of a final finished dosage that was manufactured in [a registered] establishment ... f) is imported under such other conditions as the Secretary determines to be necessary to ensure public safety. Although the new individual importation provisions in the Medicare Act appear similar to the FDA's personal importation procedures, the legislation differs significantly because it contains the certification requirement. The current Secretary of HHS, however, has declined to provide such certification in the past, and it is unclear what direction the agency will take in the future. Thus, the new individual importation provisions do not appear to represent a codification of the FDA's personal importation procedures. Although the FDA exercises its enforcement discretion to permit personal importation, such importation remains illegal. However, an elderly couple from Chicago challenged the FFDCA's prohibition on personal importation. In Andrews v. United States Department of Health and Human Services , the court rejected the plaintiffs' claim that the statutory prohibition on personal drug importation violated their substantive due process rights under the Fifth Amendment of the Constitution. The standard of review that courts use when reviewing substantive due process claims depends on whether or not the statute in question affects a fundamental right. If a statute affects a fundamental right, then strict judicial scrutiny is required; if the statute does not affect a fundamental right, then a court applies rational basis review. In the Andrews case, the court determined that there is no fundamental right "to purchase drugs from a preferred source at a preferred price." As a result, the court, applying the rational basis test, upheld the ban on personal importation because it is rationally related to a legitimate governmental interest in ensuring the safety of prescription medications. Just as individual consumers have sought to buy cheaper prescription drugs from foreign sources, several state and local governments have in place or have considered plans to import or facilitate the importation of prescription drugs in order to save themselves or their residents money on medicines. Contending that carefully structured state programs will provide a sufficient degree of safety, states and cities continue to argue that they have a duty to explore innovative methods for providing more affordable prescription drugs to their residents, even at the risk of violating federal law. Currently, several states and the District of Columbia have online prescription drug importation programs, and several localities, including Boston, Massachusetts, are importing prescription drugs from Canada. Interest in importing Canadian prescription drugs may be beginning to wane due to factors including the Medicare Part D prescription drug program, a temporary increase in seizures by the CBP, declining currency-exchange rates, and a greater use of generic drugs. For example, the first city to import Canadian prescription drugs, Springfield, Massachusetts, reported no problems with its Canadian prescription drug importation program; however, it later switched to a state health benefits program that does not import Canadian prescription drugs. Each state and local importation plan varies somewhat in the details. Illinois, for example, has implemented a drug importation program known as I-SaveRx. Under the program, the state has established a website that offers information regarding pharmacies in Canada, Ireland, and the United Kingdom that the state has inspected and determined to be reliable sources for prescription drugs. The state, however, does not import drugs directly, but rather provides users with information on available drugs, prices, and order forms. Currently, Kansas, Missouri, Vermont, and Wisconsin also participate in I-SaveRx. In addition, Rhode Island legislators passed a law that allows the state to license Canadian pharmacies. Many other states and localities have considered and/or implemented importation plans of their own. In addition, several states, including Vermont, have petitioned the FDA in hope that the agency would, as it has done with regard to personal drug importation, exercise its enforcement discretion and allow states to establish prescription drug importation pilot plans. The Medicare Act authorized the FDA to provide waivers for individual importation, and some lawmakers have argued that the individual importation waiver authority extends to state importation plans because such plans are intended to provide prescription drugs to individual state residents. The FDA, however, responded that the waiver provisions in the Medicare Act become effective only upon certification by the Secretary that drug importation is safe and reduces costs. If the Secretary would grant a waiver or if federal law would otherwise allow such a program, Maine would provide access to foreign prescription drugs. Ultimately, Vermont, whose petition for a pilot program was rejected by the FDA, sued the agency, claiming that the FDA's failure to implement regulations that authorize waivers and subsequent denial of Vermont's petition violated the Administrative Procedure Act (APA). The Vermont lawsuit also claimed that the importation provisions in the Medicare Act constitute an unconstitutional delegation of legislative authority to the Secretary of HHS. Vermont's claims, however, were rejected by a federal district court. In the case, Vermont v. Leavitt , the court held that the FDA did not act arbitrarily and capriciously in violation of the APA because Vermont's petition asked the agency to approve a program that was illegal. The court based its ruling, in part, on its determination that, as the FDA had argued, the FFDCA provision authorizing waivers for personal importation becomes effective only upon certification by the Secretary that drug importation is safe and reduces costs. Likewise, the court rejected Vermont's claim that the certification provision constitutes an unconstitutional delegation of legislative authority, holding that the provision "provides clear guidance to the Secretary of HHS by directing the Secretary to consider safety and cost-effectiveness." Vermont did not appeal the decision. Montgomery County in Maryland petitioned the FDA for a waiver to allow its residents and employees to import prescription drugs from Canada. The FDA rejected the petition, citing the Leavitt case. In response, Montgomery County filed a lawsuit alleging that the FDA's denial of its petition was arbitrary and capricious and violated the APA. Specifically, the County argued that the FDA's action was arbitrary because the agency has tacitly allowed numerous other states and localities to import prescription drugs in violation of the FFDCA but nonetheless refuses to assist jurisdictions that attempt to import drugs legally under a waiver program. Furthermore, the County contended that the FDA's failure to act with respect to illegal importation programs indicates that the agency does not believe that importation poses a safety risk, despite the agency's statements to the contrary. The federal district court granted the FDA's motion to dismiss the case. The court held that the FDA complied with the FFDCA and the Medicare Act when it denied the County's waiver request and found the FDA's denial did not violate the APA because it was not arbitrary or capricious. In response to the County's argument that the FDA failed to act with respect to importation programs, the court held that "the FDA's failure to enforce the FFDCA in some situations does not constitute de facto certification by the Secretary" of HHS, because the statute gives the Secretary discretion to issue such certification that Canadian prescription drug importation programs are safe and cost-effective. The court could not review the Secretary's failure to certify importation programs, nor could the court grant the County any relief, because certification is discretionary. Despite the efforts of such state and local governments, the FDA continues to maintain that importing unapproved prescription drugs is unsafe and illegal. Indeed, FDA representatives have met with and sought to convince state officials to change their minds about importing drugs in apparent violation of federal law. At the same time, the agency has notified certain states of its legal position regarding drug imports. For example, according to the FDA's response to an inquiry from California officials, "if an entity or person within the State of California (including any state, county, or city program, any public pension, or any Indian Reservation) were to import prescription drugs into the State of California from Canada [or any other foreign country], it would violate FFDCA in virtually every instance." The FDA provides several legal arguments for reaching its conclusion that state and local drug importation is a violation of the FFDCA. First, the statute prohibits anyone other than the manufacturer from importing drugs that were originally manufactured in the United States. Second, even if an FDA-approved drug is manufactured outside the U.S., the imported version of the drug will likely violate statutory requirements regarding drug approvals, labeling, and dispensing. These first two arguments are identical to the arguments that FDA has made when explaining why the agency views business and consumer imports of prescription drugs to be statutory violations. Therefore, the FDA considers virtually any imports of prescription drugs, as well as virtually any act that causes such imports, to be illegal, regardless of whether such imports are conducted by businesses, consumers, or governmental entities. In addition, the FDA contends that any effort by states to enact legislation authorizing prescription drug imports would be preempted by federal law. Although the FDA sets forth several legal arguments for its position, preemption of a state act's importation provisions does not appear to have been tested in court, and there are several instances in which other prescription drug provisions in the FFDCA have been held not to preempt state law. Finally, the agency has warned some states that they could be subject to lawsuits for injuries to consumers who relied on the state's endorsement when purchasing prescription drugs from Canada. For example, in a letter to Minnesota state officials, the FDA warned of "the potential tort liability that a state could be subject to if a citizen purchases an unapproved, illegal drug on your advice, and suffers an injury as a result." Despite the FDA's position regarding state and local imports of prescription drugs, it appears that the agency is currently refraining from taking legal action against state and local governments that have established drug importation programs. Indeed, in a warning letter to Minnesota, which established a website that provides information about accessing less costly prescription drugs from Canada, the agency notably refrained from asserting that the state's program violated the FFDCA and did not describe any potential enforcement action that the FDA might take. Likewise, the FDA has indicated that it is unlikely to sue the state of Illinois, which has implemented a plan to import drugs from Canada and certain European countries, despite the agency's earlier pronouncement that it would refrain from suing states and localities as long as those entities imported drugs from Canada and not from other countries. One possibility is that the agency is "simply waiting for a state to actually buy foreign drugs for their residents, which would constitute direct commercial importation, before taking legal action." Although several localities are importing drugs directly, "the FDA has not gone after these cities because they are too small." Previously, the FDA had indicated that it had not yet sued states or localities because "the agency wants to first win its case against Rx Depot, giving FDA bargaining power for the more difficult task of taking formal action against states and local governments." However, in the Rx Depot case, which involved a private company that helped individual consumers import prescription drugs, the FDA successfully concluded its lawsuit when Rx Depot agreed to enter into a consent decree that permanently enjoins the company from the importation of unapproved prescription drugs. The Rx Depot case is discussed in detail in the following section. Although the FDA has refrained thus far from taking legal action against both states and individual consumers who import prescription drugs in violation of the FFDCA, the agency has pursued legal action against businesses that facilitate the importation of such drugs. Unlike pharmacies, which receive orders from consumers and dispense drugs directly, some businesses facilitate drug sales without dispensing drugs directly. Rather, these companies, many of which are online, act as middlemen between consumers, who provide medical and payment information, and foreign (typically Canadian) pharmacies, which then ship drugs directly to consumers. The FDA has pursued legal action against at least one such business. That case is discussed in detail in this section, while separate but related issues involving online pharmacies are discussed in CRS Report RS21711, Legal Issues Related to Prescription Drug Sales on the Internet . In United States v. Rx Depot , the Department of Justice (DOJ), acting on behalf of the FDA, filed suit against Rx Depot, a storefront operation that helped U.S. consumers obtain prescription drugs from Canada. In the suit, DOJ contended that Rx Depot was violating two provisions of the FFDCA, namely the provision prohibiting importation and the provision prohibiting the introduction into interstate commerce of any drug that violates the act's approval requirements. Although Rx Depot was not directly importing drugs, the company admitted that it was "engaged in the business of causing the shipment of U.S.-manufactured and unapproved, foreign-manufactured prescription drugs from Canadian pharmacies to U.S. citizens." Rx Depot countered that the FDA was not actually concerned about the safety of imported drugs because the agency had never tested the drugs it bought from Rx Depot as part of a sting operation against the company. Similar complaints have been voiced by other businesses that facilitate the importation of prescription drugs. Critics of FDA's importation stance also argue that it "fails to protect the public health because it allows individuals to import drugs, while prohibiting 'commercial' operations that are in the best position to develop safeguards," and allege that the FDA's importation procedures may violate international trade agreements. Ultimately, critics argue that the FDA's procedures protect the profits of drug manufacturers at the expense of consumer pocketbooks. Despite these arguments, the district court held against Rx Depot during a preliminary ruling in the case. Concluding that "Rx Depot's importation of prescription drugs clearly violates the law," the district court issued a preliminary injunction enjoining Rx Depot from facilitating the importation of prescription drugs. While the court's order was not actually a final order on the merits of the case, it did indicate that DOJ had a substantial likelihood of prevailing in the lawsuit. Indeed, the court appeared particularly concerned with the safety of imported drugs: [U]napproved prescription drugs and drugs imported from foreign countries by someone other than the U.S.-manufacturer do not have the same assurance of safety and efficacy as drugs regulated by the Food and Drug Administration. ... Because the drugs are not subject to FDA oversight and are not continuously under the custody of a U.S. manufacturer or authorized distributor, their quality is less predictable than drugs obtained in the United States. For instance, the drugs may be contaminated, counterfeit, or contain erratic amounts of the active ingredient or different excipients. Also, the drugs may have been held under uncertain storage conditions, and therefore be outdated or subpotent. With regard to Rx Depot, the court specifically noted that drugs ordered through the company were often dispensed in quantities greater than prescribed and did not contain the required package inserts. Although the court acknowledged that the cost of prescription drugs in the U.S. is high and that there are no known cases of an individual who has suffered harm from drugs imported through Rx Depot, the court nevertheless concluded that the FDA has legitimate safety concerns and that Congress is in the best position to resolve the tension between prescription drug safety and cost. Shortly after the court issued the preliminary injunction, Rx Depot agreed to enter into a consent decree with the FDA. Under the terms of the consent decree, Rx Depot "admitted liability for causing the importation of unapproved new drugs and U.S.-manufactured drugs in violation of the act and agreed to permanently cease such activities." In the wake of the consent decree, the legal battle continued, as the U.S. requested disgorgement of Rx Depot's profits. The federal court of appeals found that disgorgement was an appropriate remedy under the FFDCA because disgorgement "furthers the purposes of the FDCA by deterring future violations of the Act which may put the public health and safety at risk." Many companies like Rx Depot remain in business, and a number of states and localities have contemplated or implemented their own importation programs. In response, several drug manufacturers have begun limiting sales of their drugs to Canadian pharmacies in an effort to prevent the drugs from being resold in the U.S. at cheaper prices. These actions have raised questions about whether such behavior violates federal antitrust laws, a topic that is discussed in the following section. As noted above, several major prescription drug manufacturers have responded to the rise in the number of businesses and consumers that are importing cheaper drugs into the U.S. by reducing the supply of such drugs to distributors and pharmacies in Canada, where most of the imported drugs originate. Although some manufacturers argue that restrictions on sales are designed to prevent drug shortages in Canada, such moves may instead be intended to limit Canadian distributors and pharmacies to selling prescription drugs to Canadian consumers only, rather than selling excess supplies of prescription drugs to U.S. consumers at cheaper prices than such consumers would pay for similar drugs in the United States. As a result, several members of Congress have questioned whether these drug manufacturers are violating federal antitrust laws. Several bills introduced in the 109 th Congress would have prohibited such sales tactics, and similar legislation was introduced in the 110 th Congress. Furthermore, a federal district court issued what appears to be the first ruling regarding antitrust allegations against several drug manufacturers and the decision was affirmed on appeal. In addition, at least one state has launched an investigation into whether the drug manufacturer GlaxoSmithKline (GSK) has violated state antitrust laws. This section discusses the potential federal and state antitrust issues raised by the decision of certain drug manufacturers to limit the supply of drugs to Canadian distributors and pharmacies. Federal antitrust law is concerned with the competitiveness of markets (competition), and not with the competitors—unless they have suffered an injury as a result of an actionable wrong under the antitrust laws. Similarly, the achievement or implementation of specific programs or goals is not a concern of the federal antitrust laws. It is not a given, therefore, that existing federal antitrust laws could be successfully employed to challenge pharmaceutical manufacturers whose actions appear either to reduce the U.S. supply of imported prescription drugs or to make it more difficult for Americans to purchase prescription drugs from other countries, including Canada. First, neither current antitrust statutes nor doctrine make unlawful the market-oriented activities of individual entities, unless, under certain circumstances, the entity is a monopolist. Section 1 of the Sherman Act makes illegal "[e]very contract, combination ... or conspiracy, in restraint of trade or commerce ..." That provision, by its terms, may only be violated by multiple parties engaged in concerted, or joint action. Thus, it would not currently be applicable to, for example, a drug manufacturer who, on his own, and not in agreement with another drug manufacturer or other person, refuses to supply, or reduces supplies to, a Canadian or other non-U.S. pharmacy. The Sherman Act [15 U.S.C. §§1-7] contains a 'basic distinction between concerted and independent action.' The conduct of a single firm is governed by § 2 [of the Sherman Act, 15 U.S.C. §2] alone and is unlawful only when it threatens actual monopolization . It is not enough that a single firm appears to 'restrain trade' unreasonably, for even a vigorous competitor may leave that impression.... Section 1 of the Sherman Act [15 U.S.C. §1], in contrast, reaches unreasonable restraints of trade effected by a 'contract, combination . . . or conspiracy' between separate entities. It does not reach conduct that is 'wholly unilateral.'" Moreover, the Court long ago noted in United States v. Colgate that the [Sherman] act does not restrict the long recognized right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal; and, of course, he may announce in advance the circumstances under which he will refuse to sell. The U.S. Court of Appeals for the Federal Circuit added that the fundamental Colgate precept of seller choice set out above is not altered by the applicability of either the patent or copyright law to the item(s) in question, unless it is judicially determined that the patent or copyright in question was fraudulently procured. Second, whether certain joint activity is unlawful and therefore violates the antitrust statutes is not always susceptible of proof. Although the Supreme Court has indicated several times that a formal contract may not be necessary to establish the collective action required by section 1, an antitrust violation may be found if the unlawful agreement can be inferred from the totality of surrounding circumstances. In 1984, in Monsanto Co. v. Spray-Rite Service Corp. , the Court said: The correct standard is that there must be evidence that tends to exclude the possibility of independent action by the [parties]. That is, there must be direct or circumstantial evidence that reasonably tends to prove that the [parties] had a conscious commitment to a common scheme designed to achieve an unlawful objective. "Conscious parallelism" is the term often given to uniform or synchronous business behavior, which, while prima face evidence of concerted behavior, is not proof of unlawful agreement. In an early case, for example, the Court held that the circumstances surrounding imposition by eight motions picture distributors of nearly identical restraints concerning the licensing of first-run "feature" films were sufficient to create a valid inference that the distributors had acted in concert, in violation of section 1 of the Sherman Act. It is elementary that an unlawful conspiracy may be and often is formed without simultaneous action or agreement on the part of the conspirators. Acceptance by competitors, without previous agreement, of an invitation to participate in a plan, the necessary consequence of which, if carried out, is restraint of interstate commerce, is sufficient to establish an unlawful conspiracy under the Sherman Act. In Theatre Enterprises v. Paramount Film Distributing Corp. , the Court continued to state that parallel behavior by itself is not necessarily proof of a conspiracy: The crucial question is whether respondents' conduct toward petitioner stemmed from independent decision or from an agreement, tacit or express. To be sure, business behavior is admissible circumstantial evidence from which the fact finder may find agreement. But this Court has never held that proof of parallel business behavior conclusively establishes agreement or, phrased differently, that such behavior itself constitutes a Sherman Act offense. Circumstantial evidence of consciously parallel behavior may have made heavy inroads into the traditional judicial attitude toward conspiracy; but "conscious parallelism" has not yet read conspiracy out of the Sherman Act entirely. Although the Supreme Court has stated, and lower court decisions have continued to illustrate, that an unlawful agreement or conspiracy in restraint of trade may be proved by consciously parallel behavior that is accompanied by any of several "plus" factors—"the additional facts or factors required to be proved as a prerequisite to finding that parallel action amounts to a conspiracy" —there has not been much agreement or standardization concerning exactly which "plus" factors are to be given what, if any, evidentiary weight. The "plus" factors courts have considered favorably include artificial standardization of products and raising prices in time of surplus. Less persuasive is evidence that indicates merely that the parties had an opportunity to collude. That the parties communicated with one another is, at best, ambiguous evidence of conspiracy. The bottom line appears to be whether the parties acted in their own self-interest: where there is no direct evidence of a conspiracy, behavior as consistent with a desire to maintain profitability or to remain in business at all as with any participation in injurious or unlawful conduct does not constitute sufficient indirect evidence of an alleged conspiracy; similarly, where a defendant would have little or no motive to enter a conspiracy, his actions will be considered unilateral and independent. Based upon these cases and assuming that there is no evidence that the drug manufacturers in question conspired or colluded when reducing drug supplies to Canadian distributors and pharmacies, it would appear difficult to sustain a charge that the drug companies that limit sales to Canada have violated the Sherman Act. Indeed, there may be lawful reasons for their actions. For example, the manufacturers may be capable of supplying only the United States market and to a lesser extent foreign markets because of limited production capacity. They may also need to recoup research and development costs by obtaining a profit margin through sales primarily in the United States. However, if one were able to show that the drug companies did in fact conspire or collude or that they engaged in parallel behavior accompanied by other factors, a case might be made for a Sherman Act violation. In the first federal court case on the question, In Re: Canadian Import Antitrust Litigation , a group of consumers and organizations from Minnesota who purchased prescription drugs in the U.S. from American drug companies challenged the defendant drug companies. The plaintiffs claimed that the defendants violated federal antitrust laws "by engaging in a course of conduct designed to suppress the importation of prescription drugs purchased from Canadian pharmacies for personal use in the United States." The district court held that prescription drugs imported from Canada are misbranded and that "the transport of drugs for personal use into the United States constitutes an 'introduction into interstate commerce.'" The introduction of misbranded drugs into interstate commerce violates the FFDCA. Noting that the plaintiffs lacked standing "to challenge Defendants' allegedly anti-competitive behavior because the importation of these drugs is unlawful and, therefore, not the type of activity which federal antitrust laws were designed to protect," the district court dismissed the case. The district court also dismissed the state and common law claims, which were ancillary to the federal antitrust claim, after deciding not to exercise supplemental jurisdiction over them. On appeal, the United States Court of Appeals for the Eighth Circuit affirmed the district court judgment, finding that the importation of prescription drugs from Canada is illegal and that the plaintiffs did not have standing under antitrust laws to maintain the suit. Even if importation were legal, according to the court, the antitrust injury that the plaintiffs encountered—"an absence of competition from Canadian sources in the domestic prescription drug market"—was not a result of the defendants' behavior and was not an injury that the antitrust laws were designed to prevent. Rather, the injury to the plaintiffs was "caused by the federal statutory and regulatory scheme adopted by the United States government." Although this decision is not binding on courts in other jurisdictions, it provides an initial glimpse of how the antitrust issue may play out in the courts. Despite the apparent lack of violation of federal antitrust law, drug manufacturers that limit sales of prescription drugs to Canadian distributors and pharmacies may still violate state antitrust laws. Because antitrust laws vary from state to state, this section does not provide an exhaustive analysis of state antitrust laws, but rather describes the legal dispute between GlaxoSmithKline (GSK) and the state of Minnesota as an example of potential liability under state antitrust statutes. Even if drug manufacturers that limit sales of prescription drugs to certain Canadian distributors and pharmacies are found not to have violated federal antitrust laws, they may still be in violation of state antitrust law. Antitrust laws exist in all fifty states and the District of Columbia, but their scope and enforcement differ from state to state. Most state antitrust laws mirror the federal statutes or are interpreted to reflect case law interpreting these federal statutes, although there are a small number of states in which a restraint of trade violation includes a unilateral act. This section describes the recent legal dispute between the state of Minnesota and GlaxoSmithKline (GSK) over state antitrust law and its effect on prescription drug importation. In 2003, the Minnesota Attorney General (AG), who is investigating whether GSK violated Minnesota antitrust laws, filed a court motion seeking to compel GSK to release information located in Canada and the United Kingdom about the company's decision to stop selling drugs to Canadian pharmacies that then sell the drugs to U.S. consumers. According to the AG, GSK conspired to limit drug sales to Canada, and "GSK's refusal to supply prescription drugs to Canadian pharmacies that sell drugs to Minnesota buyers violates state laws." In reply, GSK argued that "importing drugs from Canada is illegal and a drug company can take steps to stop illegal sales of its products;" and also that federal law preempts Minnesota's antitrust laws. Ultimately, the district court of Hennepin County, Minnesota, ordered GSK to produce the records and information sought by the AG. The court ruled that even if GSK's position that "the importation of non-approved drugs from Canada is illegal under the FDCA, and there cannot be a conspiracy in violation of the antitrust laws to restrain trade in illegal goods" were correct, which the court questioned, "[e]nforcement of federal law is the responsibility of the FDA, not of GSK," especially since "the FDA has never even reviewed GSK's boycott," much less specifically approved it. The district court judge obliquely addressed the preemption argument, finding sufficient authority for the Minnesota AG's investigation and the document request in pursuit of that investigation under the Minnesota statute that mandates that the Attorney General "investigate violations of the business and trade laws of this state.... " Based on information revealed in the GSK documents that were turned over, the Minnesota AG filed a lawsuit against GSK in 2004, alleging that the company had violated state antitrust laws. GSK and the Minnesota AG are mired in fighting over the public release of over 40 documents turned over by GSK. The Minnesota Supreme Court recently remanded the case regarding public disclosure of the documents to the district court with a framework to apply to determine whether to issue a protective order for each document in order to protect a person's association rights or to publicly disclose the document's information. Minnesota's case against GSK may have been harmed by a federal court decision in In re: Canadian Import Antitrust Litigation , which determined that drug manufacturers had not violated federal antitrust law by attempting to halt the importation of prescription drugs. As with antitrust law, international trade obligations may also impact the feasibility of prescription drug importation. On the one hand, permitting some importation of prescription drugs may be seen as removing an existing barrier to trade or trade liberalizing; on the other hand, the United States' international trade obligations may present obstacles to prescription drug importation. Furthermore, legislative and/or regulatory proposals regarding importation may be inconsistent with provisions of various international trade agreements including, but not limited to, the General Agreement on Tariffs and Trade 1994 (GATT 1994), the Agreement on Technical Barriers to Trade (TBT) and the General Agreement on Trade in Services (GATS), all of which are a part of the World Trade Organization (WTO) Agreement to which the United States is a signatory member. At the same time, however, these agreements contain exceptions that may be used to justify some of the potential inconsistencies that may arise. Under the GATT 1994, Articles III:4, I:1 and XI:1 contain provisions that may affect prescription drug imports. Generally, Article III governs the application of domestic regulatory measures requiring that "laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products ... should not be applied to domestic products so as to afford protection to domestic production." Article III:4 specifically obligates Member countries, with respect to all such domestic measures, to provide national treatment to imported products from other WTO Member countries. Simply put, national treatment requires that Member countries not discriminate against imported goods relative to like domestic products. In addition to the national treatment obligation, internal regulatory measures are also required to comply with Article I:1, the most-favored-nation (MFN) clause. MFN requires that "any advantage, favor, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties." The inclusion of Article III measures within the Article I:1 MFN obligation was intended to extend the obligation to them "regardless of whether national treatment is provided with respect to these matters." To the extent that any legislative or regulatory proposal contains requirements affecting the internal sale, offering for sale, purchase, transportation, distribution, or use of prescription drugs in the United States, it could be viewed as falling within the purview of Article III. The provisions of Article III have been interpreted broadly, with the use of the word "affecting" having been interpreted as implying that the drafters of the Article intended it to apply to "not only the laws and regulations which directly govern[] the conditions of sale or purchase, but also in any law or regulations which might adversely modify the conditions of competition between the domestic and imported products in the international market." Given this broad interpretation, it appears that any proposals containing provisions affecting the labeling of imported drugs, or requiring that prescription drugs produced in foreign countries for importation be destined only for the United States may be interpreted by the WTO as inconsistent with our national treatment and MFN obligations. In addition to potential conflicts with Articles III:4 and I:1, GATT Article XI:1 prohibits a Member country from instituting or maintaining quantitative prohibitions or restrictions "on the importation of any product of the territory of any other contracting party." The language of Article XI has been interpreted to be comprehensive, applying to "all measures instituted or maintained by a contracting party prohibiting or restricting the importation, exportation ... of the products other than measures that take the form of taxes duties and charges." Measures may fall within the scope of Article XI:1 if they "prevent the importation of goods as such," or "affect the right of importation as such." Furthermore, Article XI:1 requires that any quantitative restrictions that are imposed be instituted on a non-discriminatory basis, in other words, that all exports of like products to and imports of like products of, third countries be similarly restricted or prohibited. Therefore, to the extent that any legislative or regulatory proposal appears to prohibit, or authorize prohibitions, on the importation of prescription drugs under specific circumstances, there is a possibility that the proposals may constitute or result in a measure affecting importation "as such," and thus, may be challenged under Article XI:1. Article XX contains the general exceptions to the GATT. These general exceptions permit Members to impose otherwise GATT-inconsistent measures to fulfill certain enumerated public policy objectives, provided that the measures are not "applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on international trade." Specifically relevant to legislation involving prescription drugs is Article XX(b), which exempts measures "necessary to protect human, animal or plant life and health." To determine whether a measure is eligible for the Article XX(b) exception a three-part test, as established by the WTO Appellate Body (AB) must be applied. First, the policy must fall within the range of policies designed to protect life or health. Second, the country invoking the exception must show that any GATT/WTO inconsistent measures are "necessary" to fulfill the policy objective. Third, the measures must be applied in conformity with the introductory clause, or "chapeau," of Article XX. Finally, should the United States invoke Article XX(b) in defense of the import restrictions, the United States would bear the burden of demonstrating that the measures satisfy all three parts of the test. In addition to Article XX(b), another possibly relevant GATT exception is Article XX(d), which may be invoked where an allegedly GATT-inconsistent measure can be shown to be "necessary to secure compliance with laws or regulations that are not inconsistent with the provisions of the Agreement, including those related to customs enforcement, ... the protection of patents, trade marks and copyrights, and the prevention of deceptive practices." According to its preamble, the WTO Agreement on Technical Barriers to Trade (TBT Agreement) expands upon the GATT Article III obligations with respect to internal regulations and is intended to promote the general aims of the GATT. The TBT Agreement applies to all products, including industrial and agricultural products, but does not apply to measures covered by the WTO Agreement on Sanitary and Phytosanitary Measures, nor to government purchasing specifications for production or consumption of governmental bodies. The three categories of measures covered by the TBT Agreement are: (1) technical regulations; (2) standards; and (3) conformity assessment procedures. Of particular relevance to prescription drug importation are technical regulations and conformity assessment procedures. A "technical regulation" is defined as a "[d]ocument which lays down product characteristics or their related processing and production methods, including their administrative provisions, with which compliance is mandatory." A technical regulation may also include or deal exclusively with terminology, symbols, packaging, marking or labeling requirements as they apply to a product, process or production method." To qualify as a "technical regulation," a measure must fulfill three criteria, derived from the above-cited definition: First , the document must apply to an identifiable product or group of products. The identifiable product or group of products need not, however, be expressly identified in the document. Second , the document must lay down one or more characteristics of the product. These product characteristics may be intrinsic, or they may be related to the product. They may be prescribed or imposed in either a positive or negative form. Third , compliance with the product characteristic must be mandatory. The TBT Agreement's primary obligations require that the central governments of WTO Members provide national treatment with respect to technical regulations. In addition, WTO Members must also "ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade." This means that "technical regulations shall be no more trade-restrictive than necessary to fulfil a legitimate objective, taking account of the risks non-fulfillment would create. Such legitimate objectives [include] ... the prevention of deceptive practices; [and] protection of human health or safety ..." Moreover, Members are obligated not to maintain technical regulations "if the circumstances or objectives giving rise to their adoption no longer exist or if the changed circumstances or objectives can be addressed in a less trade-restrictive manner." A conformity assessment procedure is "[a]ny procedure used, directly or indirectly, to determine that relevant requirements in technical regulations or standards are fulfilled." Such procedures may include, among other things, "procedures for sampling, testing and inspection; evaluation, verification and assurance of conformity; registration, accreditation and approval as well as their combinations." Obligations concerning conformity assessment procedures are primarily contained in Article 5 of the TBT Agreement, which requires WTO Members to ensure that a number of specific requirements are met "where a positive assurance of conformity with technical regulations is required." These include a requirement that the procedures be prepared, adopted and applied in accordance with the principles of national treatment. The TBT Agreement further provides that "access entails suppliers' right to an assessment of conformity under the rules of the procedure." In addition, conformity assessment procedures may not be "prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade," meaning, among other things, that "conformity assessment procedures shall not be more strict or be applied more strictly than is necessary to give the importing Member adequate confidence that products conform with the applicable technical regulations ... , taking account of the risks non-conformity would create." Application of the TBT Agreement will depend on the details of any prescription drug importation program that might be enacted. The AB has speculated that a measure consisting " only of a prohibition on ... [a product] ... might not constitute a 'technical regulation,'" thereby placing it outside the scope of the TBT Agreement. On the other hand, a measure that has both "prohibitive and permissive elements" may potentially be covered by the Agreement. If a legislative or regulatory proposal were to be considered solely in light of provisions that would allow importation of drugs from a limited set of approved countries, the proposal could potentially be viewed as constituting solely a prohibition (albeit implied) on importing prescription drugs from countries other than those named or designated as such. One might thus be able to argue, based on the above-quoted AB statement, that there are no issues under the TBT Agreement. On the other hand, were any such proposal to be viewed more broadly—that is, as having both prohibitive and permissive elements—TBT obligations may come into play. While the TBT Agreement does not contain a separate Article with general exceptions, there is language within the Agreement that appears to provide for something similar to an Article XX(b) exception. Specifically, the Preamble to the TBT Agreement states that "no country should be prevented from taking measures necessary ... for the protection of human, animal or plant life or health ..." Given that there has been no WTO panel or AB ruling to date with respect to this language, it remains unclear as to what, if any, weight or interpretation this language would be given, especially considering it appears only in the Preamble and is not within the body of the agreement. The General Agreement on Trade in Services (GATS) applies to "measures by Members affecting trade in services." The Agreement defines trade in services as the supply of a service through four modes, two of which would appear to be most relevant to the issue of prescription drug importation: cross-border supply, or supply "from the territory of one Member into the territory of any other Member" (Mode 1) and consumption abroad, or supply "in the territory of one Member to the service consumer of any other Member" (Mode 2). For purposes of the GATS, the phrase "measures by Members affecting trade in services" has been interpreted broadly, encompassing "any measure of a Member to the extent it affects the supply of a service regardless of whether such measure directly governs the supply of a service or whether it regulates other matters but nevertheless affects trade in services." A basic obligation of the GATS is the unconditional most-favored-nation (MFN) obligation set forth at Article II:1. The obligation applies to "any" GATS-covered measure, though Members are allowed to exempt specific national measures pursuant to Article II:1 and the Annex on Article II Exemptions and may accord preferential treatment to countries that are members of regional trade agreements ( see GATS, Arts. V and V bis ). The other fundamental GATS obligations are the market access and national treatment obligations made with respect to a Member's specific scheduled sectoral commitments. These are set forth, with any limitations, in the Member's Schedule of Specific Commitments by mode of service supply. As with the TBT Agreement, application of the GATS will depend on the details of any specific prescription drug importation that might be enacted. For example, in the event that a legislative or regulatory proposal affects the wholesale distribution of prescription drugs, the measure may be subject to a WTO challenge as inconsistent with our specific GATS commitments. GATS obligations are also subject to various general exceptions at Article XIV, including one for measures "necessary to protect human, animal, or plant life or health." General exceptions are subject to a requirement that such measures "are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services." While there does not appear to be any WTO jurisprudence on this exception to date, it would seem that the same or similar test as the GATT Article XX(b) exception would also be applicable with respect to the GATS Article XIV. It should be noted, however, that the GATS contains the phrase "like conditions" as opposed to the phrase "same conditions" found in the GATT. In the absence of any WTO jurisprudence, it remains unclear whether this change in language would have any effect on the application of the exception. In addition to raising questions about antitrust law and trade law, the issue of prescription drug imports has also prompted inquiries regarding whether or not a drug importation program would violate patent rights. In particular, a federal court case, Jazz Photo Corp. v. ITC , has raised the prospect that a drug manufacturer could, under certain circumstances, sue a drug importer for patent infringement and block U.S. imports of drugs the company sells abroad. Under patent law, the first sale of a patented product in a given market extinguishes, or "exhausts," the patent holder's rights in the product. Prior to the Jazz Photo decision, some legal commentators believed that this exhaustion doctrine extended internationally, meaning that the sale of a patented product abroad would exhaust the patent rights in the U.S. and elsewhere, thereby allowing the purchaser of the product to use, sell, or otherwise do as he pleases with the product without regard to the patent holder, unless the purchaser is contractually restricted from importing into the U.S. In Jazz Photo , however, the court, which addressed the exhaustion doctrine question only briefly, stated: "United States patent rights are not exhausted by products of foreign provenance. To invoke the protection of the first sale doctrine, the authorized first sale must have occurred under the United States patent." Under this ruling, because the U.S. patent is not exhausted by the foreign sale, the patent holder retains its patent rights. Thus, a drug manufacturer could exercise these rights to block imports of its patented drug products into the U.S. It is important to note, however, that some legal commentators have questioned the validity of the ruling in the Jazz Photo case, and bills proposed in the 109 th and 110 th Congresses would have overturned the ruling with respect to patent exhaustion for pharmaceutical imports. For further information on the subject, see CRS Report RL32400, Patents and Drug Importation , by [author name scrubbed]. The debate about importing prescription drugs continues. Although the FDA maintains that it cannot guarantee the safety or effectiveness of imported drugs, many U.S. consumers, in search of affordable prices, continue to purchase and import such drugs. As a result, legislators and interest groups have suggested a variety of changes to current law, including encouraging the development of more generic drugs; negotiating lower drug prices through bulk purchase programs; increasing prescription drug insurance coverage; lowering co-pays; allowing drug imports but restricting ports of entry; establishing state pilot programs; allowing only certain drugs to be imported; educating consumers about the dangers of imported drugs; allowing drug imports from approved Canadian pharmacies only; regulating credit card companies, search engines, and shipping companies that enable rogue online pharmacy sites to do business; increasing the number of inspections of foreign drug manufacturers; and utilizing anti-counterfeiting technologies, such as radio frequency identification technology (RFID), for shipments of prescription drugs.
|
High prescription drug prices have increased consumer interest in purchasing less costly medications abroad. Policymakers opposed to allowing prescription drugs to be imported from foreign countries argue that the Food and Drug Administration (FDA) cannot guarantee the safety or effectiveness of such drugs. Importation proponents, who claim that importation would result in significantly lower prices for U.S. consumers, say that safety concerns are overblown and would recede if additional precautions were implemented. The importation debate continues. In response to concerns about prescription drug imports, lawmakers have introduced multiple bills in this and previous Congresses. Bills introduced in the 110th Congress include H.R. 194, H.R. 380, H.R. 1218, H.R. 2638, H.R. 2900, H.R. 3161, H.R. 3580, S. 242, S. 251, S. 554, and S. 1082. In recent years, appropriations bills have contained restrictions on the use of funds by Customs and Border Protection (CBP) to prevent certain individuals from importing Canadian prescription drugs; however, such provisions appear to have limited effect. The following federal and state agencies are involved in regulating aspects of prescription drug importation: FDA, CBP, the Drug Enforcement Agency (DEA), state boards of pharmacy, and state medical boards. This report, originally written by [author name scrubbed], Legislative Attorney, CRS, focuses on legal aspects of prescription drug importation, including antitrust law, international trade law, and patent law issues. However, policy issues are also addressed because they are closely linked. For a more complete analysis of policy issues, see CRS Report RL32511, Importing Prescription Drugs: Objectives, Options, and Outlook, by [author name scrubbed]. For more information regarding Internet pharmacies, see CRS Report RS21711, Legal Issues Related to Prescription Drug Sales on the Internet, by [author name scrubbed].
|
This report briefly summarizes the history of FutureGen, discusses why it has gained interest and support from some Members of Congress and the Administration while remaining in initial stages of development, and offers some policy considerations on barriers that challenge its further development as a model for a CCS program. A timeline history of FutureGen is found at the end of this report. FutureGen is a clean-coal technology program managed through a public-private partnership between the U.S. Department of Energy (DOE) and the FutureGen 2.0 Industrial Alliance. The FutureGen program as originally conceived in 2003 by the George W. Bush Administration had the intent of constructing a net zero-emission fossil-fueled power plant with carbon capture and sequestration (CCS) technology. CCS is a process envisioned to capture carbon dioxide (CO 2 )—a greenhouse gas associated with climate change—emitted from burning fossil fuels and store it in deep underground geologic formations, thus preventing its release into the atmosphere. If widely deployed in the United States, CCS could decrease the amount of U.S.-emitted CO 2 . In 2008, DOE withdrew from the FutureGen partnership, citing rising costs of construction as its reason. Subsequently, DOE restructured the FutureGen program to instead develop two or three demonstration projects at different power plants around the country. In 2010, the Obama administration announced another change to the program with the introduction of FutureGen 2.0, which would retrofit an existing fossil fuel power plant in Illinois with CCS technology. The FutureGen project was originally conceived as a cost-share between the federal government, which would cover 76% of the cost, and the private sector, which would provide the remaining 24%. Between FY2004 and FY2008, Congress appropriated $174 million to the original FutureGen project. DOE obligated $44 million and expended $42 million between FY2005 and FY2010 toward the original project. Under the Obama Administration, Congress appropriated almost $1 billion in the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ) for FutureGen 2.0. Furthermore, DOE has obligated nearly $60 million but has expended $2 million from regular appropriations to FutureGen 2.0 since FY2010. Together with the approximately $74 million expended on the project from ARRA funding (discussed below), total expenditures for FutureGen since its conception were between $110 and $120 million as of early 2014. The FutureGen Industrial Alliance estimated the total cost of the FutureGen 2.0 program to be nearly $1.3 billion, with $730 million used toward retrofitting and repowering Ameren Corporation's power plant in Meredosia, Illinois, and $550 million used for the construction of a CO 2 pipeline, storage site, and training and research center. In 2011, they estimated that the project would create approximately 1,000 construction jobs and another 1,000 jobs for suppliers across the state. A 2013 report from the University of Illinois predicted that the project could create an average of 620 permanent jobs for 20 years and approximately $12 billion of business volume by 2037 for the state of Illinois. Current scientific research associates an increase in atmospheric GHGs (in particular CO 2 , methane, and nitrous oxides), which trap heat in the earth's atmosphere, with the potential for changing the Earth's climate. The increase in the atmospheric concentration of CO 2 in the 20 th and 21 st centuries is due almost entirely to human activities. If successful, FutureGen 2.0 would demonstrate a technology that, if widely deployed, could capture a significant fraction of U.S. CO 2 emissions for geologic sequestration. DOE's Office of Fossil Energy directs three major CCS programs: the Clean Coal Power Initiative (CCPI), Industrial Carbon Capture and Storage (ICCS), and FutureGen 2.0. Through its CCPI program, DOE partners with industry leaders in a cost-share arrangement to develop new CCS technologies for power plant utilities in order to reduce greenhouse gas emissions by boosting plant efficiencies and capturing CO 2 . Of the six projects selected under the most recent funding for CCPI (Round 3), three have withdrawn, citing concerns over costs and regulations. DOE's share for the three active projects is $1.0 billion of a total $6.1 billion, approximately 17%. DOE is also partnering with industry for 31 projects in the ICCS program, which supports R&D in a non-utility large-scale industrial CCS program and a program to support beneficial CO 2 use. The combined total DOE share for all the ICCS projects is $1.422 billion of a total $2.0 billion, approximately 70%. FutureGen 2.0 is DOE's most comprehensive CCS demonstration project, combining all three aspects of CCS technology: capturing and separating CO 2 from other gases, compressing and transporting CO 2 to the sequestration site, and injecting CO 2 in geologic formations. In October 2010, FutureGen 2.0 developers began working on Phase 1 of the project with the Pre-Front End Engineering Design (Pre-FEED) report, which included plant design, estimated project cost, and basis for applying for National Environmental Policy Act (NEPA) review and other state and local permits. The report showed that the estimated price for FutureGen 2.0 had increased from $1.3 billion to $1.65 billion. Subsequently, cost reduction measures were identified and implemented, including establishing the plant gross output at 168 MW (the steam turbine is nominally rated at 200 MW), and using a combination of 60% Illinois coal and 40% Powder River Basin (PRB) coal to reduce sulfur and chlorine emissions. Also, in late 2011 Ameren announced it was closing its power plant in Meredosia, Illinois, and discontinuing its cooperative agreement with DOE. Following that announcement, the project was redesigned to reflect that the Alliance would take control of the capture process as well as the transportation and storage site. The Alliance is currently negotiating the purchase of parts of the Meredosia Energy Center from Ameren to continue with project development. Figure 1 shows the location of the town of Meredosia, Illinois, the proposed pipeline route, and the proposed carbon sequestration site where the captured CO 2 would be injected underground and stored. Throughout the summer and fall of 2012, the project continued to confront rising cost estimates, as well as challenges in negotiating a long-term power purchasing agreement with the state of Illinois. However, the project has achieved several milestones since 2012 that could favor its future progress. In late December 2012, the Illinois Commerce Commission voted 3-2 to approve a power procurement plan for the state that requires utilities to purchase all the electricity generated by the FutureGen 2.0 facility for 20 years. That decision cleared a major hurdle for FutureGen 2.0, and the decision allows Commonwealth Edison and Ameren Illinois to collect costs for the project from the state's alternative retail electric suppliers. Opposition to the power procurement proposal stemmed primarily from those opposed to its potential to raise costs for retail customers. In February 2013, DOE approved the start of Phase 2 of the project, which includes final permitting and design activities that precede a decision to begin construction. The project faced delays while it was being redesigned following the release of the Pre-FEED report; however, the FEED activities resulted in a 70%-90% design completion for the project, which is better than the industry standard of about 25%, according to the FutureGen 2.0 Industrial Alliance. On October 25, 2013, DOE issued the final environmental impact statement (EIS) for FutureGen 2.0. The proposed action in the EIS is for DOE to provide funding of approximately $1 billion to the FutureGen 2.0 Industrial Alliance to support the completion of Phase 2—preliminary and final design for the project—followed by construction and commissioning (Phase 3) and operations (Phase 4). On November 30, 2013, EPA published a notice of availability in the Federal Register , and on January 16, 2014, DOE issued a favorable record of decision (ROD), as part of the NEPA process. Issuance of the ROD clears the last hurdle in the NEPA process, and reportedly allows the FutureGen 2.0 Industrial Alliance to move forward pending approval of a permit to install the CO 2 injection wells and meeting financial requirements." After more than 10 years and two restructuring efforts since FutureGen's inception, the project is still in its early development stages. Although the FutureGen 2.0 Industrial Alliance completed drilling a characterization well at the storage site in Morgan County, IL, and installed a service rig over the well for further geologic analysis, issues with the power plant itself have not yet been resolved. Among the remaining challenges are securing private sector funding to meet increasing costs, purchasing the Meredosia power plant from Ameren, obtaining permission from the DOE to retrofit the plant, performing the retrofit, and then meeting the goal of 90% capture of CO 2 . In addition, the Alliance is awaiting approval for a Class VI well permit for the injection and sequestration wells. Increasing projected costs have posed significant problems for FutureGen's development since 2003. Confronted with increasing projected costs in 2008, DOE under the George W. Bush Administration first restructured FutureGen, then postponed the program when cost projections rose from $950 million to $1.8 billion. When Secretary of Energy Steven Chu announced the new FutureGen 2.0 in 2010, the cost was estimated at $1.3 billion, with the DOE covering 80% of costs and industry partners contributing the remaining 20% of the total. Initially, FutureGen 2.0 was to be implemented through two separate cooperative agreements, with approximately $590 million of ARRA funds allocated to Ameren Corporation to retrofit a power plant and approximately $459 million of ARRA funds to the FutureGen 2.0 Industrial Alliance to implement a pipeline and regional CO 2 storage reservoir project. According to the FutureGen 2.0 Industrial Alliance, total capital costs for the FutureGen 2.0 project are estimated to be $1.65 billion. The Alliance is expected to cover the additional cost beyond the original cost estimate for FutureGen 2.0. Rising costs of construction may continue to be a challenge to the project's development. Some projections for FutureGen predict construction on the power plant, pipeline, and storage facility will conclude by 2017. A looming question is whether the FutureGen 2.0 Alliance will have sufficient time to expend the nearly $995 million of ARRA funding appropriated by Congress for the project before it expires on September 30, 2015. As of October 2013, the FutureGen 2.0 Alliance has expended about $73.97 million, or about 7.4%, of the total $994,729,000 appropriated under ARRA. Once construction begins, the rate of spending will undoubtedly increase. Now that the DOE ROD has been issued, it is likely that construction will begin sometime in spring or early summer of 2014. But even if construction began as early as March 2014, the project would need to spend approximately $921 million over 19 months, or about $48 million per month until the end of September 2015 to exhaust all the ARRA funding. According to the investigatory work of one industry observer, using documents obtained from DOE under a Freedom of Information Act request, DOE would grant the Alliance the flexibility to accelerate the cost-share and expend the ARRA-provided funding to cover capital costs before using private funds from the Alliance to cover its portion of the cost-share. According to the report, DOE would require an increased level of oversight over the project to safeguard the public investment in the project. Further, DOE would have the ability to suspend or terminate funding if the project failed to demonstrate sufficient progress. The partnership between the federal government and the private sector in funding and developing FutureGen has been marked by a series of setbacks and challenges. Some critics of the public-private partnership attribute the project's decade-long stasis to a lack of incentives for industry leaders to invest seriously in clean coal technologies. A report released by the Massachusetts Institute of Technology in 2007 stated that government investment and leadership in carbon capture technologies are necessary: "Given the technical uncertainty and the current absence of a carbon charge, there is no economic incentive for private firms to undertake such projects." Since the MIT report was published, Congress has appropriated nearly $7 billion in CCS research and development (R&D), including FutureGen; however, Congress has not enacted any form of a "carbon charge," through either a cap-and-trade system or a carbon tax. Ameren Corporation, which partnered with DOE to retrofit its power plant in Meredosia, IL, for FutureGen 2.0, discontinued operations at the Meredosia Energy Center where the plant is located, stating that it would not be able to afford the costs to comply with air pollution rules issued in July 2011 by the EPA to reduce sulfur dioxide and nitrogen oxide. In addition to the FutureGen project, DOE partnered with industry for six other commercial-scale CCS projects through its Clean Coal Power Initiative (CCPI) program. The 2010 DOE Strategic Plan report predicted that at least five of DOE's major CCS projects would become operational by 2016. Since the report was released, three of the six industry partners of CCPI projects have pulled out of agreements with DOE. The departure of several industry leaders from contracts with DOE demonstrates the volatility of the public-private partnership model. On September 20, 2013, the U.S. Environmental Protection Agency (EPA) re-proposed a standard that would limit emissions of carbon dioxide (CO 2 ) from new fossil-fueled power plants. As re-proposed, the rule would limit emissions to no more than 1,100 pounds per megawatt-hour of production from new coal-fired power plants and between 1,000 and 1,100 pounds per megawatt-hour (depending on size of the plant) for new natural gas-fired plants. EPA proposed the standard under Section 111 of the Clean Air Act. According to EPA, new natural gas-fired stationary power plants should be able to meet the proposed standard without additional cost and the need for add-on control technology. However, new coal-fired plants would be able to meet the standard only by installing carbon capture and sequestration (CCS) technology to capture about 40% of the CO 2 they typically produce. The proposed standard allows for a seven-year compliance period for coal-fired plants but would demand a more stringent standard for those plants that limits CO 2 emissions to an average of 1,000-1,050 pounds per megawatt-hour. On January 8, 2014, EPA published the re-proposed rule in the Federal Register . Publishing in the Federal Register triggers the start of a 60-day public comment period: comments will be accepted until March 10, 2014. The initial 2012 proposal generated more than 2.5 million comments, which prompted, in part, the September 20, 2013, re-proposal. Promulgation of the final rule could be expected sometime after the public comment period ends and EPA evaluates the comments. The re-proposed rule would address only new power plants. However, Section 111 of the Clean Air Act requires that EPA develop standards for greenhouse gas emissions for existing plants whenever it promulgates standards for new power plants. In his June 25, 2013, memorandum, President Obama directed the EPA to issue proposed standards for existing plants by June 1, 2014, and to issue final rules a year later. Given the pending EPA rule, congressional interest in the future of coal as a domestic energy source appears directly linked to the future of CCS. The history of CCS research, development, and deployment (RD&D) at DOE and the pathway of its signature program—FutureGen—invite questions about whether DOE-funded RD&D will enable widespread deployment of CCS in the United States within the next decade. When EPA first proposed a new rule regulating GHG emissions from power plants that would likely require CCS, Congress considered legislation to block the new regulations. For example, the Subcommittee on Energy and Power of the House Science, Space, and Technology Committee held a hearing on June 19, 2012, where opponents of the new rule, including FutureGen Alliance Chairman Steven E. Winberg, criticized the regulations: "In effect, EPA's rule will eliminate any new coal for years to come because EPA is requiring new coal-fueled power plants to meet a natural gas equivalent CO 2 standard, before CCS technology is commercially available." Following the September 20, 2013, re-proposal of the rule, the debate has been mixed as to whether the rule would spur development and deployment of CCS for new coal-fired power plants or have the opposite effect. Multiple analyses indicate that there will be retirements of U.S. coal-fired capacity; however, virtually all analyses agree that coal will continue to play a substantial role in electricity generation for decades. How many retirements would take place and the role of EPA regulations in causing them are matters of dispute. Since the September 2013 re-proposal, the argument over the rule has focused, in part, on whether CCS is the best system of emissions reduction (BSER) for coal plants and whether it has been "adequately demonstrated" as such, as required under the Clean Air Act. In its re-proposed rule, EPA cites the "existence and apparent ongoing viability" of several ongoing CCS demonstration projects as examples that justify a separate determination of BSER for coal-fired plants and integrated gasification combined-cycle plants. (The second BSER determination is for gas-fired power plants.) The EPA noted that these projects had reached advanced stages of construction and development, "which suggests that proposing a separate standard for coal-fired units is appropriate." FutureGen 2.0 was not included as one of the projects used to justify the proposed rule, despite its 10-year long history and more than $1 billion in committed federal support. Its omission from the EPA re-proposed rule further reinforces FutureGen's status as a CCS project in the early stages of development. The huge increase in the U.S. domestic supply of natural gas, due largely to the exploitation of unconventional shale gas reservoirs through the use of hydraulic fracturing, has also led to a shift to natural gas for electricity production. The shift appears to be largely due to the cheaper and increasingly abundant fuel—natural gas—compared to coal for electricity production. The EPA re-proposed rule, discussed above, noted that "power companies often choose the lowest cost form of generation when determining what type of new generation to build. Based on [Energy Information Administration] modeling and utility [Integrated Resource Plans], there appears to be a general acceptance that the lowest cost form of new power generation is [natural gas combined-cycle]." Cheap gas, due to the rapid increase in the domestic natural gas supply as an alternative to coal, in combination with regulations that curtail CO 2 emissions, may lead electricity producers to invest in natural gas-fired plants, which emit approximately half the amount of CO 2 per unit of electricity produced compared to coal-fired plants. Regulations and abundant cheap gas may raise questions about the rationale for CCS demonstration projects like FutureGen. Alternatively, and despite increasingly abundant domestic natural gas supplies, EPA regulations could provide the necessary incentives for the industry to accelerate CCS development and deployment for coal-fired power plants. As part of its re-proposed ruling, EPA cites technology as one of four factors that it considers in making a BSER determination. Specifically, EPA stated that it "considers whether the system promotes the implementation and further development of technology," in this case referring to CCS technology. It appears that EPA asserts that its rule would likely promote CCS development and deployment rather than hinder it. Those arguing against the re-proposed rule do so on the basis that CCS technology has not been adequately demonstrated, and that it violates provisions in P.L. 109-58 , the Energy Policy Act of 2005, that prohibit EPA from setting a performance standard based on the use of technology from certain DOE-funded projects, such as the three projects cited in the EPA re-proposal, among other reasons. On January 9, 2014, Representative Whitfield and 62 cosponsors introduced H.R. 3826 , the Electricity Security and Affordability Act, which would essentially impose a number of requirements to be met before EPA could issue greenhouse gas emission regulations under Section 111 of the Clean Air Act, such as the EPA re-proposed rule discussed above. On January 14, 2014, the Energy and Power subcommittee, House Energy and Commerce committee, voted to report the bill. Much of the discussion during the bill's markup centered on whether CCS was an adequately demonstrated technology to meet the requirements of the Clean Air Act. Congressional consideration of CCS has focused on balancing competing national interests, such as fostering low-cost domestic sources of energy like coal versus reducing greenhouse gas (GHG) emissions in the atmosphere. Legislative proposals during the 109 th and 110 th Congresses focused on advancing carbon capture technologies that reduce CO 2 emissions to mitigate GHG-induced global warming. Congress began appropriating funds specifically for FutureGen beginning in 2005. Previously, DOE had allocated funds under its Clean Coal Power Initiative (CCPI) program. With the American Recovery and Reinvestment Act of 2009, Congress appropriated approximately $1 billion for the FutureGen 2.0 project. The revival of FutureGen under the Obama Administration as FutureGen 2.0 has sparked increased scrutiny of the future of integrated CCS technology on a commercially viable scale. FutureGen was originally proposed to demonstrate the feasibility of using CCS technology to mitigate CO 2 emissions into the atmosphere. Among the challenges that continue to influence the development of FutureGen 2.0 are rising costs of construction, ongoing issues with project development, lack of incentives for investment from the private sector, and time constraints on project development. Despite congressional and Obama Administration commitments to the FutureGen 2.0 project, particularly the $1.0 billion appropriation from ARRA, questions remain as to whether or not FutureGen 2.0 will succeed. The Congressional Budget Office (CBO) published a report in June 2012 stating that the success of CCS technology depends on reducing technical costs, ensuring the effectiveness of CCS, and adopting policies that provide incentives for industry to pursue the high-cost demonstration technologies. The report explained that if regulations, tax credits, or policies such as carbon taxation or cap-and-trade that increase the price of electricity from conventional power plants are adopted, then CCS technology may become competitive enough for private sector investment. Even then, industry may choose to forgo coal-fueled plants for natural gas or other sources that emit less CO 2 compared to coal, according to CBO. The timeline that follows shows a chronology of the history of FutureGen since 2003.
|
More than a decade after the George W. Bush Administration announced its signature clean coal power initiative—FutureGen—the program is still in early development. Since its inception in 2003, FutureGen has undergone changes in scope and design. As initially conceived, FutureGen would have been the world's first coal-fired power plant to integrate carbon capture and sequestration (CCS) with integrated gasification combined cycle (IGCC) technologies. FutureGen would have captured and stored carbon dioxide (CO2) emissions from coal combustion in deep underground saline formations and produced hydrogen for electricity generation and fuel cell research. Increasing costs of development, among other considerations, caused the Bush Administration to discontinue the project in 2008. In 2010, under the Obama Administration, the project was restructured as FutureGen 2.0: a coal-fired power plant that would integrate oxy-combustion technology to capture CO2. FutureGen 2.0 is the U.S. Department of Energy's (DOE) most comprehensive CCS demonstration project, combining all three aspects of CCS technology: capturing and separating CO2 from other gases, compressing and transporting CO2 to the sequestration site, and injecting CO2 in geologic formations for permanent storage. Congressional interest in CCS technology centers on balancing the competing national interests of fostering low-cost, domestic sources of energy like coal against mitigating the effects of CO2 emissions in the atmosphere. FutureGen 2.0 would address these interests by demonstrating CCS technology as commercially viable. Among the challenges to the development of FutureGen 2.0 are rising costs of production, ongoing issues with project development, lack of incentives for investment from the private sector, and time constraints. Further, FutureGen's development would need to include securing private sector funding to meet increasing costs, purchasing the power plant for the project, obtaining permission from DOE to retrofit the plant, performing the retrofit, and then meeting the goal of 90% capture of CO2. The FutureGen project was conceived as a public-private partnership between industry and DOE with agreements for cost-share and cooperation on development, demonstration, and deployment of CCS technology. The public-private partnership has been criticized for leading to setbacks in FutureGen's development, since the private sector lacks incentives to invest in costly CCS technology. Regulations, tax credits, or policies such as carbon taxation or cap-and-trade that increase the price of electricity from conventional power plants may be necessary to make CCS technology competitive enough for private sector investment. Even then, industry may choose to forgo coal-fired plants for other sources of energy that emit less CO2, such as natural gas. However, Congress signaled its support for FutureGen 2.0 via the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5) by appropriating almost $1 billion for the project. ARRA funding will expire on September 30, 2015, and it remains a question whether the project will expend all of its federal funding before that deadline. A proposed rule by the Environmental Protection Agency (EPA) to limit CO2 emissions from new fossil-fuel power plants may provide some incentive for industry to invest in CCS technology. The debate has been mixed as to whether the rule would spur development and deployment of CCS for new coal-fired power plants or have the opposite effect. Multiple analyses indicate that there will be retirements of U.S. coal-fired capacity; however, virtually all analyses agree that coal will continue to play a substantial role in electricity generation for decades. The rapid increase in the domestic natural gas supply as an alternative to coal, in combination with regulations that curtail CO2 emissions, may lead electricity producers to invest in natural gas-fired plants, which emit approximately half the amount of CO2 per unit of electricity produced compared to coal-fired plants.
|
To be legally obscene, and therefore unprotected by the First Amendment, pornography must, at a minimum, "depict or describe patently offensive 'hard core' sexual conduct." The Supreme Court has created the three-part Miller test to determine whether a work is obscene. The Miller test asks (a) whether the "average person applying contemporary community standards" would find that the work, taken as a whole, appeals to the prurient interest; (b) whether the work depicts or describes, in a patently offensive way, sexual conduct specifically defined by the applicable state law; and (c) whether the work, taken as a whole, lacks serious literary, artistic, political, or scientific value. In Pope v. Illinois , the Supreme Court clarified that "the first and second prongs of the Miller test—appeal to prurient interest and patent offensiveness—are issues of fact for the jury to determine applying contemporary community standards." However, as for the third prong, "[t]he proper inquiry is not whether an ordinary member of any given community would find serious literary, artistic, political, or scientific value in allegedly obscene material, but whether a reasonable person would find such value in the material, taken as a whole." In Brockett v. Spokane Arcades , the Supreme Court held that material is not obscene if it "provoke[s] only normal, healthy sexual desires." To be obscene it must appeal to "a shameful or morbid interest in nudity, sex, or excretion." The Communications Decency Act of 1996 ( P.L. 104 - 104 , § 507) expanded the law prohibiting interstate commerce in obscenity (18 U.S.C. §§ 1462, 1465) to apply to the use of an "interactive computer service" for that purpose. It defined "interactive computer service" to include "a service or system that provides access to the Internet." 47 U.S.C. § 230(e)(2). These provisions were not affected by the Supreme Court's decision in Reno v. ACLU declaring unconstitutional two provisions of the CDA that would have restricted indecency on the Internet. In Reno , the Court noted, in dictum, that "the 'community standards' criterion as applied to the Internet means that any communication available to a nationwide audience will be judged by the standards of the community most likely to be offended by the message." This suggested that, at least with respect to material on the Internet, the Court might replace the community standards criterion, except perhaps in the case of Internet services where the defendant makes a communication available only to subscribers and can thereby restrict the communities in which he makes a posting accessible. Subsequently, however, the Court held that the use of community standards does not by itself render a statute banning "harmful to minors" material on the Internet unconstitutional. Child pornography is material "that visually depict[s] sexual conduct by children below a specified age." It is unprotected by the First Amendment even when it is not obscene (i.e., child pornography need not meet the Miller test to be banned). The reason that child pornography is unprotected is that it "is intrinsically related to the sexual abuse of children.... Indeed, there is no serious contention that the legislature was unjustified in believing that it is difficult, if not impossible, to halt the exploitation of children by pursuing only those who produce the photographs and movies." Federal law bans interstate commerce (including by computer) in child pornography (18 U.S.C. §§ 2252, 2252A), defines "child pornography" as "any visual depiction" of "sexually explicit conduct" involving a minor, and defines "sexually explicit conduct" to include not only various sex acts but also the "lascivious exhibition of the genitals or pubic area of any person." 18 U.S.C. § 2256. In 1994, Congress amended the child pornography statute to provide that "lascivious exhibition of the genitals or pubic area of any person" "is not limited to nude exhibitions or exhibitions in which the outlines of those areas were discernible through clothing." 18 U.S.C. § 2252 note. Then, in the Child Pornography Prevention Act of 1996 (CPPA), Congress enacted a definition of "child pornography" that included visual depictions that appear to be of a minor, even if no minor was actually used. 18 U.S.C. § 2256(8). The statute thus banned visual depictions using adult actors who appear to be minors, as well as computer graphics and drawings or paintings done without any models. In Ashcroft v. Free Speech Coalition , the Supreme Court declared the CPPA unconstitutional to the extent that it prohibited pictures that were not produced with actual minors. Child pornography, to be unprotected by the First Amendment, must either be obscene or depict actual children engaged in sexual activity (including "lascivious" poses), or actual children whose images have been "morphed" to make it appear that the children are engaged in sexual activity. The Court observed in Ashcroft that statutes that prohibit child pornography that use real children are constitutional because they target "[t]he production of the work, not the content." The CPPA, by contrast, targeted the content, not the means of production. The government's rationales for the CPPA included that "[p]edophiles might use the materials to encourage children to participate in sexual activity" and might "whet their own sexual appetites" with it, "thereby increasing ... the sexual abuse and exploitation of actual children." The Court found these rationales inadequate because the government "cannot constitutionally premise legislation on the desirability of controlling a person's private thoughts" and "may not prohibit speech because it increases the chance an unlawful act will be committed 'at some indefinite future time.'" The government also argued that the existence of "virtual" child pornography "can make it harder to prosecute pornographers who do use real minors," because, "[a]s imaging technology improves ... it becomes more difficult to prove that a particular picture was produced using actual children." This rationale, the Court found, "turns the First Amendment upside down. The Government may not suppress lawful speech as a means to suppress unlawful speech." In response to Ashcroft , Congress enacted Title V of the PROTECT Act, P.L. 108 - 21 (2003), which prohibits any "digital image, computer image, or computer-generated image that is, or is indistinguishable from, that of a minor engaging in sexually explicit conduct." It also prohibits "a visual depiction of any kind, including a drawing, cartoon, sculpture, or painting, that ... depicts a minor engaging in sexually explicit conduct," and is obscene or lacks serious literary, artistic, political, or scientific value. It also makes it a crime to advertise, promote, present, distribute, or solicit any material in a manner that reflects the belief, or that is intended to cause another to believe, that the material is child pornography that is obscene or that depicts an actual minor. The Adam Walsh Child Protection and Safety Act of 2006 ( P.L. 109 - 248 ) amended 18 U.S.C. § 2257, which requires by producers of material that depicts actual sexually explicit conduct to keep records of every performers' name and date of birth; it also enacted 18 U.S.C. § 2257A, which requires essentially the same thing with respect to simulated sexual conduct. The Effective Child Pornography Prosecution Act of 2007 ( P.L. 110 - 358 , Title I) and the Enhancing the Effective Prosecution of Child Pornography Act of 2007 ( P.L. 110 - 358 , Title II) expanded existing law by, among other things, making it applicable to intrastate child pornography violations that affect interstate or foreign commerce. P.L. 110 - 358 was signed into law on October 8, 2008. The Federal Communications Commission defines "indecent" material as material that "describe[s] or depict[s] sexual or excretory organs or activities" in terms "patently offensive as measured by contemporary community standards for the broadcast media." Indecent material is protected by the First Amendment unless it constitutes obscenity or child pornography. Except on broadcast radio and television, indecent material that is protected by the First Amendment may be restricted by the government only "to promote a compelling interest" and only by "the least restrictive means to further the articulated interest." The Supreme Court has "recognized that there is a compelling interest in protecting the physical and psychological well-being of minors. This interest extends to shielding minors from the influence of literature that is not obscene by adult standards." There are federal statutes in effect that limit, but do not ban, indecent material transmitted via telephone, broadcast media, and cable television. There are also many state statutes that ban the distribution to minors of material that is "harmful to minors." Material that is "harmful to minors" under these statutes tends to be defined more narrowly than material that is "indecent," in that material that is "harmful to minors" is generally limited to material of a sexual nature that has no serious value for minors. The Supreme Court has upheld New York's "harmful to minors" statute. In 1997, the Supreme Court declared unconstitutional two provisions of the Communications Decency Act of 1996 that would have prohibited indecent communications, by telephone, fax, or e-mail, to minors, and would have prohibited use of an "interactive computer service" to display indecent material "in a manner available to a person under 18 years of age." This latter prohibition would have banned indecency from public (i.e., non-subscription) websites. The CDA was succeeded by the Child Online Protection Act (COPA), P.L. 105 - 277 (1998), which differs from the CDA in two main respects: (1) it prohibits communication to minors only of "material that is harmful to minors," rather than material that is indecent, and (2) it applies only to communications for commercial purposes on publicly accessible websites. "Material that is harmful to minors" is defined as material that (A) is prurient, as determined by community standards, (B) "depicts, describes, or represents, in a manner patently offensive with respect to minors," sexual acts or a lewd exhibition of the genitals or post-pubescent female breast, and (C) "lacks serious literary, artistic, political, or scientific value for minors." COPA never took effect because, in 2007, a federal district court found it unconstitutional and issued a permanent injunction against its enforcement; in 2008, the U.S. Court of Appeals affirmed, finding that COPA "does not employ the least restrictive alternative to advance the Government's compelling interest" and is also vague and overbroad. In 2009, the Supreme Court declined to review the case. In 2003, at the Golden Globe Awards, the singer Bono, in response to winning an award, said, "this is really, really f[***]ing brilliant." The FCC found the word to be indecent, even when used as a modifier, because, "given the core meaning of the 'F-Word,' any use of that word or a variation, in any context, inherently has a sexual connotation." The question arises whether this ruling is consistent with the First Amendment, in light of the fact that the Supreme Court has left open the question whether broadcasting an occasional expletive would justify a sanction. In 2006, the FCC took action against four other television broadcasts that contained fleeting expletives, but on June 4, 2007, the U.S. Court of Appeals for the Second Circuit found "that the FCC's new policy regarding 'fleeting expletives' is arbitrary and capricious under the Administrative Procedure Act." The Supreme Court, however, reversed, finding that the FCC's explanation of its decision was adequate; it left open the question whether censorship of fleeting expletives violates the First Amendment. In 2008, the U.S. Court of Appeals for the Third Circuit overturned the FCC's fine against CBS broadcasting station affiliates for broadcasting Janet Jackson's exposure of her breast for nine-sixteenths of a second during a SuperBowl halftime show. The court found that the FCC had acted arbitrarily and capriciously in finding the incident indecent; the court did not address the First Amendment question. The Supreme Court, later, vacated and remanded the Third Circuit's decision in light of its ruling in Fox Television Stations, Inc. v. FCC , discussed above. CIPA restricts access to obscenity, child pornography, and material that is "harmful to minors," and so is discussed here separately. CIPA amended three federal statutes to provide that a school or library may not use funds it receives under these statutes to purchase computers used to access the Internet, or to pay the direct costs of accessing the Internet, and may not receive universal service discounts, unless the school or library enforces a policy to block or filter minors' Internet access to images that are obscene, child pornography, or harmful to minors; and enforces a policy to block or filter adults' Internet access to visual depictions that are obscene or child pornography. It provides, however, that filters may be disabled "for bona fide research or other lawful purposes." In 2003, the Supreme Court held CIPA constitutional. A plurality opinion acknowledged "the tendency of filtering software to 'overblock'—that is, to erroneously block access to constitutionally protected speech that falls outside the categories that software users intend to block." It found, however, that, "[a]ssuming that such erroneous blocking presents constitutional difficulties, any such concerns are dispelled by the ease with which patrons may have the filtering software disabled." The plurality also found that CIPA does not deny a benefit to libraries that do not agree to use filters; rather, the statute "simply insist[s] that public funds be spent for the purposes for which they were authorized."
|
The First Amendment provides that "Congress shall make no law ... abridging the freedom of speech, or of the press." The First Amendment applies to pornography, in general. Pornography, here, is used to refer to any words or pictures of a sexual nature. There are two types of pornography to which the First Amendment does not apply, however. They are obscenity and child pornography. Because these are not protected by the First Amendment, they may be, and have been, made illegal. Pornography and "indecent" material that are protected by the First Amendment may nevertheless be restricted in order to limit minors' access to them.
|
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.